A fall in inflation, rate cut by the Reserve Bank of India (RBI), falling international oil prices, improved investment activities in different infrastructure sectors owing to industry friendly Budget for 2014-15 and similar expectations from the upcoming Budget for 2015-16 are likely to support construction equipment growth in the years to come, says KV Srinivasan, CEO, Reliance Commercial Finance. Excerpts from the interview...
What is your wish list from the forthcoming budget?
In July 2014, the current government presented its first budget which was predominantly growth-oriented. The announcements made in the budget represented measures to tame inflation and provide a boost to investments in manufacturing and infrastructure sector. Several initiatives towards promoting micro, small and medium enterprises were announced in the budget. The initiative of the ´Make in India´ campaign too had place in the budget.
We expect credit demand to pick up in the second half of the FY 2015-16. Several proposals have been already announced for road and other infrastructure segments in the Union Budget 2014-15 and also expectations that the upcoming Budget for 2015-16 is likely to provide further boost to this sector.
Investment activities are yet to gain pace, and the capacity utilization levels across sectors have seen limited improvement. Therefore, it is essential to provide impetus to the capital investments and put GDP back on high growth track. It is expected that in the upcoming budget, the government announces few more policies and reforms for infrastructure developments. An excise duty cut from the government on earthmovers and construction equipment will support the growth of equipment industry.
How do you assess the current status of equipment finance segment?
In the recent years, the equipment industry had experienced a declining trend, owing to multiple domestic and global factors. The economy was struggling with high inflationary pressures which forced the Reserve Bank of India (RBI) to hike interest rates several times. At business level, high cost of credit prevented many players to stop their ongoing projects or postpone their new projects. These adverse scenarios affected credit demand from financial institutions and also the lenders were reluctant to offer loans during this period to avoid any default in payments.
In the current fiscal year so far, the economic situation and business sentiments have improved supported by both improved macro numbers and global factors. From the global front, fall in international oil prices have supported the domestic economic growth. The Indian economy is estimated to grow at 7.4 per cent in 2014-15. For the same fiscal year, construction sector is expected to grow at 4.57 per cent and mining sector to post a positive growth of 2 per cent. The numbers are based on 2011-12 base year.
As per latest data by RBI on deployment of credit by scheduled commercial banks, during December 2014, credit to mining and quarrying sector saw an increase of 3.5 per cent and construction lending increased by 24.1 per cent. The increased investment in different infrastructure sectors is expected to create huge demand for construction equipment in the coming years. A comfortable inflation rate of 4-5 per cent and low international oil prices that fell from a high of $112 per barrel recorded in June 2014 to $47 per barrel in January 2015 are expected to support projects developments and demand for equipment.
What are the major areas to be taken care of on a war footing?
The current government has been undertaking several initiatives to boost economic growth, with special focus on the infrastructure growth. It is too early to expect any sudden increase in this segment, given the long gestation period for construction related projects. As the demand for equipment is closely linked to GDP growth, positive forecast on economic growth for 2015 and years to come is expected to result in more investments in the country. Given the government´s new mining policy and expected positive approach of companies, the mining sector is expected to grow in the coming years. Therefore, we are of the opinion that the investments in construction activities is likely to speed up in the coming years and thereby, support growth in equipment industry. However, certain areas that need to be taken care of are the viability of the project, tenure of the project, ability to pay back the amount.
RBI has cut repo rates by 25 basis points. Is there any telling impact on the financing segment?
The Governor´s step to cut interest rate on January 15, 2015 is encouraging. The reduction in repo rate by 25 basis points to 7.75 per cent was carried out after May 2013, when the rate was at 8 per cent. The cut in repo rate clearly indicates that the inflation rate has reached a comfortable level and the liquidity condition has improved in the system. We believe that this step will drive some positive momentum in the market. Credit demand for commercial equipment and vehicles has not remained up to the mark because of a slow economic recovery; therefore, we expect a few more reduction in repo rate in the coming months which will drive growth for this segment.
What are the major challenges in today´s context?
Over the period, business confidence has improved, but, yet it has not translated into announcement of new projects. This is viewed as the major challenge.
SAMIL launches Automall in Ranchi and Kurnool
Shriram Automall India Ltd (SAMIL) has rolled out a new Automall facility in Ranchi (Ramgarh), Jharkhand. After Shriram Automall Kurnool, this is the second Automall launch of SAMIL in 2015. Spread across 3 acre, Shriram Automall Ranchi is located on a National Highway, connecting Hazaribagh, Delhi and Patna. Through this new Automall, SAMIL promises regular bidding events, every month.
Umesh G. Revankar, Managing Director, SAMIL, said, ´This is our 6th Automall launch in East India. Overall, SAMIL has an extensive pan-India reach through over 100 bidding locations, including more than 40 well-structured Automalls. By the end of current fiscal, we aim at reaching 60 Automalls, across the country.´
The Ranchi Automall will provide holistic solutions in their acquisition and disposal along with its allied services, like Parking, Refurbishment, Valuation, Documentation and Easy Finance. Commenting on the launch, Sameer Malhotra, CEO, SAMIL, stated, ´Shriram Automall Ranchi has been constructed to cater to the pre-owned vehicles and equipment industry of Ranchi through well-organised and transparent bidding process. The area observes a huge demand for construction equipment, mainly Tipper, and HCVs. Our objective is to bridge the buyers and sellers while offering value-for-money transactions´.
Shriram Automall Ranchi also houses a One Stop Classified Kiosk and Shriram NewLook Refurbishment facility. The Kiosk is a classified of the entire available inventory at SAMIL, pan India. It is a virtual box with huge data bank of information on pre-owned vehicles and equipment that can be acquired through SAMIL. The NewLook Refurbishment facility will provide repair of the vehicles through a well-trained staff with all the expertise in hand. A one-stop destination for pre-owned vehicles and equipment, the Ranchi Automall possesses a huge potential to make their exchange hassle-free and beneficial for the customers. It also gives an opportunity to physically inspect the vehicles two days prior to the bidding event.
SAMIL also launched a new
Automall facility in Kurnool, which offers the widest range of pre-owned vehicles and a transparent bidding platform to deal in them. Through a grand opening of this huge Automall, spread across nearly 10 acres of land, the company promises regular bidding events every month in which people can participate after a simple and convenient registration process.