Srestha Finvest Ltd: A Strategic Shift Towards Green Finance and Sustainable financing

Stock Opportunities Untested - but worth a good look
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Overview:
Srestha Finvest Ltd. is an evolving Non-Banking Financial Company (NBFC) that has rapidly diversified its business operations, shifting focus toward the booming renewable energy and water management sectors. Historically involved in general financing and investment activities, Srestha Finvest is leveraging its NBFC Investment and Credit Company license to provide secured lending for sustainable projects.

The company is transforming itself by expanding into high-growth sectors like green technologies, as reflected in its improved financial performance, partnerships, and strategic investments.

Key Business Developments and Strategic Moves

  1. Partnership with Felix Industries:
    A pivotal moment for Srestha Finvest came in June 2024 when it signed a facility agreement with Felix Industries Ltd to fund renewable energy and water recycling projects. Under this agreement, Srestha committed to investing ₹25 crore over the next 1-2 years to support Felix Industries’ projects in clean energy, water management, and waste-to-energy solutions ​(Dalal Street Investment Journal).

This agreement allows Srestha to actively enter the fast-growing sectors of clean water access, recycling, green infrastructure, and e-waste management, setting the stage for a diversified lending portfolio focused on sustainability.
2. Launch of Srestha Greentech:
To further solidify its commitment to sustainable finance, Srestha Finvest has launched a wholly owned subsidiary, Srestha Greentech, dedicated to financing and lending for green energy and renewable technologies. This marks an important step in the company’s strategy to establish itself in emerging and eco-friendly sectors, opening opportunities to lend to companies engaged in green technologies like solar power, wind energy, and waste recycling​ (Dalal Street Investment Journal).

  1. Rights Issue for Expansion:
    In July 2024, Srestha Finvest announced a ₹48 crore rights issue to strengthen its capital base. The company offered new equity shares to existing shareholders at a face value of ₹2 per share, further expanding its equity capital from ₹66 crore to ₹116 crore ​(Zee Business). This capital infusion will fuel its expansion into higher-margin segments, especially in the renewable energy and sustainable finance domains.

  2. Strong Financial Performance:
    Srestha Finvest’s quarterly results have been remarkable, showcasing a 6,947% surge in net profit and a 1,600% increase in sales in the June 2024 quarter​ (MoneyControl). These improvements stem from enhanced operational efficiencies, higher profit margins, and a strategic shift toward high-growth lending sectors. The company reported a net profit of ₹31 crore in Q1 FY24-25, compared to a net loss in the same quarter of the previous year signalling a strong turnaround.

  3. Operating Profit and Asset Expansion:
    The company has improved its operating profit margin to 96.43% in FY24, capitalizing on better capital management and cost controls​ (Screener).

Its total assets grew to â‚ą193 crore, up from â‚ą92 crore in the previous fiscal year, out of which there was a 50 crore contribution from the equity capital segment (which now stands at 116 Crore, which potentially is a lot and may lead to a slower growth in the EPS, as the bottomline grows). The Company seems very reasonably (maybe even undervalued) at a P/B of 1.09, P/E of 4.6 and EV/EBITDA of 4.4

Opportunities for Growth

  • Renewable Energy and Water Recycling:
    With India focusing heavily on environmental sustainability, Srestha Finvest is well-positioned to tap into the rapidly growing renewable energy and clean water sectors. Its partnership with Felix Industries will open doors to projects in waste-to-energy, water recycling, and green infrastructure, aligning with government initiatives and regulatory incentives.
  • Leveraging Srestha Greentech:
    The creation of Srestha Greentech further emphasizes the company’s commitment to sustainability. This subsidiary will help capture the immense growth potential in solar, wind, and waste management sectors, where government and international funding opportunities are abundant.
  • Underserved Credit Markets:
    As an NBFC, Srestha has the advantage of catering to the growing credit needs of small and medium-sized enterprises (SMEs), especially in sectors where traditional banks have reduced lending due to stricter regulations.

Risks and Challenges

  1. Regulatory Risks:
    As an NBFC, Srestha Finvest operates under the regulatory purview of the RBI. Changes in regulations, such as increased capital adequacy requirements or stricter lending norms, could impact profitability.
  2. Credit and Market Risks:
    Expanding into new sectors like renewable energy brings inherent credit risks, especially if there are delays or failures in project execution. Rising non-performing assets (NPAs) in these sectors could negatively impact financial performance.
  3. Execution Risk in New Ventures:
    While entering the renewable energy and water sectors offers significant upside, it also carries execution risks, especially as these projects require specialized knowledge and long-term capital commitments. Any missteps in project selection or financing could strain the company’s resources.

Conclusion

Srestha Finvest Ltd. represents a compelling investment opportunity, particularly for investors looking for exposure to green finance and business turnarounds. The company’s strategic pivot toward renewable energy, water recycling, and green technologies, supported by its partnership with Felix Industries and the creation of Srestha Greentech, sets it on a high-growth trajectory. Its improving financial performance and capital raise will provide the necessary resources for expansion. However please also be remain cautious of the associated risks (particularly, execution risk in the case of a strategic shift, and the inherent regulatory risks that comes along with investing in such sectors)

Disc: Invested

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But 100% public holdings. No concall no invester presentation

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Yeah that’s true and maybe a bit concerning but there have been multiple (Infact, numerous) cases/examples where the public holding is almost 100% but the stocks have been huge multibaggers (some examples being Vantage knowledge, Harshil Agrotech, KKrrafton Developers, Bridge Securities etc. to name a few). This proves that while promoter holding is often seen as a sign of confidence in the company’s future, it’s not a decisive factor for success or stock performance.

