We have drawn a three-year plan and in the first tranche, we are well on track. The next three years will be a mixed bag of challenges and opportunities and we will capitalise on the same and consolidate our position to be one of the largest NBFCs in this segment, says Akshaya Nayak, Head Administration and Legal, SEFC. Excerpts from the interview.
Could you brief us on the company and its core competencies?
Shriram Equipment Finance Company (SEFC) is a wholly owned subsidiary of Shriram Transport Finance Company (STFC) which is the largest NBFC in country, with assets under management in excess of Rs 520 billion. SEFC caters to the financing needs of all classes of customers in the fast growing infrastructure industry. Having started its operations in October 2010, SEFC has already attained the most prominent position in the construction equipment finance space in the country.
SEFC provides finance to contractors, sub-contractors, mine owners and operators, plant hirers and others involved in the development of India's infrastructure sector such as roads contractors, irrigation contractors, mining owners and operators, mining owners and operators, quarry owners/operators, ports contractors, airport contractors, urban infrastructure contractors/builders, plant hires, in fact, just about every possible entity and segment contributing to the infrastructure development in the country.
Please tell us about the growth story of the company and its major achievements over the years.
Shriram Equipment Finance started its operations in late 2010 and has registered Net Profit after Tax of 51.6 crore in FY12 and 89.3 crore in FY13, with AUM in respective years being 1930 crore and 3049 crore. We operate out of 154 branches and this is the widest geographical spread as compared to any other NBFC in this segment.
Customer service, employee empowerment and bottom-of-pyramid approach of industry has made SEFC one of the most profitable companies in the segment with key financial parameters like return on equity, return on assets, net interest margin and NPA. Keeping all these key ratios in mind, we expect FY14 to experience a slower growth of approximately 25 per cent, both in terms of profitability and asset size.
What has the impact of the economic slowdown been on the company's performance?
The economic slowdown has been most prominent in the infrastructure segment and the construction equipment sales market has already seen a ten per cent drop in the last FY. Indications are there that in current FY, there will be another 12-15 per cent drop in market size.
Drop in market demand has a dual impact on finance company. First, there is slowdown in disbursements and asset growth and second, more critic¡ ally, it impacts delinquency levels and credit losses. Like most other financiers, we too are impacted on both these fronts but should be able to sail through by virtue of a strong and well distributed collection infrastructure and granular exposures.
How do you evaluate credit in equipment finance?
Credit evaluation depends upon the profile of the customer, industry segment, geography and asset type. Customer profiles define the size and nature of the customer's business and would thus call for either appraisal on a cash flow basis or on surrogates with key emphasis on asset risks. In some cases, it could be a combination of both, a matrix-based evaluation. Segment and geographical risk are in-built in each evaluation as customer behaviour or industry/segment risks play a vital role in assessing the probable success or default pattern.
What are the major challenges that you face?
Growing against odds both in book size and profitability without sacrificing asset quality is our biggest challenge. Currently the odds against us are a dearth of infrastructure projects, land and environmental clearances on allotted projects, issues on mining in Karnataka, Goa and Orissa, a fluctuating and unstable real estate segment, rising cost of funds and tight liquidity owing to recent RBI measures to stabilise the rupee. We believe that all these obstacles need immediate intervention to restore infrastructure growth, which will also enable growth in GDP as infrastructure contributes to almost 9 per cent of GDP.