A. The total size of this industry should be about Rs 250-300bn. Around 50% of the sector comprises loaders and excavators. We are the leading player in the infrastructure and construction equipment (ICE) segment with over 30% market share. We have partnerships with more than 210 leading domestic- and international-equipment manufacturers and hold 20-40% market share across leading OEMs such as JCB, Volvo, TATA, and L&T. With other financiers exiting the business, we will dominate and maintain our leadership position in the market.
A. We cater to a wide range of customers including project owners, large fleet owners, first-time owners, and first-time buyers. Around 65% of our customers are wholesale and 35% are retail. While 90% of our CME (Construction and Mining Equipment) portfolio is comprised of new equipment, 10% is in pre-owned equipment. We aim to take our pre-owned equipment share to 20% by FY18. We are also diversifying into other segments such as IT, health care, material-handling equipment, and tractors. The change in product mix towards higher-yielding segments will aid our margin improvement. We expect NIMs to improve substantially in the coming 2-3 years.
A. We are an end-to-end solutions provider present across the value chain starting from procurement to disposal. Be it asset purchase, asset deployment, asset management and asset resale, we are present across the value chain. We also advise our retail customers on what type of equipment would be ideal for their projects. In cases where a customer is not able to deploy his assets, we help him in deploying his assets in our own projects or other projects where we have relationships. The SREI group has interests in eight road projects of which four are operational. We also have around 56 yards across the country to take care of the assets’ wear and tear. This helps in better customer-relationship management. We have a client base of more than 40,000 customers.
A. Stress is seen across all infra segments such as mining, road, and construction. In road, equipment cost constitute 20-25% and in mining,equipment cost constitutes almost 40-50% of the overall project cost. With lot of projects getting stuck in the last two years in road and mining, utilisation levels of equipment went down significantly. This impacted the repayment capability of equipment owners. South region is relatively showing more stress, especially Andhra Pradesh—most of the sales of construction and equipment happen in this region as the largest number of construction companies and contractors come from here; the problem has escalated after the split of the state.Contract mining is doing well, while project mining has not picked up yet. Road segment is showing some signs of improvement as around Rs 250bn worth of road projects are underway—these include EPC road projects worth Rs 200bn where tenders have already been in process.
A. Large number of stalled projects (due to environmental issues, land acquisition, and funding issues) has been affecting corporate cash flows. Many claims are stuck with the government in various projects like roads, where there is change in scope of work (like change of routes). If you look at our customer profile, around 65% of the buyers are strategic while instead of with 35% are retail. Most of these strategic customers are facing cash-flow problems as their payments are stuck. Retail segment is also facing problems as it is not able to deploy equipment due to lack of operational projects.
A. There is no exact data on this, but our interaction with customers suggest that the idle capacity in the system should be around 25-30%, which is the highest in many years. We do not expect the idle capacity to come down significantly in the next 6-9 months. Over 1-2 years, we expect this to come down to 5-10% as the economy picks up.
A. There is not much activity in the resale market as utilisation is at its trough. Over the last two years, resale prices have been declining and in the last one year, there has been a fall of another 10%. With pick up in utilisation over the next 1-2 years, we expect the price in the resale market to stabilise.
A. The cost of funds stood at 10.8% in the last quarter. We aim to reduce cost of funds through diversifying with wide spectrum of lenders. We are exploring new avenues and increasing the share of retail funding through options like NCDs. We have recently closed our maiden public issue of NCD, and raised Rs.4.1bn.
A. We expect the industry to grow by 5-10% in FY16 and 18-20% in FY17. The growth will be driven by road and urban infrastructure, construction, and contract mining. Construction equipment picks-up first as the equipment find use in other segments as well. This will be a year of impact and we expect provisions and write-offs to remain similar to last year’s levels. At the same time, we do not see things getting worse from current levels and expect GNPA to come down to moderate levels by FY18.
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