Masterbuilder had one to one chat with Mr. D.K. Vyas, CEO, Srei Equipment Finance Limited, wherein he shared insights on the company’s model variation, approach and on their experience of Excon.
Here are the excerpts of the interview.
Discuss the different business model across diverse business verticals?
We operate an equipment-centric robust and disciplined business model across our diverse business verticals. Our business verticals comprise of Construction and Mining Equipment (“CME”) (including used equipment), tippers, IT and allied equipment, medical and allied equipment, farm equipment, and other assets.
The table below highlights the activities carried out under each of the verticals.
We are principally engaged in the business of providing financing for the purchase of infrastructure equipment that is used in the construction, roads, mining, railways, port and other infrastructure sectors. We provide financing for a wide range of CME including earthmoving equipment, MHE, road construction equipment, concreting equipment and material preparation equipment. We also provide leasing solutions to our customers. We have partnered with leading domestic and international OEMs, including JCB, Tata Hitachi, Hyundai, Komatsu, Escorts, Sany and Volvo.
The tenor of a CME loan typically varies between 36 and 45 months. We typically create a charge on the relevant equipment in our favour as security for the loan.
Under the used equipment sub-vertical, we provide financing for a wide range of used CME to various Retail and SME customers. The tenor of the loan provided to the customers in this vertical typically varies between 30 to 35 months. We create a charge on the equipment in our favour as security for the loan.
In this vertical, we provide financing for all segments of our customers. The tenor of the loan provided to the customers in this vertical typically varies between 35 to 42 months. We create a charge on the equipment in our favour as security for the loan. Our OEM partners in this vertical include Tata Motors, Volvo and Bharat Benz (DICVPL).
IT and allied equipment
In this vertical, we principally provide financing for the purchase of hardware and software including laptops, servers, scanners, printers and communication equipment (routers, network hubs and modems) to cater to the needs of various institutional and corporate customers. In addition, we also offer financing for the associated implementation costs for the equipment. The tenor of the loan in this vertical typically varies between 50 and 60 months. We also provide leasing solution to our customers in this vertical.
In this vertical, we provide financing for a range of agriculture, farming and allied equipment, including tractors, which are used for sowing, tilling, irrigation and for other agricultural purposes. Our customers in this vertical include contract farmers and tractor owners. Our OEM partners in this vertical include CNH and International Tractors. The tenor of the loan provided to the customers in this vertical typically varies between 50 to 60 months.
We create a charge on the related agriculture and farming equipment in our favour as security for the loan.
Medical and allied equipment
In this vertical, we provide financing for the purchase of diagnostics and surgical equipment, including x- ray machines, sonography equipment, CT and MRI scanners. Our customers range from large hospitals to standalone diagnostic centres in Tier-I and Tier-II cities in India. The tenor of the loan provided to the customers in this vertical typically varies between 50 to 60 months. We create a charge on the related healthcare equipment in our favour as security for the loan. We also provide leasing solution to our customers in this vertical.
In this vertical, we primarily provide financing and leasing solutions for a wide range of productive and income generating non-CME assets comprising industrial and other assets. These include industrial assets, renewable energy assets and real estate assets. Our exposures on these assets are arrived at after evaluating the customer’s credentials and business, along with an in-depth analysis of the asset. Our extensive knowledge in the CME vertical helps us to expand into non-CME assets to acquire new customers and is part of our strategy to reduce our present concentration on CME assets. The tenor of the loan or lease provided to the customers in this vertical varies depending on the asset or the business. We create a charge on the related asset in our favour as security for repayment of the loan or take ownership of the asset and provide it on the lease.
Discuss the holistic approaches adopted by the company providing equipment financing solutions?
SEFL operates a holistic business model providing end-to-end solutions across the equipment lifecycle beginning from the equipment’s acquisition to its refinancing or resale. We are able to leverage our capabilities and relationships to be present across the entire equipment value chain, support customer requirements across the equipment life cycle and reinforce customer loyalty. We have a strong relationship network through partnerships with OEMs and vendors that have enabled us to maintain sustainable growth and market leadership over the years. As of September 30, 2017, we were partnered with 191 OEMs. Our market leading position in the CME sector and brand name has helped us to expand to other sectors such as Tippers, IT and allied equipment, Medical and allied equipment, Farm equipment and Other assets, which present both greenfield and brownfield opportunities.
Our offerings at different stages of the equipment life cycle include:
Equipment Acquisition: At this stage, we provide assistance in equipment procurement through customised solutions comprising loans and leases (where we benefit from our OEM relationships).
Equipment Deployment: During this stage, if a customer requires, we help in allocating equipment financed by us to projects/jobs to allow efficient deployment of idle assets.
Equipment Maintenance: During this stage, we provide equipment maintenance assistance through spare parts financing and enable our customers to access our strong OEM and dealer relationships for maintenance support.
Second Life Financing: We have also introduced branded refurbished equipment solutions for our customers. During this stage, we help our customers in acquiring branded refurbished equipment in conjunction with our OEMs partners.
Equipment Exit: At this stage, we facilitate various services including equipment valuation and inspection, auctioning and other equipment disposal services. Our 77 stockyards across the country are important to our ability to offer these exit services efficiently. Our used equipment financing, refurbishment programmes and exchange programmes assist customers to dispose of their old equipment.
