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Construction : Focus | April 2018 | Source : Equipment India

Growth in equipment finance market to continue

A substantial upswing in sales of construction equipment in the last two years, mainly driven by roads and other infrastructure projects, has improved the prospects of equipment finance sector. Shantanu Padhye, Business Head - Commercial Vehicle & Construction Equipment Loans, Mahindra & Mahindra Financial Services, shares more on the industry trends.

How are you experiencing the growth of construction equipment finance in India?
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 roads and other sectors. Hence, the construction equipment finance market has also grown, and this strong growth is expected to continue for some time.

Do you provide finance to all equipment segments?
We have a business relationship with most of the major construction equipment OEMs in the country, and finance the standard equipment sold by them. We also keep adding new categories depending on the demand, market trend and requirement of customers. We also provide finance to used standard equipment.

How do you rate the demand from contractors, rentals and auctioning?
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. There are multiple initiatives and platforms being created by OEMs as well as equipment finance players for auctioning and hence it is set to get much more organised in the coming years.

What kind of growth do you expect in different customer segments such as contractors, rentals, FTBs and used equipment?
Contractors will be the major growth drivers. The share of rentals and used equipment finance though a smaller portion of the entire pie, will grow at a fast rate. First time buyers (FTBs) may be under stress due to high initial cost of deployment. We will keep bringing more relevant, innovative and customised products to address the changing needs of various customer segments.

What are the new market opportunities you foresee in equipment finance? Do you see any major challenges?
Currently, equipment leasing constitutes only about 5-8 per cent of the market, whereas globally leasing constitutes around 45-55 per cent of construction equipment market. In the coming years, leasing is set to pick up considerably with customers looking at optimising costs. Hence there will also be a scope of creating innovative finance products for the leasing market.

Also, the used equipment market in India is currently not that developed. However, over a period of time, it is set to develop considerably, thus increasing the demand for relevant products in the used equipment finance space. Incremental finance needs of rapidly growing clients will be an important challenge as well as an opportunity.

Where do you see the market in 2020?
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.

'In the coming years, leasing is set to pick up considerably with customers looking at optimising costs. Hence there will also be a scope of creating innovative finance products for the leasing market.'
 
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