Equipment finance companies provide trouble-free solutions to equipment purchasers or renters with their diverse USPs.
The government is earnestly working towards enhancing India’s attractiveness as an investment destination. In order to sustain the growth momentum and create jobs, infrastructure spending has been increased. Sectors such as railways, housing and urban affairs, mines, and roads and highways have witnessed increased year-on-year budget allocations for FY’19–‘20 by 21 per cent, 12 per cent, 11 per cent and 6 per cent respectively. These investment plans and projects have the potential to create requirement of capital goods on a large scale and increase in the number of contractors executing these projects. Demand for infrastructure equipment and hence, equipment finance is expected to grow as a result of all these developments. Additionally, with GST unifying the Indian market, inter-state mobility of this equipment would promote cost-effective methods of utilisation through renting and leasing solutions.
Equipment leasing industry to grow at CAGR 15-16 per cent
A report by Feedback Consulting says the construction equipment finance industry is expected to grow at a CAGR of 20-21 per cent for the next three years until fiscal 2021. “With the currently announced projects, which mostly have started from the third quarter of fiscal 2018, demand will continue for the earth moving equipment industry, which will have a share between 68-70 per cent of the overall construction, mining and allied equipment (’CME’) finance market. Banks and NBFCs are expected to have an equal share in the CME finance industry for the next one to two years with the equipment leasing industry expected to grow at a CAGR of 15-16 per cent until fiscal 2020,” says Devendra Kumar Vyas, MD, Srei Equipment Finance Ltd.
CE finance industry – strong growth in last 2 financial years
India’s construction equipment (CE) industry has seen several ups and down in the past decade and the sector has been one of the major contributors which drive growth in infra projects by the government. Government has pushed the pedal by laying emphasis on infra growth with project like metro rail, smart city, railway projects, clean India project and high development national and state. “The CE finance industry has clocked strong growth in the last 2 financial years by growing more than 25 per cent. The sector is poised to grow in FY20 as well and maintain the growth momentum against the back drop of the various initiatives undertaken by the government to promote infrastructure and real-estate,” says Sanjiv Jha, Sr. VP and National Business Head – Magma Fincorp.
CE finance industry’s portfolio
Srei Equipment Finance offers financing solutions to equipment purchasers which the company believes are relatively new to the Indian equipment financing market. The company has presence across the entire equipment life-cycle by providing financing to and sustaining continuous engagement with customers across equipment procurement, deployment, maintenance, second life financing and exit stages. “Equipment-centric services that we provide include preferred financing schemes offered in conjunction with OEMs, equipment deployment assistance during project downtime, spare parts financing, exchange programme financing and used equipment financing,” claims Vyas.
In addition to CME, Srei Equipment Finance has diversified into financing of tippers, IT and allied equipment, medical and allied equipment, farm equipment and other assets. Apart from offering loans, the company is also engaged in providing equipment on leases as and when required by the customers across the company’s business verticals.
Commercial equipment lending asset under management (AUM) stands at ` 1,230 crore as of December 31, 2018. This represents 11 per cent of Magma Fincorp’s total AUM in the asset – backed finance business line. Commercial equipment AUM has grown by 20 per cent YOY for the period 9M FY19 and is one of the focus products for Magma Fincorp. CE disbursals for 9M FY19 grew by 25 per cent YOY. The lender’s thrust is on early warning indicators (EWI) and continuous portfolio monitoring indicator (CPMI).
Magma Fincorp’s portfolio quality in CE lending segment is quite good with delinquencies completely under control and no early defaults as well. Some of the earlier challenges with regard to registrations among backhoe loaders have now been ironed out. RTO rules ensure that dealers get the same registered at the time of delivery. What has also favoured recoveries is that now, most equipment are GPRS-enabled, hence tracing the assets in case of a default is also easier with the help of the OEMs, says Jha.
Unique selling propositions
Srei Equipment Finance (SEFL) has an approximately 33 per cent market share in CME sector in India, in the fiscal year 2018 (Source: Feedback Report). Its holistic approach in providing end-to-end solutions that cover the entire value chain in the equipment life cycle that includes equipment procurement, deployment, maintenance, second life financing and exit stages, sets SEFL apart from its competitors.
“Our partnerships with OEMs, including various arrangements such as general associations, preferred financier associations and private label associations, are the most distinguishing aspect of our equipment-centric business model,” says Vyas.
By catering to a wide range of customers including first time users (FTUs), first time buyers (FTBs), fleet owners, mid-size contractors, large corporations, project owners, customer-focused approach, supported by holistic equipment financing solutions approach, have helped customers grow their business and provide SEFL opportunities to repeat business and to cross-sell other products as well as to receive new customer referrals.
Srei’s years of experience in the equipment financing business has provided deep insight into various equipment categories, diverse geographies and multiple customer segments. The company’s risk assessment framework and credit appraisal policies are an outcome of this experience, which has progressively institutionalised. As SEFL continues to diversify its customer exposures, the company is scaling up its asset-centric risk approach to cover multi-dimensional risks. The company increasingly manage risk by deploying technology including real-time equipment location identification through GPS or GPRS devices, use of handheld devices by field personnel, customer service through online portals, mobile applications and customised risk prognosis tools.
“Our USP in CE loans is easy and hassle free loans to first time buyers. We cater to both new and used asset product lines with emphasis on customer experiences in the asset and deployment front. We have our own trained team to verify and give make quick decisions along with strong reliance on straight through processing which helps us give loans to certain customers in 3-4 hours TAT,” says Jha.
Srei’s years of experience in the equipment financing business has provided deep insight into various equipment categories, diverse geographies and multiple customer segments.
Devendra Kumar Vyas, MD, Srei Equipment Finance Ltd.
We cater to both new and used asset product lines with emphasis on customer experiences in the asset and deployment front.
Sanjiv Jha, Sr VP and National Business Head – Magma Fincorp