Saturday, October 24, 2020

Interaction-Devendra Kumar Vyas, CEO, SREI Equipment Finance

With 30% market share we are the country’s largest construction and mining equipment financier

Srei Equipment Finance Limited, a subsidiary of Srei Infrastructure Finance Limited, has been at the forefront of national equipment financing solutions. Its wide spectrum of customers includes First Time Users, First Time Buyers of equipment, Fleet Owners, Small Contractors and large construction companies. DEVENDRA KUMAR VYAS, CEO, SREI EQUIPMENT FINANCE responded to CONSTRUCTION OPPORTUNITIES queries on his firm’s performance.



How has 2015 been from the point of Srei Equipment Finance’s lending profile? Could you talk about your financial performance?

We have delivered a disciplined performance in an otherwise challenging macro-economic environment. Our disbursements have increased and asset quality has improved significantly.

Disbursement in Q3FY16 stood at Rs.2,639 crore. Our Q3FY16 disbursement grew by 19 per cent over Q2FY16, coming mainly from new areas including IT equipment, healthcare equipment, rural equipment and pre-owned equipment financing. The total Asset Under Management (AUM) stood at Rs.19,313 crore as on December 31, 2015 compared to Rs.18,348 crore as on March 31, 2015. Gross non-performing asset (GNPA) ratio came down to 3.92 per cent as on December 31, 2015 from 4.43 per cent as on September 30, 2015, and from 4.98 per cent as on March 31, 2015. The GNPA is lowest in the last six quarters.



What were the various innovative schemes launched by your company in respect of funding for various construction equipment and machinery to support firms and how were they received by construction houses and project developers?

Our business growth comes from the lasting relationships we build with our customers and by becoming a partner in their growth. The core of our long term relationship we have with our customers is the investment we make in the deep understanding of their business requirements and then offering a comprehensive equipment solution covering both asset selection and finance. A majority of our customers remain loyal to us owing to this USP. What truly differentiates us is our ability to provide holistic ‘Asset Solution’ rather than being just the financier. We enable our clients across the life-cycle of the asset; namely, procurement, deployment, maintenance and disposal. We offer an entire range of Equipment Rental, Asset Management, Valuation and Disposal services.

We handhold our customers across the value chain – we initiate First Time Users and First Time Buyers into becoming entrepreneurs and further nurture them into becoming fleet owners and larger business entities. Our strong relationships in the infrastructure eco-system and understanding of the market, allows us to help our customers to network and productively deploy their equipment to multiple projects. Our used equipment financing business facilitates our customers with favourable exit solutions. We leverage upon our experience-based valuation methodology, our relationship-based approach, and our in-depth understanding of customers' business model to design structured solutions for our customers. We understand that no two customers are alike and believe in offering simple solutions to complex problems. We continue to develop innovative marketing and customer origination schemes and events specifically targeted at Retail & SMEs, and institutions. For example, we organise "Paison Ki Nilami", an unique Dutch auction for interest rates, in several major states in India at regular intervals. Apart from “Paison Ki Nilami” every year we organise Khushiyon ki Baarish”, it has now become a landmark event every year during monsoon every year. Some of our other major innovative marketing schemes include “Srei Partnership Week”, Asset Power, Money Power etc.These marketing schemes and events enable us to develop long standing relationships with customers and help us to generate new business.


What are your expectations from the market in 2016? Which are the specific sectors of construction/infrastructure which you see as drivers for your business? What are the prospects from mining sector for companies such as yours?

The last 2-3 years had been difficult for the infrastructure segment. Slowdown in Infrastructure spends on account of policy logjam, high interest regime, delayed clearances, issues related to mining affected the fortunes of this industry. The by-product of the slowdown was deteriorating asset quality and rising trends of stressed assets in the sector. The rising trend of stressed assets in the last two years had impeded the growth of finance to this segment. However, various reformative actions by the government in the past two quarters, especially in the road and power segment have given the much needed impetus to the industry. There has been marked improvement in pace of project awarding and execution.

