Page 106 - Constrution Opportunities December 2016 Digital Edition

INDUSTRY FOCUS: EQUIPMENT FINANCE EquipmEnt financing ` Green Growth Pastures Equipment Financing Going by the current infrastructural developments and government’s much needed thrust to infuse vigour into the growth dynamics, there seems to be exciting time ahead for the equipment leasing and finance industry. The massive industry is set to change with latent demand from borrowers and vendors in the marketplace. Acting as stimulus towards demand and NBFCs such as Srei Infrastructure Finance For companies to improve equipment acquiring new customers, construction and Magma Fincorp, leasing companies fnancing in India, four challenges need to equipment financing has been shaping such as ORYX India and Srei BNP Paribas, be addressed: up well in India unlike early days. external commercial lenders, and cross- Lack of easy access: Owing to the lack Financing accounts for about 80 per cent border leasing frms. NBFCs handle 75 - 80 of in-house fnancing arms with OEMs, of the equipment purchased. For imported per cent of ECE fnancing. companies select engaging in short-term machinery, it's even higher, with 90 per cent Globally, rental is a well-established tie-ups with banks or NBFCs. First-time of equipment purchased being fnanced. and a preferred way to finance because users, although forming about 30 per cent of Over the next few years, the ECE fnancing of its simplicity and cost-effectiveness. the customer base, face high-margin money industry is expected to grow by a CAGR of However, India's rental ECE market is requirements of 20 – 25 per cent , compared about 22 per cent . Major fnancing happens underdeveloped compared with other with just 5 – 10 per cent for repeat customers, through loans, owing to the huge costs developed and emerging economies. India's which dampens equipment demand, as per a associated with it, leasing comes across as market is highly fragmented with organised recent study by ATKearney. a distant second option. About 80 per cent players such as Quippo Rentals and Sanghvi Challenges in collection: Most finance of ECE users opting for fnance are micro, Movers accounting for only 30 per cent of users are micro, small, and medium-sized small, and medium-sized enterprises. With the market. Te unorganised sector consists enterprises that depend on third-party ticket sizes varying from `20 lakh for a of about 10,000 players, each with small payments, which can lead to collection backhoe loader purchased by an individual feets of two to 50 machines. Tese players delays and defaults. As a result, the average user to `20 crores for a construction frm's typically ofer equipment only from Indian number of days of sale outstanding can reach bulk equipment purchase, the variety of manufacturers without having any dedicated 150 for organised rental players. Further, players ofering equipment fnancing has maintenance team. All these point towards most of the fnancing business is handled increased substantially. The competitive challenges clutching the growth potential of by NBFCs, which face signifcant recovery landscape now consists of banks such as construction equipment in India. challenges because of a lack of adequate HDFC Bank and Kotak Mahindra Group, Challenges of Equipment Financing regulatory support. 110 construction opportunities|DECEMbEr 2016