& Rentals. By : Ranjit Manjarekar

Transcription

1 Construction Equipment Finance & Rentals By : Ranjit Manjarekar

2 2 Overview

3 Construction Equipment Financing in India: Overview CEQ Manufacturing CEQ Manufacturing ~ Rs Cr production in Majority of pie comes from Earthmoving & Material handling Equipments Earthmoving Road Concrete Material Equipments Equipments Handling CEQ Finance ~ 85% Total OEM Sales CEQ Finance Used Equipment + New Equipment finance Market is of ~ 40 Crs. Hirers Contractors Institutional Users Large EPCCO. & Developers Majority of pie comes from Hirers & Contractors 3

4 Construction Equipment Financing & Rentals in India: Overview The market started evolving only after year 2000 Most of the technology leaders came to India as joint venture companies or have set up their own manufacturing facilities or marketing companies. Opportunities in leasing & Rental Equipment rentals and leasing business in India is small relative to developed markets and has a strong growth potential to grow. A new battlefield Eyeing on the demand in near future most of the NBFCs, Pvt Banks and Govt banks too ready with Equipment rental/ Leasing offerings 4 Source:IBEF

5 Evolution of Customer Expectations Price Vs Value focus Changes expected in CEQ financing market with time Manufacturer, Contractor, Fi nancer Value Focused Contractors Institutional Users Large EPC companies & developers 5 Price Focused Hirers Urban & Semi Urban Market While Indian customers are price sensitive, with experience they tend to become more value focused; offering and demanding quality and after sales services

6 Opportunities

7 Equipment Financing: Opportunities in Rentals & After Sales Services Rental & Leasing After Sales Service The equipment rental and leasing business in India is smaller compared to Japan, USA and China Demand for rental equipment is set to witness strong growth in the medium term due to large investments t in infrastructure t New players can also explore opportunities in the equipment finance business The global average of revenues from after-sales service is per cent; in India it is 2-8 per cent After-sales market is set to expand to USD0.5 billion by 2015; players can offer maintenance contracts with improved pricing ii and execution While these services contribute only modestly to revenues, they are counter-cyclical l and can also boost spare part sales 7

8 Rental could supplement the financing model currently, low penetration of rental in india Rental penetration in construction equipment markets around the world (2004) Rental market in India: Key features Unorganized and fragmented Rental industry in India, dominated by small rental companies 100% - ~10,000 unorganized small players - top 8 players account for only 10% of the industry - certain large contractors rent out their un-utilized 80% equipment on a small scale 60% 40% 80% Typical reasons for equipment to be taken on rent/ hire - as a stop gap arrangement to meet peak load - as a temporary measure till the specialized equipment can be delivered (time from order to delivery is long) 20% 0% 2% 20% 35% India Europe North America UK Several gaps exist in meeting customer needs - new machines usually not available on rent - rentals mostly restricted to low to medium value, general purpose equipment e.g. excavators, dozers, cranes etc - new technology equipment typically not available - current rental players have a limited service offering Source: CII-KPMG Report on Indian Infrastructure Equipment, Market interviews, BCG case experience

9 Operating lease appears to be promising Globally, leasing is the dominant means of obtaining new equipment constitutes ~45-55% of construction equipment market in USA (FY05) In India, however, equipment leasing is not widespread d constitutes only ~5% of construction equipment market (FY05) adverse tax regulations have inhibited adoption of lease Leasing is starting to look attractive in certain pockets New VAT rules make leasing attractive in imported equipment markets Certain customers may prefer a lease over a loan large contractors planning an IPO prefer lease to de-leverage their books foreign contractors prefer leasing to financing Players are starting to experiment Many players are fully active including NBFCs & Banks Expect to grow over time Source: Industry reports, Customer interviews

10 Challenges

11 Equipment Financing: Challenges Front Co ollections Tracking of Equipment movement & performance Govt. support on Non Registered assets Funding Norms Fixed Rate to Floating Rate Mindset Innovative loan structuring Ris sk Manage ement Linking Risk in equipment funding with Sector & project Risk Funding plans for customer s life cycle New Opportunity for Deployment of Assets Front At OEMs AMC with customers for the loan tenure Customer Education Development of 2nd hand Equipment Market Buy Back schemes 11

12 The Way Forward Financer Manufacturer Sub-contractor Financing of assets or ownership of asset Maintenance of assets & assured buyback on completion of project Execution of projects or manpower provider All Infra Companies, EPC contractors would like to remain Asset light looking at the current market scenario as they have huge constraints on capital investments. Their focus will be on how efficiently i they can execute the job. There is going to be synergy between financers and manufacturers to work together on renting/ operating lease option. Also there could be synergy between financers, manufacturers and small contractors (sub contractors) for execution of projects

13 For a Win-Win Scenario, Best wishes to one & all, as to be in the race we all need to be healthy & strong!!! Thank You!!!