We are now seeing green shoots in the sector, though not as broad based as one would desire. Greater emphasis by the present government on infrastructure development and on ease of doing business is one the major drivers for the uptick witnessed in the segment. The biggest beneficiary so far has been the road segment. Similar positivity is visible in other infrastructure segments like mining, ports and power. The emphasis by the government on infrastructure development, especially roads and highways will have a snowballing effect on other core sectors like cement and steel. The auto segment which is a leading indicator of economic recovery also seems upbeat. The recently allocated coal blocks are likely to start production soon. The sector benefits from the Centre push to increase output at Coal India and improve production from captive coal blocks allocated to private players. The construction equipment industry too is showing distinct signs of revival. The sales of excavators have grown by almost 20 per cent in the six-month ended September 2015, compared to the same period in 2014. The sales for compactors too have grown by almost 18 per cent in the six month period ended September 2015 compared to 2014. Similar growth is visible for construction equipment like transit mixers, asphalt plants etc.Hence things now look good from the lending perspective. The government has set a target to produce 1.6 billion tons of coal by 2020. Coal India is planning to double its output to a billion tons over the next five years. Its subsidiary Western Coalfields plans to open one mine every month for the next 2 years. All this bodes well for the mining equipment sector as equipment costs account for nearly 40-45 per cent of a mining contract value.



What is your assessment of the prospects of leasing?

India is still at a nascent stage when it comes to leasing. Despite being amongst the top 10 economies, the Indian leasing volume is less than 3 per cent of global volumes. We are ranked outside the top 50 nations while our BRICS peer are all within top 20 in leasing. The penetration of leasing in the country is also low at less than 3 per cent. The leasing business in India currently suffers due to a multitude of factors including multiplicity of taxes, disparity in rates between states and lack of a comprehensive legislation.But leasing has its own benefits and companies are realising it too. For infrastructure companies, slowdown in demand in the past and sluggish project execution had affected the cash flows and the financial risk profiles. The stress is visible on their balance sheets in terms on high leverage. Leasing will act as a vital tool for asset creation as it allows the companies to use equipment without leveraging. Keeping that in mind for EXCON 2015, we had tied up with more than 20 reputed global equipment manufacturers to offer "Leasing" and "Rent to Buy" options to our customers. We also organised 'Smart Auctions' for our customers at the event which included a unique auction of rentals where we leased out select equipment to our customers at monthly rentals which were decided by bidding. Our 'Smart Auction' event also saw participation from more than 200 customers. In fact, seeing the enthusiastic response, we are making this a weekly event on an innovatively designed mobile application platform.



Tell us of your company’s plans and strategies to expand customer base through 2016?

We have a customer base of more than 40,000, of which more than 35,000 belong to the MSME segment. Our wide spectrum of customers includes First Time Users, First Time Buyers of equipment, Fleet Owners, Small Contractors and mid-to-large construction companies. With our specialised focus on the sector we have been able to provide unmatched customer service. With a large team of specialised relationship managers we are able to provide our undivided attention to all our customers. As a strategy to distribute our risk-per-customer, we have increased our presence in the Retail & SME segment which contributed to nearly 40 per cent of our CME disbursement in 2014-15, up from 34 per cent in 2013-14. Retail & SME segment is expected to contribute to 50 per cent of our CME business in coming years.

We also identified newer business and newer assets to widen our risk portfolio. We pioneered the concept used-equipment financing in the CME segment as a tool to diversify our portfolio risk. This portfolio has grown exponentially and has almost doubled every year since 2011-12. Used equipment contributed to nearly 6 per cent of the overall disbursement in H1 FY16 and we expect this segment to be a major yield maximiser going ahead.



What is your outlook for construction equipment financing?

We believe that the industry is poised for growth. The current size of the Construction and Mining Equipment Finance business is estimated to be close to Rs.18,000 crore. We are the largest construction and mining equipment financier in the country with a market share of 30 per cent. We expect the Infrastructure Equipment market to grow anywhere between 15-25 per cent in the next three years and our business to grow in line.

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