We have also strategically expanded our distribution and marketing network and operations through partnerships with SEPs, our exclusive channel partners. As of September 30, 2017, we were partnered with 120 SEPs. The SEPs combine their knowledge of the local market requirements with our business needs to deliver new accounts. They also facilitate in acquisition of new customers independent of OEMs referrals.
Another facet which differentiates the Company is the fact that while approving a disbursement, we focus on potential cash flows in the future from the proposed project rather than making a decision solely based on past cash flows or profit track record of the customer.
What is the scenario of the leasing market at present?
In India, construction equipment leasing is still at nascent stage accounting for 6-8% of the overall construction equipment market as of FY 2016-17, whereas the global average for leasing is 50-60% of the overall construction equipment business.
The market for organised equipment leasing is estimated at ~8-10% of the overall disbursement done by finance companies towards the construction and mining equipment (CME) segment. The current value of the organised leasing construction equipment market accounts for roughly INR 22 – 25 billion during FY 2016-17. The market is largely dominated by heavy equipment like excavators, motor graders, wheel loaders, dozers, self-loading concrete mixers, concrete pumps, tower cranes, all-terrain cranes, rough terrain cranes, truck cranes, and pavers.
Leases are gaining popularity because of tax benefits offered and several MSMEs are opting to finance their equipment. The implementation of GST is expected to benefit the finance institutes in the equipment leasing and the market is expected to reach INR 50 billion at a CAGR of 26% by FY 2019-20. Before GST implementation, there was lack of clarity on leasing business and the tax structure was not clearly defined which was curbing the efficiency of the equipment leasing industry. Though there is a clear articulation post GST, still the rates are perceived to be high. Lowering these rates could boost the equipment leasing business.
In regards to networking, how easy it is for the customer to connect with the company?
As of September 30, 2017, we were present in 21 states through our 89 branches and four offices including our head office in Kolkata, and 77 satellite locations across India, serving more than 64,000 current customers. In addition, as of September 30, 2017, we had 77 stockyards. Our pan- India presence allows us to cater to a large customer base across industry segments from proximate locations, enabling customers’ easy access to our services. Our exclusive distribution partners, Srei Entrepreneur Partners (“SEPs”), help us in sourcing customers and ensuring regular repayment. A SEP’s local risk insight and on the ground presence facilitates our customer acquisition, screening and access and broadens our market coverage.
We have developed a wide relationship-based distribution network that has helped us achieve a better market understanding and reach in several regional markets. Through our distribution network, we have developed long-term relationships with our customers at various stages of the financing cycle including customer origination, loan administration and monitoring as well as loan recovery. Our customer relationships provide us opportunities for repeat business and to cross-sell our other products as well as to receive new customer referrals. We believe we have a strong brand name and market recognition due in large part to our deep and long-standing customer relationships.
Highlight on the services of preferred financing schemes offered by the company in conjunction with Original Equipment Manufacturers (“OEMs”)?
Our partnership with OEMs is an instrumental feature of our equipment-centric business model. These include various arrangements such as general associations, preferred financier associations (with or without risk-sharing arrangements) and private label associations. We offer innovative financing solutions to equipment purchasers under these arrangements, which we believe are relatively new to the Indian equipment financing market.
To improve our market share and cater to the growing demand in these relatively newer verticals and equipment categories, we plan to enter into new partnerships with leading OEMs and vendors with whom we are looking to build new relationships. We will also continue to leverage our existing customer and OEM relationships in our target equipment categories and verticals.
We aim to continue partnering with leading OEMs, improve market share and yield, and prudently manage our risk exposure. Through digitisation, we intend to improve our reach and Turn Around Time (“TAT”), making it seamless and user friendly for our customers while at the same time reinforcing our risk appraisal and risk management capabilities.
We are also considering entering into partnerships with banks for offering banking products (not offered directly by us due to regulatory restrictions) to give our customers a wider range of financial services. In addition, we will evaluate our offerings to customise our products to the geographically localised needs and demands of our customers and correspondingly refine our delivery capability in the relevant territories.
What has Excon 2017 been for the company?
Excon is one of the largest construction equipment exhibitions in Asia and the largest event for construction equipment in South East Asia. Events like Excon serve as confluence ground for all industry participants – manufacturers, customers, financiers and regulators.
For Excon 2017, we had tied up with leading reputed global equipment manufacturers and came up with a lot of exciting schemes for our customers. The exhibition gave us an opportunity to connect and interact at a more personal level with our customers, which has helped us strengthen relationships with the existing customers as well as create new customers. Our focus this year had been to provide customised financing solutions covering the entire asset lifecycle to our customers.
Besides, we were also engaged in Countrywide Customer Engagement Activities to keep our customers/visitors connected to the fanfare of Excon.
This year we had participated on a much larger scale than before and had taken an Outdoor pavilion of about 17000 square feet. The visitors could experience technological innovation in equipment financing, audio-visual treats, with fun and engaging activities, interactive information systems, including information kiosks, multi-touch screens, and interactive walls at our stall. We also organized engaging activities such as a neuro-sensory game Focus to Win, and other games such as Mine your interest, Happiness Box, etc. for our patrons, enabling them to win attractive interest rates and terms.