It is quite surprising that on one side, the infra sector has slowed down and on the other, equipment sale is going up. As per the leading manufacturers of construction equipment, excavator sales have increased by about 15 per cent and backhoe loader sales by approximately 10 per cent during FY 2011-12 compared to FY 2010-11. Excavators and backhoe loaders are key components of the construction equipment industry. The possible reason is that in semi-urban and rural areas, there is a shift from labour-intensive work to mechanisation, says Sunil Gupta, Vice President and National Head - Construction Equipment and Strategic Construction Equipment, Magma Fincorp. In an exclusive chat with Sudheer Vathiyath, Sunil elaborates on the business prospects in CE sector. Excerpts from the interview.How do you assess the current fiscal for the CE industry?This year, the construction equipment (CE) industry has gone through a lot of challenges. These challenges are in terms of government policies for clearance of projects and the rate of interest. The rate of interest has peaked and the costs for infra companies and borrowers have gone up. Land acquisition issues have dogged many projects and turnover has taken a hit. Though there is a glut of orders, many large BOT projects in the road sector were delayed due to lack of land acquisition approvals, environmental clearances, etc. At the same time, data from our partners who are equipment manufacturers, basically excavators and backhoe loaders, show that they have grown by at least 10-15 per cent this fiscal till January 2012, despite all the challenges. This shows that construction equipment, especially excavators and loaders are still in demand.Where does the demand come from?It is quite surprising that on one side, the infra sector is slowing down and on the other hand, equipment is going up. The reason lies in the semi-urban and rural areas, where we witnessed a shift from labour-intensive work to mechanisation. Even for small irrigation projects and farming, customers are going for excavators and small backhoe loaders for earth leveling and other works. So, there is mechanisation happening in rural areas, which has contributed to the increase in demand.There are also a lot of government-sponsored schemes like NREGA, PMGSY, RDCs which also led to mechanisation and increased sales of equipment. For us, most of the demand comes from the hiring sector. The hirers normally hire the equipment and give it on rent to small projects like irrigation works, building construction, farming sector, etc.How does Magma plan to capitalise on this demand?Magma has a tremendous strength in terms of branch network and distribution. We have a very strong presence in semi-urban and rural areas. Now we can capitalise on the emerging demands from the rural and semi-urban areas through our large network of distribution. We are focusing on the first time buyers (FTBs) and small category customers. That is why Magma has grown this year despite the general slowdown in the industry. We expect a sizeable growth in CE financing business this fiscal.What are the challenges you face in the financing business?The demand from the industry this year was not strong because the industry grew only 10-15 per cent. There was competition from both existing players and new ones. Some of the existing players have become very aggressive in terms of interest rates and loan to value ratio (LTV). We have seen interest rates rising and at the same time, some players are offering very competitive rate of interest. This was the major challenge we faced in the financing business.What are your plans for the year 2012-13 and beyond?We are a highly process-oriented company. We are particular about generating aspects and don't compromise on quality. We have strong due diligence process in terms of experience, equipment ownership, stability, ability, etc. Our portfolio quality has been very strong and is one of the best in the industry; this is reflected in our portfolio ratings.Magma has charted a blueprint to aggressively increase business volumes and improve profitability. To increase volumes, the company will offer the CE loans from an increased number of branches and strengthen its presence in the refinancing construction equipment segment. We also plan to introduce a couple of new schemes next year to outperform the competition. We want to keep our growth momentum intact. We are planning to finance the first time users (FTUs) in the retail category. In this strategic category, we are exploring options for equipment leasing for large customers. Equipment leasing is gaining popularity because it is off-balance sheet financing.Which infrastructure sector do you find more competitive?The major chunk of our business comes from the road sector and hiring. Manufacturing industry employs a lot of equipment like excavators and cranes, especially the pick-and-carry cranes. Real estate employs RMC plants, transit mixers and boom pumps. I find road and hiring to be very competitive.What is your view of the CE market in India and its potential?Overall, 20-25 per cent of our business is from CE financing. The government has planned a $1-trillion investment in infrastructure in the 12th Plan. This does not include the manufacturing sector. In the future, the interest rates are hopefully going to soften. I am sure the government is going to allocate a sizable amount to the infra sector in the Budget. With the economic situation improving, the scenario should be bright.At the same time, policy issues like land acquisition, environmental clearances and mining issues need to be addressed and a policy needs to be framed adequately. The necessary approvals for projects need to be given within a stipulated time frame and infra companies should not suffer due to delays. A delay in land acquisition will lead to a delay in project integration, which in turn, will lead to increased interest costs to these large infra companies and the whole viability will go for a toss. The government has plans, but it has to take active steps to implement the plans. I am sure that the future of growth in the economy will come from only infrastructure.