“The biggest challenge was bringing a structure to it”

Srei Infrastructure Finance Limited is a leading infrastructure financing conglomerate in India. Devendra Kumar Vyas is the Chief Executive Officer of Srei BNP Paribas which is 50:50 JV between Srei Infrastructure Finance Limited and BNP Paribas. He talks at length to EPC&I on the current state of infrastructure finance, strategies and risk management practices deployed while hoping to provide financing solutions for 500 plus small and large pieces of equipment.

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How would you sum up the current state of the financial market when it comes to lending for projects and Construction & Mining Equipment purchases?
There has been positive traction on ground as far as the infrastructure sector concerned. In the last few quarters, we have witnessed a slew of reformative actions by the government, especially in the road and power segment, which have given the much needed impetus to the industry. In the recent past, the government had announced several policy measures aimed at improving ease of doing business, clearing hurdles for expediting project executions and fast-tracking approvals to kick-start the investment cycle.
Changes in the political landscape and supportive initiatives like de-linking of environment and forest clearances, facilitation of faster clearance and completion of auction-based and transparent coal block allocations, initiatives for faster dispute resolution, approval to release 75 percent of the amount against margin free guarantee for companies, where the arbitral award has been challenged, are few of the initiatives because of which the Mining and Construction Equipment industry is witnessing noticeable recovery in demand in 2016. During the first half of 2016, the estimated sales of construction equipment increased by between 40 to 50 percent across manufacturers.

Would you throw light on your asset quality and your NPAs? Would you let us know about your portfolio growth during the year?
Srei Equipment Finance Limited has disbursed `5,354-crore during the half year ended September 30, 2016 as compared to `3,972-crore during the corresponding half of previous year; registering a growth of 35 percent. Our total Assets Under Management stood at `20,216-crore as on September 30, 2016 as compared to `19,381-crore as on September 30, 2015. Our gross NPA reduced from 4.17 percent as on 30th September, 2015 to 2.62 percent as on September 30, 2016; while net NPA reduced from 3.16 percent as at September 30, 2015 to 1.80 percent as on September 30, 2016.

Barring the road sector, and to an extent the power sector, there are many indicators that point to the fact that many other large infrastructure projects have really not taken off. To what extent has it impacted market?
We believe that there has been considerable progress in sectors other than roads as well. Budget allocation for Railways at `1.2-trillion for this year is a 21percent increase from the previous budget. Traction is visible for Dedicated Fright Corridors (DFCs) where almost 80 percent of projects were awarded by June 2016 and the remaining are expected to be awarded by the current year’s end.
Ports witnessed record additions in capacity of 94 million tonnes last year, and the targets for this year are even higher, at 120 million tonnes. We should bear in mind that these are big ticket projects which require a big gestation period. It may take some time to get a measurable outcome, but the segment will show considerable progress once they gain momentum.

Would you throw light on the risk management practices that you have set in place considering the slowdown in demand in the past and sluggish project execution which has affected the cash flows, and the financial risk profiles of many infrastructure companies?
Srei has established an effective risk management framework through the implementation of robust systems and procedures for evaluating and approving debt financing proposals. Prior to its commitment of any financial assistance, Srei has an in-house team which undertakes extensive techno-economic analysis, financial and legal due diligence of the potential debt financing opportunity.

Subsequent to the disbursement of debt, Srei continues to monitor the development and performance of the relevant project or asset. Srei also use a range of quantitative as well as qualitative parameters as a part of the appraisal process to make a sound assessment of the extent of underlying credit risk in a project.

Also, our presence across the asset life-cycle; from procurement, deployment, maintenance to final disposal; acts as a natural hedge against most of the risks inherent in the industry. Our ever increasing commercial understanding of the wide range of construction equipment and our risk appetite to finance every segment of the user; creates the market differentiation for us. At the lower end of the spectrum we primarily take an asset risk and at the higher end of the spectrum we not just evaluate the asset risk but additionally deep dive into the project risk, client profiles, regulatory risk etc.

Srei has adopted various risk management policies, including a credit risk management policy, liquidity risk management policy, operational risk management policy, interest rate policy, foreign currency policy, market risk management policy and portfolio risk management policy.

What is your strategy for the growing used-equipment business in India?
India’s secondary market for used equipment is underdeveloped. The used equipment market in the country is still in a nascent stage – lack of proper guidelines for usage of used equipment, non-uniform tax structure and difficulty in moving the equipment from one state to another is a major issue in India.

