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Construction : Focus | April 2018 | Source : Equipment India

On growth Track

The construction equipment finance market is growing consistently for the past couple of years due to the growth in demand for construction equipment.  

The upswing in construction equipment market in the last two years has created new opportunities for equipment finance market. Leading finance players are keen on the growing trend of the infrastructure market in India that has helped the construction equipment market for a turnaround after a rough patch till 2016.
Devendra Kumar Vyas, CEO, Srei Equipment Finance, highlights the scenario, 'The infrastructure sector is a key driver for the Indian economy and is largely responsible for propelling India's overall development. The government is focusing on initiating policies to ensure the creation of a world-class infrastructure in India. The government's initiative to improve infrastructure in India has caused a surge across all segments with a special focus on roads and highways sector. This has led to increased demand for road construction equipment, thereby increasing the disbursement to the segment. Government focus on building concrete roads (on national and state highways) has boosted the demand for concrete and material processing equipment, though the slowdown in the real estate sector continues.

Shantanu Padhye, Business Head- Commercial Vehicle & Construction Equipment Loans, Mahindra & Mahindra Financial Services, says, 'There has been a substantial upswing in sales of construction equipment during the last two years, mainly driven by commissioning of major infrastructure projects by the government in the road & other sectors. Hence the construction equipment finance market has also grown, and this strong growth is expected to continue for some time.'

According to Vyas, the total construction and mining equipment finance disbursement for fiscal 2017 was estimated to be approximately Rs 280 billion. Over the last five years disbursements to the sector have grown at a CAGR of 5.9 per cent. During the recovery period of fiscal 2015 to fiscal 2017, the industry grew at a rate of 19.8 per cent.

Padhye sees some demand surge from contractors and rental players in the coming days. According to him, demand from contractors is currently strong and will continue to be strong driven by the government's infrastructure push. Rentals though currently a small market, has started growing and is expected to flourish in the years to come.
In spite of the emerging opportunities for equipment finance in the coming days, major equipment finance players see some challenges. According to Vyas, one of the challenges for the construction equipment financing market in India is that it is still in its development stage and continues to face various issues which act as a deterrent to growth including lack of access to finance, unfavourable regulations and higher NPAs among lenders. He adds, 'First time buyers (FTBs) are prone to high margin requirements (nearly 20-30 per cent) and shorter payback periods.'

With the construction and infrastructure market is expected to do good on a longer perspective, equipment market is on a steady growth which has created a new approach in equipment financing segment. There are new schemes and products are expected to be introduced by various players to attract the customers of various sections such as contractors, rental players, FTBs, etc.

Says Vyas, 'Going forward, revolutionary trends appear to be emerging in the equipment financing sector. There is likely to be increased presence of integrated offerings wherein dealers and OEMs are expected to offer customers integrated choice which will include the equipment finance (and could also cover the life cycle financing of the equipment).

Padhye observes, 'With the government looking at investing in road and rail infrastructure, smart cities, inland waterways, regional airports and metro projects, the demand for construction equipment is set to keep growing for the next few years and the market size is expected to reach close to $5 billion by 2020. Hence the outlook for the equipment finance market looks good with a lot of opportunities.'

Considering the overall infrastructure push, the scenario is positive for the financiers to offer more to the equipment players. However, the industry needs to be cautious about any unexpected change in the current scenario.

CE financing market in India is still in its development stage and continues to face various issues which act as a deterrent to growth including lack of access to finance, unfavourable regulations and higher NPAs among lenders.
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