“The increase in off-take has been met without much trouble. As such, there is no demand-supply gap and the market has been growing,” says Sumit Mukerjee, Vice-President, Magma Fincorp, while sharing his views with Equipment India. Excerpts from the interview.
How has the financing segment been responding to the current market? The market has been going up on an average basis of 20 per cent in the last six to eight months, and we hope to end the fiscal on a 20 per cent growth. The signs are very positive and the vibrancy is back in the market. So, the increase in off-take has been met without much trouble. As such, there is no demand-supply gap and the market has been growing.
Does the growth of the financial segments correspond to the market growth?Yes, we are able to meet the demand. I have not yet come across a situation where customers are not able to meet their requirement of financing.
When you talk about a customer, which basic segment does this customer belong to?We specifically cater to the strategic segment customers who have a turnover of over Rs 50 crore. Whereas this segment constitutes 25 per cent of our customer base, 75 per cent of our customers are from the retail segments, by which I mean a customer buying the first machine and then graduating to being the owner of multiple pieces. The first-time buyers constitute 30 per cent.
We understand that there is a good market for financers for those customers who have been rejected by the banks. Unless there are some serious issues with the customer who is quite focused in his business, banks and NBFCs are more than happy to finance them. There is a certain category of customers who do not have documents due to which the banks in a normal case do not cater such customers. But as a highly experienced NBFC, we have been financing first-time buyers for a long time. We understand how to appraise such customers and how to service them, and therefore, are very comfortable financing them.
How do you address the issue of non-traceability of a customer? In the equipment financing business, the application is project-specific. So, once the project gets over, the customers will have to move the equipment to another project, otherwise this equipment will lie idle. We understand this very well, and we know how to manage such issues.
As the competition is hotting up, what do you think the major challenges are? Because of increasing competition, the pricing, even in the retail segment, sometimes becomes illogical. This is because such customers have a higher cost of servicing since they are spread out and are retail in nature and they are not as disciplined and organised as the corporate customers. So, we will have to send the person to collect from the customer. This adds to the cost and therefore, we need to have a pricing which would compensate with the higher cost. Sometimes, due to competition, the pricing becomes irrational so that challenge of maintaining the risk return of the portfolio when we talk about these customers.
Is it necessary for the major players to come together and put pricing in tandem? Not at all. That would be cartelisation and I don’t think that would be healthy for the market because we should be operating in a free and competitive environment. Rather, I think it depends on your ability to leverage on your branch network, distribution network and your speed of service – that will differentiate between one financier from the other.
What is the investment involved in developing the network? This year, we have opened approximately 20 branches throughout the country. Out of this, we have upgraded certain branches to full-service branches. The plans and budgeting exercise is going on right now, so the plans for the next year are yet to be formed.
How do you look at potential in financing used machines?The used-equipment market is not organised yet, compared to the commercial vehicle industry which is more evolved. Unlike the automotive segment, the data available on the second-hand market is really questionable. On the other hand, the infrastructure equipment market has obviously evolved into an organised segment. There would be a secondary market, but not as large as we think it to be, because in India, say for the first three to four years, the customer is basically paying the EMI and therefore, not earning too much on the machine. So he would ideally want to use it for the next three to four years and get the benefit of the machine, when the cash flow would improve substantially. Yes, it would be an interesting proposition but exactly how large is it and how much time will it take to evolve into an organised segment is difficult to predict at this time.
But you have some of the top auctioneers of used equipment here in India. Volumes are very low, and as I mentioned, it is being held once in six months! Companies like Ritchie Bros are trying to develop that market but the going has not been easy because India is anyway a difficult and different market to upgrade. I am sure it will take time to evolve.
How do you look at the coming budget? The challenges of inflation and growth need to be balanced and that is a very difficult exercise to do. So, I would keep my fingers crossed and hope that we have a growth-driven budget and not an inflation-driven budget.
From your side it is positive, is it? Yes, I am looking at it positively because the development of infrastructure is the prime need for the country – be it roads or bridges, hospitals, schools, low cost housing, irrigation, etc. We are talking about very basic infrastructure needs of the people. If India has to become a developed country, these are some of the things that we would need to address at the earliest. From an infrastructure point of view, I don’t see a budget which is negative in that sense; I expect a positive budget.
What is your looking-back take on bC India?I think that the footfall was on the lower side and the space was a little cramped. If all the other larger players were to come in and put up their stalls, it would be difficult to accommodate in this space. But considering the fact that it is happening for the first time, it’s quite interesting. Normally, we get into partnership with the manufacturers who put up their stalls but since they were also not showing much interest in putting up schemes, we did not come out with special product offers.