24 July 2019

Interaction- DK Vyas, CEO, SREI Equipment Finance

Demand for construction equipment is expected to multiply

Srei Equipment Finance Limited ("SEFL"), a wholly owned subsidiary of Srei Infrastructure Finance Limited ("Srei") is an industry leader in the construction, mining and allied equipment ("CME") finance space, with an approximate market share of 33% in Fiscal 2018 (Source: Feedback Report). DK VYAS, CEO, SREI EQUIPMENT FINANCE LIMITED answers to queries from CONSTRUCTION OPPORTUNITIES.

 

 

How would you describe the current period for the construction equipment sector? Also tell us of your offerings (financing options) to the industry?

India has emerged as the fastest growing major economy. With the current government’s focus on infrastructure, there has been an increased allocation of funds towards the sector. According to Feedback Consulting, CME industry has witnessed a good revival since FY 2015-16, preceded by a decline in the previous three years. CME industry which grew by upwards of 20 per cent in FY’18 (101,900 units) compared to FY’17 (83,600 units) in terms of unit sales and is expected to see heightened business activities with an estimated unit CAGR growth of 14-15 per cent for next three years until Fiscal 2021 as the government is likely to invest heavily in infrastructure sector thereby lifting business prospects in construction equipment sector.

We, at SEFL, offer innovative financing solutions to equipment purchasers under these arrangements, which we believe are relatively new to the Indian equipment financing market. We are the only financial institution that has presence across the entire asset life-cycle by providing financing to and sustaining continuous engagement with customers across equipment procurement, deployment, maintenance, second life financing, and exit stages. The equipment-centric services we provide include preferred financing schemes offered by us in conjunction with Original Equipment Manufacturers (“OEMs”), equipment deployment assistance during project downtime, spare parts financing, exchange programme financing and used equipment financing. In addition to CME, we have also diversified into financing of Tippers, IT and allied equipment, Medical and allied equipment, Farm equipment and Other assets. Apart from offering loans, we are also engaged in providing equipment on leases as and when required by our customers across our business verticals. The term of our lease agreements with customers typically range from four to eight years.

 

 

Tell us about your current portfolio in relation to construction equipment financing along with details of the business model you follow?

We are engaged in lending for the purchase of equipment as well as leasing in the CME (including Used equipment), Tippers, IT and allied equipment, Medical and allied equipment, Farm equipment and Other assets verticals. As of June 30, 2018, our total Gross Earning Assets were Rs.309,356 million of which Rs.231,137 million was attributable to CME, Rs.30,671 million to Tippers, and the remaining towards IT and allied equipment, Medical and allied equipment, Farm equipment and Other assets.

The clear market differentiator for SEFL has been its holistic approach in providing end-to-end solutions that cover the entire value chain in the equipment life cycle that includes equipment procurement, deployment, maintenance, second life financing, and exit stages. Our partnerships with OEMs are the most distinguishing aspect of our equipment-centric business model. These include various arrangements such as general associations, preferred financier associations and private label associations. Our customer-focused approach also has contributed to our success. We cater to a wide range of customers, from ‘First Time Users’ and ‘First Time Buyers” to fleet owners and mid-size contractors to large corporations and project owners. Supported by our holistic equipment financing solutions approach, our customer-focused approach has helped us retain our customers as their business has grown in size as well as expand our customer base through their referrals.

Our years of experience in the equipment financing business have provided us with deep insight into various equipment categories, diverse geographies and multiple customer segments. Our risk assessment framework and credit appraisal policies are an outcome of this experience, which we have progressively institutionalised. As we continue to diversify our customer exposures, we are scaling up our asset-centric risk approach to cover multi-dimensional risks. We increasingly manage risk by deploying technology including real time equipment location identification through GPS/ GPRS devices, use of handheld devices by field personnel, customer service through online portals, mobile applications and customised risk prognosis tools.

 

 

Tell us about the used equipment market in India and what are the growth opportunities for the segment. Also, throw some light on your offerings to the sector along with the criteria.

The market for used equipment is highly unorganised. New projects have attracted the interest of construction business owners wishing to purchase new or used equipment and who seek to be compliant with the government requirements for project tenders. According to Feedback Consulting, in Fiscal 2018, the market for organised used equipment financing is estimated to be approximately 9-10 per cent of the overall disbursements by finance companies in the CME segment. This figure does not account for cash transactions and the market catered for by private financiers (which are mostly unorganised).

 In Fiscal 2018, the current value of the organised used equipment financing accounts for roughly Rs.35-40 billion. The unorganised component or finance could account for an additional Rs.10-15 billion. The market is dominated by products such as backhoe loaders, hydraulic excavators, pick and carry cranes, accounting for more than 70 per cent of the used equipment market. Companies have also engaged in the direct import of equipment from countries such as China and Japan. However, OEMs have urged the government to regulate the import of used equipment.

Growth opportunities for the used equipment include increasing awareness among customers on the value of ‘used equipment’ to reduce capital expenditure investments, online portal which helps facilitate used equipment business, technology intervention like telematics which helps in identifying the accurate working and operation conditions of the machine and financiers can come up with operating lease products in used CME with resale valuation framework developed by industry body and with good service support from the OEM/dealer.

