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The emphasis laid by the Centre on boosting construction of rural roads and highways may improve the growth prospects of Srei Equipment Finance (SEFL) this fiscal, according to the company’s CEO Devendra Kumar Vyas.
SEFL, a wholly-owned subsidiary of Kolkata-based Srei Infra, reported 19 per cent growth in overall disbursals last fiscal., riding on a 68 per cent rise in IT equipment financing.
The core business of financing construction and mining equipment grew at a lower 16 per cent; SEFL has a 30 per cent market share in this segment.
With iron ore and captive coal mining ruling low, demand from the mining sector is completely driven by State-owned Coal India.
For SEFL, rural road construction — requiring equipment of smaller capacity — was a major demand driver. This segment witnessed a compounded annual growth rate (CAGR) of 45 per cent in the last two years.
The tempo of rural road construction is likely to continue, thanks to the 26 per cent increase in allocation for the Pradhan Mantri Gram Sadak Yojana (PMGSY) to ₹19,000 crore in the last Budget.
Meanwhile, Vyas pointed out that several measures taken by the Centre over the last two years to restart stalled highway construction projects will also help boost growth.
“Close to 6,000 km of National Highways were constructed in 2015-16, and the government has set a target of constructing another 15,000 km in FY17,” Vyas told BusinessLine .
Govt actionThe government has initiated reform measures to boost the sector.
The (relaxed) exit policy for private players, innovative project implementation models, and enhanced inter-ministerial coordination are some such policy reforms.
Increase in the number of engineering, procurement and construction (EPC) contracts, especially in the road sector (instead of public-private partnerships), has led to higher cash flows for contractors, Vyas said.
“We had expected increased offtake in construction equipment financing post-September, that is, after the monsoons. But there’s been an increase since the beginning of this year,” he added.
According to him, the market is expecting a 30 per cent growth in equipment financing, and SEFL is expecting similar numbers this year. “We expect to grow with the market,” Vyas added.
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