 "'We expect to double AUM under Srei Equipment Finance in next three years': D K Vyas")
In June this year, Kolkata-based Srei Infrastructure completed a share swap deal with BNP Paribas, whereby Srei Equipment Finance became a 100 per cent subsidiary of Srei Infrastructure. In return, BNP Paribas acquired 5 per cent stake in Srei Infrastructure. Through the deal, Srei is expected to increase its focus on equipment finance, which it sees as one of its core businesses. In an interview with Namrata Acharya, D K Vyas, Group chief executive officer of Financial Services, Srei, speaks about the company's plans on equipment finance and also elaborates on recent government policy changes that have panned out in favor of the infrastructure sector.
Post the share-swap agreement with BNP Paribas, how has the equipment finance business grown and what is the outlook?
The equipment finance market has started growing and the growth in the sector was more than 20 per cent between January-August 2016, compared to the same period last year. This year sale is expected to be around 70000 pieces, with a value of around $3.2 billion. Last year, the sale was in the range of 50000-52000 pieces, with a value ranging between $2.3-2.5 billion.
How does Srei plan to tap this growth potential?
We will be focusing on core business with equipment finance. At the end of the last financial year (FY), our asset under management (AUM) was less than Rs 18,500 crore. We expect it to double 0in the next three years to around Rs 36000-37000 crore. In the current FY itself, the market is expected to grow by 30 per cent.
What is the contribution of equipment finance in the entire business of Srei Infrastructure?
More From This Section
Total AUM of Srei Infrastructure Finance was approximately around Rs 35500 crore as on June 2016, out of which around Rs 19500 crore came from Srei Equipment Finance. In next three years, we are going to grow our balance sheet in terms of equipment financing because the equipment finance market is going to grow at 30 per cent year-on-year for the next three years. In Infrastructure finance we may not see that kind of growth.
Will you be also looking at the overseas market?
We will be focusing on the Indian market, mainly on construction mining equipment, road, irrigation, contract mining and bit of urban infrastructure. We expect the railway to add further to this growth. Next year, the railway will also be a growth driver for equipment sale.
Why do you see railways as a major contributor to equipment finance business growth?
A lot of investment is happening in the railway sector in terms of areas like tunneling work, broad gauge line etc. All this work will be requiring a lot of equipment going forward.
As you are a relatively new entrant in areas like healthcare and rural infrastructure, How has been your experience?
Healthcare has been a good experience. There has been no loss in the portfolio. We are building our rural portfolio. We are building our vendor partnership base. We are focusing on a partnership with select manufacturers. We will leverage on their distribution and they will leverage on our credit and collection skills.
Infrastructure sector has seen a number of challenges in the past. Do you see the situation improving?
Infrastructure sector has seen several challenges in the past, but in last 1-1.5 years, there has been a good uptake in the sector due to the government decisions. The RBI (Reserve Bank of India) too has come up with various schemes on debt restructuring. The government has come up with a very good scheme whereby a contractor can submit bank guarantee and get 75 per cent of the money. This will help release a lot of cash; around Rs 50000-60000 crore will come back to the infrastructure sector. This will reduce the stress in bank's balance sheet and drastically reduce the NPA (non-performing assets).
In the road sector too, most of the work is coming on EPC (Engineering Procurement Contract) mode. Last five years, most of the contracts had come in PPP (public private partnership) model under BOT (build, operate and transfer) model. There were challenges like land acquisition and environmental clearance, which are reasons for project delays. Now under the EPC model, as one does the work, gets the payment. Contractors get their payment every month.
Are you looking to foray into any new area?
We see opportunities in our existing business. For example, the tractor market is expected to grow at 20-25 per cent this year. There is no need to diversify at the moment.