The construction equipment industry is showing distinct signs of revival, says Devendra Kumar Vyas, CEO, Srei Equipment Finance Ltd
India has an impending need to build infrastructure to nurture its economic growth? What are your views on this?
Over the years, rapid urbanisation and strong population growth has rendered the current infrastructure inadequate. As per recent estimates we are likely to miss the infrastructure spending target for the 12th Five Year plan by nearly 30 percent. Hence, increased public spending especially focussed on infrastructure is the key to revive the investment cycle and influence the economic growth. The role of public capex assumes greater significance at a time when private sector is faced with subdued demand and excess capacities. If we want to achieve GDP growth rate of 9%, there are no other options but to invest heavily in infrastructure.
The need for building a strong infrastructure foundation is further accentuated by increasing urbanisation of Indian geography. It is estimated that there will be 68 cities with population of more than 1 million per city by 2030, and nearly 59 crore people will be living in cities by 2030 – which is almost twice the population of USA. As per estimates 85% of our GDP is expected to come from the urban population by 2030.
The past few quarters have witnessed a slew of reformative actions by the government, which have given the much needed impetus to the infrastructure sector. In the recent Union Budget, infrastructure has been a priority for the Government indicated by total outlay for infrastructure being increased to ` 3.4 trillion. There has been marked improvement in the pace of projects being awarded along with execution efficiencies. The results are profound. There has been increased activity on all infrastructure fronts. Roads construction has increased from a mere 4 km/day three years ago to currently around 20 km/day. Similar enthusiasm is being observed in other sectors like ports, urban infrastructure, smart cities, railways, telecom, power and energy, and housing. The Government expects investment worth ` 25 lakh crores in the infrastructure segment by 2019. Besides investment in road, railway and port connectivity, this also includes setting up of 27 industrial clusters at ports and investment in the smart city programme. We are sure that the emphasis by the government on infrastructure development, especially roads and highways will have a snowballing effect on other core sectors like cement and steel and aid country’s economic growth.
Is the government encouraging research and development, innovations in terms of new products & technologies in the sector? How more can be achieved?
We strongly believe that the first step of growth should be to collaborate with industry representatives and work in-sync towards solving problems. Government has taken the right step by collaborating with Indian Construction Equipment Manufacturer’s Association (ICEMA). ICEMA has proposed an independent test and certification centre and has received the approval on the same by the government. Last year a proposal for separate regulatory framework and Act specifically for off-highway equipment was also submitted. The Act proposed to make the implementation of electronics and controls mandatory for all OEMs. Testing and certification would become mandatory for all manufacturers.
The need of the hour is to rapidly and efficiently upgrade technologies and increase productivity and profitability, through fleet management systems and global tracking systems. R&D, technical innovations and development need to concentrate on two things; machine productivity and machine monitoring. From customers’ perspective, R&D should be done in advancing powertrains and hydraulic systems, and also keeping a check on the emission norms. From safety perspective, in machine monitoring; Telematics and Electronic Control Systems need to be in place. Many end users, however, don’t see any need to upgrade to more technologically advanced construction equipment. The current economic scenario isn’t conducive enough to garner extra investments in technology from the consumers. One of the top requirements right now is the adoption of telematics. Telematics can help in tracking critical information as well as improving operational efficiency. But the cost of implementing telematics is still on the higher side and there needs to be enough demand for technology providers to provide competitive pricing. This initiative of demand can be driven by OEMs.
What is the role Srei Equipment Finance Limited would be playing in the India Infrastructure growth story?
At Srei Equipment we are in a very unique position to impact the economy, environment and society by the very nature of our work – infrastructure equipment financing, which in turn leads to infrastructure building and subsequently developing the building blocks for the nation.
