Srei Equipment to Finance Used Construction Equipment
Srei Equipment Finance Private Ltd plans to venture into used construction equipment and agriculture financing businesses this year.
This is to offset the slowing growth in its new construction equipment financing business.
As part of its risk diversification strategy, the NBFC believes that the next wave of growth will come from used construction equipment financing even as it will continue to focus on its new equipment financing business. “We think used construction equipment financing is a very low asset risk and low credit risk business and the return on investment is typically higher,” said D.K. Vyas, Chief Executive Officer.
Srei Equipment Finance Private Ltd is an equal joint venture between Srei Infrastructrue Finance Ltd and BNP Paribas.
According to Vyas, the market for used construction equipment is about Rs 20,000 crore. “The yield on used construction equipment financing is typically two to three per cent more than new construction equipment financing,” he said.
The company is planning to invest around Rs 500 crore to foray into the used equipment business this fiscal year. The investment will be ramped up over the next two to three years. The company expects used equipment financing business to account for 20 per cent of the overall business in two years.
As of September-end, the NBFC’s assets under management stood at Rs 18,500 crore.
Vyas said there has been a slowdown in demand for new construction equipment this year. This reflects the fact that many infrastructure development companies have cut down on new capital expenditure plans. However, there is a lot of demand for used construction equipment financing, he added.
The company also plans to finance the entire value chain of the agriculture business. It is working on the business model for making agri-financing viable.
“We want to do more of business model-based financing rather than opportunity-based financing,” Vyas said referring to the huge untapped market in the agri financing space.