Changing tack, Srei Infra shifts focus to equipment financing

PRATIM RANJAN BOSE ABHISHEKLAW Kolkata | Updated on January 15, 2018 Published on November 14, 2016

Devendra Kumar Vyas, CEO, Financial Services, Srei. ASHOKE CHAKRABARTY

Learning a lesson from the past, Srei Infrastructure is moving away from risky long-term project financing. The focus now is on fee-based earnings and catering to the booming demand in the less risky equipment finance sector.

“We are restricting total exposure to projects at approximately ₹14,000 crore,” Devendra Kumar Vyas, CEO (Financial Services), Srei, told BusinessLine.

It doesn’t mean, Srei is exiting project finance completely. The company is now looking to pick up good projects and selling the portfolio to institutional lenders as structured deals against fees.

For Srei, that raises finance from banks, the move insulates them from uncertainties in infra construction. Vyas says it is also helping banks – who had in the past suffered from balance sheet based funding in project – to identify investment opportunities.

Equipment sales booming

Talking on growth potential in equipment finance, he said, after three long years of inactivity, infrastructure equipment sales are booming this year.

In April-June quarter, Srei’s equipment financing portfolio grew by over 45 per cent. The growth was 20 per cent in the second quarter that is a lean season for construction and was expected to clock 30-35 per cent in October-December quarter.

“Normally we don’t see growth in the monsoon season. But this year has been different,” Vyas said. Srei manages its equipment finance portfolio through the wholly-owned Srei Equipment Finance Ltd (SEFL).

He expects equipment sales to grow by 30-35 per cent (CAGR) over next three years riding on hyper activity in roads, irrigation and contract mining.

According to him, National Highway and State Highway construction together is progressing 20 km a day. The construction of rural roads under Pradhan Matri Gram Sadak Yojna (PMGSY) is witnessing faster growth.

Vyas says coal mining is witnessing a shift towards high tonnage equipment – 100 tonne and above – indicating more efficient mining.

“We expect the asset under management (AUM) portfolio of SEFL to double from the current ₹20,000 crore in next three years,” he said.

Pre-owned equipment

Interestingly, Srei is banking big on pre-owned equipment finance and its recently launched marketplace aggregator service (similar to Ola, Uber etc) for future growth.

According to Vyas, pre-owned equipment is mostly possessed by small contractors. Since their existence is linked to the machine, this segment has a greater propensity to repay.

This coupled with the lower ticket size and higher interest for pre-owned equipment loans, increases yield of Srei. Vyas says SEFL is the only organised player in pre-owned equipment space that has tie-ups with equipment makers.

Meanwhile, introduction of new IT-based technologies is opening new earning windows in infra equipment space. Vyas feels the recently launched ‘iQuippo’ services will go a long way to reinvent the business.

The options are wide. The GPS locator helps identify machines in a locality helping owners to increase capacity utilisation. For some big contractors who doesn’t want to block crore of rupees in redundant capacities, it’s a viable fall back option.

“We will earn a fee against this service. The group company Quippo which is into physical rental can also get business. And, we might track new clients for our equipment finance business,” he added.

Published on November 14, 2016

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