All bottlenecks on the project execution side, i.e., environmental, land clearances, financial closures, allocation of funds, and awarding of contracts need to be tackled on an immediate basis, or else the industry will see a major down-turn and many good operators will exit the segment, says Rakesh Chandra, Vice President and Risk Head, Shriram Equipment Finance Company. Excerpts from the interview.
To what extent has the continuing financial crisis and slowdown affected the volume of finance?
The economic slowdown has affected the construction equipment (CE) industry over an elongated period of time now and may continue for another 12-16 months.
The FY12-13 witnessed a dip of 12 per cent and the current financial year will see another 10 per cent de-growth. While there is de-growth on primary sales of equipment, there is a corresponding shrinkage in the secondary market also. Both these have affected delinquencies and credit losses of finance companies coupled with stressed top line on revenues.
How do you navigate turbulent times?
A focused product approach with the right structuring of deals is critical to ensure that the customer's cash flows are met. This is certainly not a time to oversell or promote aggressive capitalisation. Being with customers, understanding their needs and business and supporting them will ensure that both customer as well as lender will sail through this turbulent time.
Has the current depressed markets led companies like Shriram Finance to diversify into other market segments like agri and forestry equipment?
No. We have not diversified into any other business. We are currently focused on the CE segment and will continue to do so as we believe that the industry will definitely bounce back in the next 12-16 months. Our strategy to diversify would not be governed by the rise or fall of the markets but by our growth aspirations.
What has Shriram Finance's overall performance been like in 2013?
It is too early in this fiscal year to comment as just one quarter has passed by. Our performance in the April-June quarter was reasonably good with a rise in revenues and net profit by over 47 per cent in comparison with the same quarter last year. Our delinquencies continue to be under control and at 0.8 per cent of assets, which is probably the best in this segment.
What drives the demand today?
Mining has almost halted for over two years now and there is a slowdown in roads owing to various statutory/regulatory clearances that are pending. State level irrigation projects, general hiring in real estate, urban infrastructure projects, concreting are the segments that are moving and generating demand.
What is the outlook of financing in the FTU segment?
While most finance companies have tightened their exposures on the FTB/FTU segment because of rising defaults, we at Shriram treat this segment as niche and are focused on supporting small customers. Almost 65 per cent of our portfolio comprises of FTB/FTU customers and we will continue our growth story with their success.
What could revive the CE financing segment?
All bottlenecks on the project execution side i.e. environmental, land clearances, financial closures, allocation of funds, awarding of contracts needs to be tackled on an immediate basis or else the industry will see a major down-turn and many good operators will vacate the segment. Other infrastructure investments like power distribution, irrigation, pipe-laying, rural road projects, urban development and mining need to be addressed at the state level so that along with infra growth there is employment generation and increase in per capita income.
Is there a price war looming and how do you plan to strategise your business model in such a situation?
With the liquidity squeeze applied by the RBI, interest rates will increase in the market as the cost of fund of all financiers is likely to increase by 50-75 bsp shortly. However, we at Shriram are not in a price war with anyone in the industry and we operate in our own space.