We hope to provide financing solutions for 500 plus small and large pieces of equipment, says Devendra Kumar Vyas, CEO, Srei Equipment Finance Ltd.
What is market size for construction equipment finance in India? Which are the fast moving equipment categories for which customers are seeking finance options? What would be the approximate percentage share of SREI in this market?
Basis various industry reports, In FY16, the disbursement in the construction equipment financing (CEF) industry was Rs 243 billion, down about 5 per cent from Rs 255 billion in FY15. However, In FY17, the CEF industry is expected to have a turnaround and grow about +5 per cent (from -5 per cent in FY 16) and grow about 15 per cent in FY18.
Coming to the equipment sales, we feel that equipment sales will grow by 30-35 per cent, CAGR, over the next three years due to the progress in the roads, irrigation and contract mining sectors. Backhoe loaders and excavators have been the mainstay in the CME finance industry. They form around 60 per cent of the market by volume and 50 per cent by value. In the first half of this calendar year, backhoe loaders, excavators and compactors sales grew at more than 40 per cent. Going forward, we continue to see these equipment dominating. For CY 2017, it is expected that the backhoe loaders and excavators segment will register a growth of 25-30 per cent. One more area that we expect to grow is the tipper market in the commercial vehicles segment.
NBFCs are marginally ahead of banks when it comes to CEF disbursements. In FY16, the share of NBFCs in CEF disbursements was about 54 per cent and banks´ share was about 46 per cent. Going ahead, even with the increasing interest of banks in the CEF space, NBFCs will maintain their share. Srei enjoys a market share of about 30 per cent when taking the CEF industry as a whole. As for the assets under management of SEFL, they should double from the current Rs 20,000 crore in the next three years.
Could you provide a profile of the customers seeking finance to buy equipment? Do you assist your customers in selecting an equipment? If yes, in what manner and aspects?
Our customer base typically includes retail customers, small and medium enterprises and strategic, namely, institutional and corporate customers. The construction equipment ecosystem includes first-time users and first-time buyers of equipment who often face challenges of expensive equipment and availability of funding. We assist our clients across the lifecycle of assets from procurement, deployment, maintenance to final disposal.
We help our client in selecting the assets with right specifications, and provide customised financial solutions like asset financed via loans, leasing or on rental basis. When customers face any deployment issues, we provide a host of services like, help in fetching captive contracts and improving deployment of assets during downtime by leveraging our relationships with major infrastructure players.
We provide asset maintenance through captive stockyards to improve the residual value of the assets. Equipment refurbishment services are also available.
For asset disposal, we provide inspection, valuation, exchange programs, etc.
Do you, by any chance evaluate the products being requested to be financed by SREI? If yes, in what way?
Here I am not going to talk about our credit and risk evaluation processes which we thoroughly follow. Specific to the question, the answer is yes, we do evaluate the asset prior to financing. If it is a new standard asset, like a backhoe loader or an excavator from a renowned OEM, then we consider the invoice value as the sale price, however, we safeguard our exposure defining the maximum limit depending on our past loss experiences of a specific asset of a specific manufacturer. For non-standard equipment, we are always conservative since they have deployment or resale limitations. Additionally, while refinancing an existing asset or financing a pre-owned asset, we always depend on our internal and detailed valuations.
Do you plan to launch any Bauma-specific finance schemes to attract business from potential customers? If yes, could elaborate on the same?
Leasing - the way forward in Bauma Conexpo: There is a huge potential for equipment leasing in the country. 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 peers are all within top 20 in leasing. The penetration of leasing in the country is also low at less than 3 per cent. Worldwide, leasing has emerged as an important tool for asset creation. The US, China, Germany and the UK combined account for 60 per cent of the worldwide annual leasing volumes.
Unlike an outright purchase, leasing does not require any upfront capital outlay. The down payment requirements are often lower compared to a typical loan. Lease allows to craft out real distinctions between the benefits of ownership and the benefits of use. Slowdown in demand in the past and sluggish project execution have affected the cash flows and the financial risk profiles of many infrastructure companies. The stress is visible on their balance sheets in terms of high leverage and weak debt protection metrics. Leasing will act as a vital tool for asset creation as it allows the companies to use equipment without leveraging.
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. We believe that the upcoming GST will be simplifying the tax structures and reduce the multiplicity, thus make leasing an effective financial tool in India. For this edition of Bauma Conexpo, we plan to offer new leasing-based rental products. In these products, we intend to facilitate the customers with the ´Right to Use´ the equipment against periodic rentals for the agreed period of time. These rental levels are significantly lower and attractive compared to vanilla loan products. At the end of the period, we also facilitate the customer to renew the lease. A dedicated asset management team will assist our clients across the lifecycle of assets. Other schemes for Bauma Conexpo India: We always follow a customer-centric business model. Our customised financing solutions enriches the customer with better cash flows, extended facility tenure; backed by simple documentation and quick processing time. Inspiring these practices, we will provide some additional facilities and loyalty programs like ´Asset Power´ and ´Money Power´; wherein the customer is provided additional loan facility, based on past track record, as a top-up funding limit or to buy a particular asset from a partnering OEM. Besides, we will also offer attractive schemes on margins, interest rates, funding of extended warranties/additional features, lifetime tax etc. These offers can also be bettered by in-stall participation of ongoing flash schemes.
Additionally, for this edition of Bauma, we are partnering many globally reputed equipment manufacturers and have come up with exciting schemes for our customers at the event. Among others, we plan to organise ´Smart Auctions´ which would include reverse auction of interest rates, rental programs, margin money schemes etc. Recently, we have launched iQuippo - India´s first comprehensive digital marketplace for construction equipment and services. This initiative, as designed, will facilitate buyers and sellers to interact, negotiate and close transactions in a timely, transparent and cost-effective manner. The platform will offer total solutions for all types of construction and mining equipment and will also provide value-added services like asset certification, valuation, parking, maintenance, logistics, spare parts and manpower.
What are your expectations from Bauma Conexpo at Gurgaon?
The current year has been fruitful for the construction equipment sector. The equipment sales have been encouraging particularly in road and irrigation sectors, and have raised our expectations from this year´s event. Bauma is an important platform for the industry and forms an important part of the company´s tactical intent.
We are optimistic about heightened retail and SME buying and with our attractive offerings and strategic tie-ups with our manufacturer partners; we hope to provide financing solutions for 500 plus small and large pieces of equipment.
iQuippo will facilitate buyers and sellers to interact, negotiate and close transactions in a timely, transparent and cost-effective manner.