Many companies with a broad public shareholding have thrived because their growth was fueled by solid fundamentals, clear strategic direction, and operational success. These companies often avoid concentration risk associated with promoter-led decisions, which can sometimes skew in favour of personal interest rather than shareholder value.

Also generally, from my understanding, for NBFCs, like Srestha, the dynamics of capital requirements and the nature of the business differ from traditional manufacturing or service sectors. NBFCs are capital-intensive businesses that rely heavily on external funding, whether through debt or equity, to fuel their lending operations. As a result, having lower promoter ownership may actually be a conscious decision to maintain capital liquidity and invite institutional investors for better governance (they have also raised funds very recently and in the past as well, if you go through their announcements). In the financial sector, particularly for lending-focused businesses, the trust of credit-rating agencies, institutional investors, and regulators is often more critical than promoter holding. Therefore, a well-managed NBFC with diversified funding sources, clean governance, and strategic partnerships (like Srestha’s Felix Industries partnerships for renewable energy lending) can perform just as well or better with high public ownership.

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One big tick, Srestha is out of ESM (it was under ESM until last week or so) and trading in T2T. Good step…

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I am curious about this re-appointment of Mr. Mayurdwajsinh Sahadevsinh Rana. You can find this in the latest annual report. The director is only 25 years old. Is he being appointed as director just because he is the son of the existing director?

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Thanks for bringing this up Ganesh. This does seem a bit concerning to me!
What also seems a little weird to me is that the guy started his BBA in 2014, when he was just 15!

https://www.linkedin.com/in/rana-mayurdhwajsinh-74269625b/ (For reference)

But, Mr. Mayurdwajsinh’s role as a non-executive, non-independent director means he won’t be managing day-to-day operations, he will contribute significantly to the company’s strategy, governance, and broader corporate direction, representing key interests in the boardroom. And if somehow, he finished his BBA in 2017 (as per his LinkedIn profile) then he would probably have had the time at hand for 5+ years of business experience.

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Hi Harsh,

well done on the write up and thorough research. I am also invested heavily. in this script. Another positive currently is it travels below FV and BV.

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Hi Bala, thanks. For me this happens to be my largest holding. The valuations are definitely dirt cheap which makes The risk-reward ratio very attractive for this stock.

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@BalajiBaskaran, one query though, the 200 Cr QIP/Preferential hasn’t happened yet right? Any clue when exactly are they looking to raise the funds?

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@HarshVijay not yet I believe, we might know more on Monday during AGM. Anyone that you know attending the AGM or any dial in numbers to attend ?

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Purva is their registrar, so need to get in touch with them regarding the process/link to join. I tried calling them, but I guess it being a Sunday today, no one responded.

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Can someone share the AGM notes, incase they attended? Found this short summary by someone on moneycontrol.

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Special fund raise resolutions not passed. Would be good if someone who attended the AGM is onboard. Alternatively if someone from Chennai and go to their Regd office and have a word with the management, that would give confidence to all.

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The company is trying again for fund raise and the same will be discussed in the next board meeting on 9th Oct. Let’s support them in fund raise this time.

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Board Meeting Outcome (Oct 09, 2024): Srestha Finvest Ltd. made corrections to a previous mistake and approved several business matters:

  1. Fundraising: The company will raise up to Rs. 100 crores through Qualified Institutional Placement (QIP) of equity shares.
  2. Convertible Warrants: Issuance of 93 crore Convertible Warrants at Rs. 1.05 each on a preferential basis.
  3. Borrowing Limits: Approved an increase in borrowing limits up to Rs. 500 crores.
  4. Extraordinary General Meeting: Scheduled for November 8, 2024, to discuss these approvals.
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Any idea when will be result announcement and any idea do they will maintain profits same like last quarter

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I don’t understand 2things CMP is less then QIP price then why new investor will buy at rs 1.05per share,then old investor nexus,mocktail, etc continues selling if company doing well any suggestions from any body ,

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QIP came on 9th oct then price was around 0.97rs on HIGH, QIP roundoff 1rs. Also QIP came at Rs 1 with 0.05 premium.

However to answer you -

Yes, a Qualified Institutional Placement (QIP) can sometimes be priced above the current market price, though it typically happens under specific circumstances.

Here’s a bit more detail about why that might occur:

  1. Investor Demand: If there is strong demand for the QIP from institutional investors, the company might price the shares at a premium to the current market price. This could happen when the market perceives that the company is undervalued or has strong growth potential, so institutional investors are willing to pay a higher price.
  2. Strategic Purpose: Sometimes, a company may intentionally price a QIP above the market price to signal confidence in its future prospects or to minimize dilution. If the company expects positive developments, such as a new product launch or an acquisition, it might price the QIP above the market to align with these expectations.
  3. Current Market Conditions: In a bull market or when there is an upswing in investor sentiment toward a particular sector or industry, companies may price their QIPs above the prevailing market price to take advantage of favorable conditions.

However, in most cases, a QIP is priced at a discount to the market price to make it more attractive to institutional investors and ensure the placement is successful. This discount compensates investors for the short-term market risk they are taking by buying the shares before the market reacts to the news.

Ultimately, whether a QIP is priced above or below the market price depends on factors such as the company’s financial condition, investor sentiment, and the specific details of the offering.

As for your other question, only the investors know why they are selling. However, they have only reduced their holdings, which suggests they may have found a better opportunity elsewhere. (Who knows?)