SEFL has been providing financing for used equipment to our Retail and SME customers. Used equipment financing is provided for a wide range of CME equipment. The tenor of the loan provided to the customers for used equipment varies between 30 to 35 months. Our customers usually provide a margin of 20 per cent to 30 per cent on used equipment financing. We create a charge on the equipment in our favour as security for the loan.

 

 

What can one expect from SEFL in terms of its plans and business strategy?

We have experienced steady growth recently. Our growth strategy primarily includes consolidating our equipment financing business through strategic business alliances and marketing initiatives, continuing to expand and diversify our product portfolio, growing our operations and network across India, and expanding our customer base across various business verticals in India.

In addition to providing construction, mining, and allied equipment (“CME”) financing, as part of our growth strategy, we intend to continue to expand our operations in other business verticals as well. We plan to enter into partnerships with new Original Equipment Manufacturers (OEMs) and vendors and expand in equipment categories and business verticals with attractive growth opportunities. We aim to strengthen our relationships with OEMs by increasing original spare part sales. This will also help in the upkeep of our funded equipment. We also plan to partner with OEMs and dealers for financing refurbished assets. We are continuously attempting to optimize borrowings and explore alternate avenues of funding. The company is open to adopting newer technologies to achieve greater operational efficiency and advanced risk management processes.

 

 

Bauma CONEXPO INDIA 2018 at Gurgoan will see hundreds of construction equipment companies – manufacturers, equipment and equipment spares distributors/suppliers, service providers etc. – participating. Tell us about your plans and expectations for business from the show? Are you offering any special schemes to encourage buyers?

bauma CONEXPO INDIA (“Bauma”), an international trade fair for construction machinery, building material machines, mining machines and construction vehicles, is the most important industry event for the sector in India with an exhibition area of 150,000 square meters. The last Bauma in December 2016 attracted 647 exhibitors from 30 countries and 32,644 participants from India and neighbouring states. Bauma is held every two years and this year being the 5th edition will take place at the Huda Grounds in Gurgaon/Delhi from December 11 to 14, 2018.

Events like Bauma serve as confluence ground for all industry participants – manufacturers, customers, financiers and regulators. It provides us a perfect platform to meet our key stakeholders and understand their needs. We are optimistic about heightened Retail and SME buying during the event and hope to generate a lot of enquiries and eventual business during and after the event.

As always Srei Equipment Finance Ltd will have a big presence at the exhibition with its stall (Stall no. O.F35) in outdoor pavilion of about 2,315 sq. ft. Our patrons can experience technological innovation in equipment financing, online gateway for purchase of both new and used equipment, audio-visual and interactive information systems, and fun and engaging activities at our stall.

With our attractive offerings and strategic tie-ups with our manufacturer partners, we hope to provide financing solutions for quite a large number of equipment. For this edition of Bauma Conexpo, we have tied up with our manufacturers’ partners to offer exciting schemes and solutions for our customers covering the entire asset life-cycle. Our offerings include:

Leasing solutions: Our rental products offer customers with the ‘Right to Use’ the equipment against periodic rentals for agreed period of time. These rental levels are significantly lower and attractive compared to vanilla loan products and are bundled with attractive terms like Free Insurance for full tenure, lower margins etc.

Customised financing solutions: Enriching the customer with better cash flows, extended facility tenure; backed by simple documentation and quick processing time.

Loyalty schemes: Loyalty schemes wherein customer can avail additional loan facility, based on past track record, as a top-up funding limit or to buy an equipment from select OEMs.

Online financing solutions: Our customers can also experience technological innovations in equipment purchase and finance through online portal partner –iQuippo through which they can not only view, decide and purchase equipment at attractive terms but also avail easy finance from different financing partners of iQuippo at one stop.

 

 

Outlook on the equipment finance industry.

The government is earnestly working towards enhancing India’s attractiveness as an investment destination. In order to sustain the growth momentum and to create jobs, the government has been proactively spending on infrastructure creation. An estimated budgetary and extra budgetary expenditure of Rs.5.97 trillion has been finalized for 2018-19 as against an estimated expenditure of Rs.4.94 trillion in 2017-18, an increase of 21 per cent. Sectors such as railways, and roads and highways, and housing and urban affairs have witnessed increased year-on-year (y-o-y) budget allocations for FY’18–‘19 by 22 per cent, 10 per cent, and 57 per cent respectively. Recently, the Indian government has approved a total investment of Rs.6,920 billion for the construction of 83,677 kms of roads in five years. These create requirement of capital goods on a large scale and increase in the number of contractors executing these projects.

Demand for infrastructure equipment is expected to multiply as a result of all these. Thus, demand for financing of such assets is also bound to rise. With GST unifying the Indian market, inter-state mobility of these assets is no longer a problem. Thus, this is the ideal time to promote cost-effective methods of utilisation of these assets like renting and leasing.

According to a report by Feedback Consulting, the construction equipment finance industry is expected to grow at a CAGR of 20-21 per cent for the next three years until Fiscal 2021. With the current announced projects which mostly have started from the third quarter of Fiscal 2018, demand will continue for the earthmoving equipment industry, which will have a share between 68-70 per cent of the overall CME finance market. Banks and NBFCs are expected to have an equal share in the CME finance industry for the next one to two years with the equipment leasing industry expected to grow at a CAGR of 15-16 per cent until Fiscal 2020.




Leave a Comment

Name  
Email Address
(will not be published)    
Website
Comment