Shriram Equipment Finance Moving with Alacrity

Shriram Equipment Finance
"We have decided to enter into the smaller end because there are already a handful of financers at the top side but that does not mean that our focus is solely at the smaller customer, but cater to entire spectrum and almost 20% of customers are mid and large size on our portfolio. Today, we are the largest financer for atleast 7 out of top 15 manufacturers in the country where our equipment range comprises excavators, loaders, tippers, backhoe loaders besides other infrastructural equipment," quips Mr. Pratap Paode, Chief Executive Officer of Shriram Equipment Finance Company Limited, in an interview with S.D.Khan.

How do you see the Indian Construction Equipment Market growing in the coming years and how does this correlate with the fortunes of CE financers?
The country has witnessed an infrastructural boom for quite some time and the trajectory will surely move upwards in the years to come. Even if a fraction of the proposed expenditure on infrastructure is incurred, it will result in a considerable upsurge in infrastructural activities across the country. It's a well-known fact that whopping investments are slated for ports, dams, roads, bridges, power plants, and so on. Once these projects are materialised, financing will definitely play a major role. Nonetheless, we need a structured government policy to ensure that things move in the right direction. Political whirlwinds have deterred infrastructural growth time and again. The next 4 to 6 months are quite testing and way the things as they appear today, customers will have difficulty in gainful deployment of assets and also realization payments in timely manner. However, these problems can be contended with if the government is actively involved and commitments to infrastructure spend and growth are kept. This is critical from industry and country's perspective.

What is the size of the CE finance industry in India and what is the share of Shriram Equipment Finance Company?
According to our estimates, the market size is around Rs.30,000 crores, of which, Rs.10,000 crores is the share of used equipment refinancing. So, if one considers only the new equipment market, which is of Rs.20,000 crores, then our share is 10%. However, if the used equipment market is also taken into account, our share would be around 8 percent.

Being a recent entrant in the market; what has been Shriram's strategy and how has the company progressed over the course of one year?
As a new entrant, we decided to enter into relatively vacant space i.e. small and medium customer segment providing wide distribution network. Currently we operate out of 112 locations which none other financier in the country has. While we take larger risk on customers and assets in order to keep up with our promise to provide geographic, asset and customer grade inclusion to the industry, it is necessary to have wider distribution. This proximity to customers enables us to service them better and faster and also aids effective collection which is key to our profitability. We have successfully scaled our business in this chosen segment and in less than a year, emerge as one of the largest retail Construction Equipment financier in the country.

What is the USP of Shriram and how does the company cater to its customers?
Well, we take larger risks than any other financer and the probability of rejection of any deal is almost negligible. The customers are provided with the option of 2, 3, 4 and 5 years loans depending upon their financial conditions and repayment capabilities and can exercise option of repayment in any of the 550 branches of Shriram Group. We are almost at top with most manufacturers as preferred/favored financier as we do not differentiate on assets on their level and provide fasted deal TAT.

Are there any risks involved with equipment financing and how should a financer tackle them?
Timely collection of dues is certainly a big problem and companies not having wide collection network may have to restrict themselves to select large customers but that obviously would yeild extremely thin margins and key financial parameters viz. ROTA, ROE will be low. It's therefore imperative that a finance company's distribution system should be intact and vastly spread. The focus should be on the bottom line to ensure a long-term existence. Moreover, India's tax system is quite cumbersome and the price of an asset varies from state to state. The onus is on the government to devise multi-pronged policies in order to smoothen the process and bring uniformity. Nevertheless, NBFC is a better option as compared to a bank since customers are serviced faster and taken better care of. This is primarily on account that NBFCs take CE financing as an industry vertical and have better risk assessment ability and distribution ability to areas and customers that are under-banked.

Shriram Equipment Finance

A word about Excon 2011 and how has it come up to your expectations?
The show has grown by leaps and bounds over the years and it's a perfect barometer of the growth of the Indian CE industry. Although there are looming fears of recession in short term, but the manner in which Excon 2011 has unfolded, the future on long term assessment holds good for both the manufacturers and the customers. Shriram has witnessed an encouraging response and prospects look very bright.
NBMCW January 2012
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