Sunil Kanoria, 53, vice-chairman ofSrei Infrastructure Finance Ltd
(SIFL), has successfully lost weight over the last two years. Kanoria says he had gained much of it when he led the industry body, Assocham, three years ago. The weight loss mantra was simple: give up wheat and rice, and eat coarse cereals like ragi and jowar. The diet did the trick for Kanoria, who works out regularly.
SIFL, the Kolkata-based infrastructure-focused non-banking financial company (NBFC) founded by the Kanoria family, is also on a diet of sorts. It is trying to re-shape its Rs 50,000 crore asset book (total loans advanced) and is avoiding any further infrastructure project financing.
The year 2018 was a nightmare for the SIFL stock. Its market capitalisation dropped by almost 66%. SIFL also had to drop plans for an initial public offering of its subsidiary, Srei Equipment Finance Ltd.
“When you hit a bumpy stretch on the road, you have to reduce speed,” says Hemant Kanoria, chairman of SFIL and Sunil Kanoria’s elder brother. SIFL was started by Hemant, 56, and Sunil Kanoria in April 1989, branching out of a family business dominated by flour mills.
After starting with infrastructure equipment financing, the group entered equipment leasing, infrastructure financing, infrastructure development, merchant banking, broking, advisory, power distribution, real estate and hospitality and healthcare businesses. It also has a mutual funds licence. Due to the diversification, SIFL looks like a smaller version of IL&FS, the Mumbai-based core infrastructure focused NBFC that defaulted in August 2018.
When the entity owned by LIC and other financial institutions missed debt repayments, it triggering a meltdown in the NBFC sector. Going by its FY2018 consolidated revenue of Rs 5,239 crore, SIFL is around 27% of the size of IL&FS (revenue of `18,798 crore). The unraveling of IL&FS affected the stocks of NBFCs, and SIFL was not spared either — the Kolkata-based company has a large exposure (Rs 1,000 crore by some estimates) to IL&FS entities.
SIFL was alerady on a roller-coaster ride on the bourses since April 27, 2018, when its market capitalisation closed at a high of Rs 4,628 crore. It tumbled in the wake of the slide in the mid-cap stocks on the bourses. By the time IL&FS defaulted on August 31, SIFL’s market cap was already down at Rs 2,767 crore. It fell to Rs 1,821 crore by December 31, 2018. As the NBFC sector hit a fresh rough patch in 2019, SIFL market cap dropped to Rs 1,116 crore in February.
Hemant Kanoria insists that he was aware of such possibilities all along. “We were aware from the beginning that unlike IL&FS, we do not have a parent to support us in a crisis. We had to create a self-sufficient model.”
It meant strong focus on liquidity, constant vigil on asset-liability management, specialising on risk assessment and never taking a call on interest rate movements — essentially always working on floating interest rates on both assets and liabilities sides.
Hemant Kanoria says SIFL was spared the worst mostly because it used short-term borrowings such as commercial papers (CP) only for its treasury operations, and not to meet its funding needs. CPs are usually very shortterm lending instruments and have a lower interest rate. This market had crashed in the aftermath of IL&FS, and mutual funds that lent through CPs had closed the tap.
“We even called up our mutual fund lenders and offered to pay back. We actually paid back a little more than Rs 200 crore,” he says.
To be future-ready, SIFL is re-balancing its books. Its equipment finance book is now nearing double the size of the infrastructure book. By December 31, it had grown to Rs 32,000 crore from Rs 27,000 crore on December 31, 2017. The core infra-financing book stayed unchanged at Rs 18,000 crore through the period.
SIFL is separating its equipment finance business from itself through a demerger, after the IPO plans failed to unlock its value. Kanoria says that parent SIFL will focus on advisory business as well as partnering with banks — bringing its risk assessment specialisation in infrastructure into play while the banks bring in the funds. Investments, if any, will go into existing projects.
The Kanorias have put all their business shareholding under a trust called Kanoria Foundation, which is now the promoter of all the group companies. Around 80% of the foundation’s earnings are re-invested, 10% is spent for the benefit of the Kanoria family members and the rest for CSR activities. The trustees include patriarch HP Kanoria, and his two other sons — Sanjeev Kanoria (a London-based doctor) and Sujit Kanoria (who heads the real estate and hospitality businesses). From early on in its journey, SIFL has received funds from the likes of German institution DEG or World Bank arm IFC.
Hemant Kanoria says the Indian infrastructure sector will either need that kind of long-term institutional money or government expenditure in future. It is not the realm of an NBFC. Sunil Kanoria says: “Future infrastructure development will be driven by governments. We would like to come in as advisors with our experience in the sector.”
SIFL has also been nimble on its feet in cutting great deals, having made money out of a Kingfisher Airlines debt it took over from ICICI Bank or the telecom towers business it bought out from the Tatas. “Knowing when to exit is key to succeeding in this business,” adds Hemant Kanoria.