Road projects help boost Srei Equipment Finance’s disbursements

A pick-up in road projects, translating into higher sales of construction equipment, has helped Kolkata-based Srei Equipment Finance grow disbursements and improve asset quality.

The company’s consolidated disbursements during the quarter ended September 30 grew by 72 per cent, year-on-year, to ₹6,011 crore.

On standalone basis, Srei Equipment, a wholly-owned subsidiary of Srei Infrastructure Finance, saw its disbursements grow by 55 per cent to ₹8,309 crore during the six-month period April-September. Its assets under management stand at ₹26,000 crore.

According to DK Vyas, CEO, Srei Equipment Finance, the road sector, which had been reeling under the pressure of muted growth for over three years (between 2012 and 2015), has started showing signs of growth in the last one year.

“There have been several structural changes in the road sector which have helped release the stress and contributed to growth. Moving forward, we see growth coming from construction and mining equipment, metal handling and processing equipment and transportation,” he told BusinessLine .

Equipment finance is expected to grow at a CAGR of 20 per cent over the next three years, primarily driven by growth in the road sector. Srei Equipment holds 33 per cent share of the equipment finance market at present.

The average daily construction of roads, which had dropped to as low as sis-seven km a day a couple of years back, has now moved up to 23-24 km a day.

This is expected to improve further with the government announcing an outlay of close to ₹7 lakh crore for building a road network of 83,677 km over the next five years.

Apart from roads, mining and irrigation have shown good potential. “Irrigation projects have been picking up due to initiatives taken by several State governments, including Maharashtra, Gujarat, Madhya Pradesh, Odisha, Andhra Pradesh, Telengana and Karnataka,” Vyas said.

Currently, almost 90 per cent of the company’s business comes from construction and mining equipment; the remaining from IT, healthcare and farming.

“In the next three years, the share of non-construction equipment (IT, and healthcare, among others) should account for 25 per cent of our total business,” he said.

The company would also focus on growing the asset financing business through the leasing model. The business currently accounts for about 13 per cent (or ₹3,500 crore) of its total disbursements.

“Demand for leasing is picking up with clarity on tax structure emerging post GST,” he pointed out.

The company is looking to raise close to ₹2,000 crore through an initial public offering by the end of this fiscal. The fund will be used for growing its core business, he said.

According to Vyas, the company has been consciously working towards improved profitability by reducing NPAs and focussing on customer solutions.

Gross NPAs as a percentage of assets came down to 2.08 per cent during the quarter (2.62 per cent in the year-ago quarter), while net NPAs declined to 1.47 per cent (1.8 per cent).

“At the peak of our best times, our net NPA ratio was around 1 per cent; we will strive for that,” he said.

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