We humbly take pride in being the Nation’s foundation (infrastructure) builder for the past 25 years. Having market share of close to one third of the segment, we are proud of financing one out of three equipment in the country we see on roads. Srei Equipment Finance has serviced close to 60,000 retail customers from inception, mostly FTU and FTBs, who have been initiated into becoming entrepreneurs. These entrepreneurs have engaged with contractors of varied sizes in implementing numerous infra projects and thus building the economy. Further, our knowledge management initiatives in developing these entrepreneurs have always helped us to build empowered members of the society; economically and socially empowered individuals. Most of customers are small unorganised players, many of them first-time-buyers of equipment or first-time-users. This provides us with a valuable opportunity of enabling people, uplifting communities and thus playing an important societal role. What we do has a direct as well as an indirect impact on the economy, we extend financial assistance to power, renewable energy, roads, hospitals, bridges, highways, ports, airports, telecommunication, water supply, waste management, industrial parks and SEZs, agro-infrastructure, warehousing, hotels and other infrastructure sectors.
Finally we are able to do all this along with sustainable growth and profit without impacting the environment the way a manufacturing or extractive industry does.
Please elaborate on the exchange scheme which SEFL has recently launched? How is response for the scheme?
Recently, Srei Equipment Finance in association with JCB India has launched first of its kind ‘auction exchange platform’ called ‘Smart Exchange Finance’, which enables equipment owners to exchange their old equipment for new ones. The exchange finance platform is a first of its kind initiative which enables owners to replace their existing equipment with those having higher productivity, better technology and improved fuel efficiency. This financial assistance initiative will provide equipment buyers and sellers a market place on one single platform.
This platform gives us an opportunity to connect with customers on a continued basis and keep providing them robust solutions. Pre-owned construction equipment market is largely unorganized in our country and this platform will help the pre-owned equipment buyers avail equipment at fair value. The programme, launched in Jaipur, met with phenomenal response from the participants. Over the course of the year, we will spread such programmes across the country.
What is the overall size of the equipment finance industry in India? And what is SEFL’s share in that?
According to an Indian Construction Equipment Manufacturers’ Association report, the equipment industry is expected to reach its (high) sales level of FY 2012 (70,000 units) by FY 2019. The report predicts the industry to grow to USD 5 billion by 2019-20 from the present level of USD 2.8 billion.
The current size of the Construction and Mining Equipment Finance business is estimated to be close to ` 18,000 crore. We are the largest construction and mining equipment financier in the country with a market share of 30%. We expect the infrastructure equipment finance market to grow anywhere between 15-25 per cent in the next three years and our business to grow in line.
The equipment financing is a clear metric which shows the sector performance. How would you judge the performance of mining, roads and construction sector and predict the project implementation in these sectors in the near future?
The state of the equipment industry is a prelude to the health of the infrastructure sector. Greater emphasis by the current government on infrastructure, policy reforms, higher budgetary support and focus on ease of doing business have led to a revival in the infrastructure sector, which till recently was marred by de-growth. After declining for three consecutive years, the construction equipment industry is showing distinct signs of revival with the construction equipment market growing by around 10% for FY 2015-16. The catalyst has been policy reforms in infrastructure sectors, especially roads, mining and power.
The biggest impact has been felt in the road segment. With a slew of policy measures like resolving the issues stalling highway projects, one time funds to complete languishing projects, increased threshold for project approval, innovative financing models like Hybrid Annuity Model, there has been a marked improvement in the speed of project awarding and execution. There have been encouraging signs in the demand for construction equipment. The sales of excavators and backhoe loaders grew by almost 45% and 30% respectively, in January-March 16, compared to the same period in 2015. Overall the earthmoving equipment grew by 32% while the road construction equipment grew by almost 65%, during the same period.
After a couple of difficult years, mining is set to pick pace with the recent coal block allocation, increase in coal based power generation capacity and recent policy changes including MMDR(Amendment) Act, 2015. The Government has set a target to produce 1.6 billion tons of coal by 2020. Coal India is planning to double its output to a billion tons over the next five years. Its subsidiary Western Coalfields plans to open one mine every month for the next 2 years. All this bodes well for the mining equipment sector as equipment costs account for nearly 40-45% of a mining contract value. There is a pipeline of more than 200 projects under implementation and another 70 announced projects, entailing an investment of ` 2,100 billion.
Overall, we are satisfied with the recent reforms in the infrastructure sphere and would give the Government full marks for its intent. However, execution of these reforms will remain the key factor for India’s growth story.