The biggest challenge was bringing a structure to it. To address this, Srei created a new financing vertical for pre-owned equipment, perhaps the first such offering in the industry, which created an ecosystem of first time users and first time buyers of equipment who often faced challenges of expensive equipment and availability of funding.
We recognised the customers’ difficulties and decided to synthesise the market. In the recent past, we have leveraged technology to provide better accessibility to used equipment for customers.

We came out with Live Auction and Online Auction platforms, the first in the industry. These platforms offer the experience of a live marketplace for the customers. Live Auctions; besides providing physical access to equipment, enables the customer to view the photographs and specifications of the equipment displayed at other yards/site pan India.

Online Auctions are held on digital platform which can be accessed by desktops as well as mobile devices. The online auctions not only offer convenience, but also help in market making, as products of different regions with different prices compete on the same platform.

We have recently launched iQuippo, a digital marketplace to sell or lease infra equipment. iQuippo will reinvent the way businesses engage and interact with their customers. iQuippo is India's first and a one-of- its-kind digital marketplace for construction equipment, machinery and services. The platform allows buyers and sellers to interact, negotiate and close transactions in a timely, transparent and cost-effective manner.

We have also launched the 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 enables owners to replace their existing equipment with those having higher productivity, better technology and improved fuel efficiency.

What are your offerings at BAUMA CONEXPO INDIA this year?
For this edition of Bauma Conexpo, we plan to offer new leasing based rental products. In these products we intend to facilitate the customers with the ‘Right to Use’ the equipment against periodic rentals for agreed period of time.

These rental levels are significantly lower and attractive compared to vanilla loan products. At the end of the period we also facilitate the customer to renew the lease. A dedicated asset management team will assist our clients across the life-cycle of assets.

We always follow a customer centric business model. Our customised financing solutions, enriches the customer with better cash flows, extended facility tenure; backed by simple documentation and quick processing time. Inspiring these practices we will provide some additional facilities and loyalty programs like ‘Asset Power’ and ‘Money Power’; wherein the customer is provided additional loan facility, based on past track record, as a top-up funding limit or to buy a particular asset from a partnering OEM.

Besides, we will also offer attractive schemes on margins, interest rates, funding of extended warranties/additional features, life time tax, etc. These offers can also be bettered by in-stall participation of ongoing flash schemes.

Additionally, for this edition of Bauma, we are partnering many globally reputed equipment manufacturers and have come up with exciting schemes for our customers at the event. Among others, we plan to organise ‘Smart Auctions’ which would include reverse auction of interest rates, rental programs, margin money schemes etc.

Recently we had launched iQuippo – India's first comprehensive digital marketplace for construction equipment and services. This initiative, as designed, will facilitate buyers and sellers to interact, negotiate and close transactions in a timely, transparent and cost-effective manner.

The platform will offer total solutions for all types of construction and mining equipment and will also provide value added services like asset certification, valuation, parking, maintenance, logistics, spare parts and manpower.

What are your expectations from the event this year?
The current year has been fruitful for the construction equipment sector. The equipment sales have been encouraging particularly in road and irrigation sectors, and have raised our expectations from this year’s event.

Bauma is an important platform for the industry and forms an important part of the company’s tactical intent. We are optimistic about heightened Retail and SME buying and with our attractive offerings and strategic tie-ups with our manufacturer partners; we hope to provide financing solutions for 500 plus small and large pieces of equipment.

Leasing – the way forward
There is a huge potential for equipment leasing in the country. Despite being amongst the top 10 economies, the Indian leasing volume is less than 3.0 percent of global volumes. We are ranked outside the top 50 nations while our BRICS peer are all within top 20 in leasing.

The penetration of leasing in the country is also low at less than 3.0 percent. Worldwide leasing has emerged as an important tool for asset creation. United States, China, Germany and United Kingdom combined account for 60 percent of the worldwide annual leasing volumes.

Unlike an outright purchase, leasing does not require any upfront capital outlay. The down payment requirements are often lower compared to a typical loan. Lease allows to craft out real distinctions between the benefits of ownership and the benefits of use.

Slowdown in demand in the past and sluggish project execution has affected the cash flows and the financial risk profiles of many infrastructure companies. The stress is visible on their balance sheets in terms of high leverage and weak debt protection metrics. Leasing will act as a vital tool for asset creation as it allows the companies to use equipment without leveraging.

The leasing business in India currently suffers due to a multitude of factors including multiplicity of taxes, disparity in rates between states and lack of a comprehensive legislation. We are hopeful that the upcoming GST will go way in simplifying the tax structure and reducing the multiplicity, and make leasing an effective financial tool in India.

“Our ever increasing commercial understanding of the wide range of construction equipment and our risk appetite to finance every segment of the user; creates the market differentiation for us.”


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