Page 63 - Built Expressions - Online Construction Magazine - November 2014 Issue

Cover Feature supported by proportionate expansion sectors for ECE, accounting for up to 12 machinery, it’s even higher, with in urban services, which will spur to 15% of the project cost. With large 90% of equipment purchased being demand for construction equipment. investments expected to pour into this fnanced. Over the next few years, the sector over the next few years, spending ECE fnancing industry is expected to Rural Infrastructure: Irrigation on ECE for irrigation projects is also grow by a compound annual growth and Rural Roads likely to get a boost. rate of about 22% (see fgure 4). Rural infrastructure is essential for Most fnancing is through loans, with India’s agricultural sector and the Growth Enablers leasing as a distant second option (see livelihood of more than 800 million Equipment Financing and sidebar: Financing Models in India). people. Agriculture provides an income Renting About 80% of ECE users that opt to for half of the country’s population As with any product that requires a large fnance are micro, small, and medium- and commands a steady share of its one-time capital expense, fnancing sized enterprises. With ticket sizes economy—approximately 14% of is a good way for the construction varying from Rs 20 lakh for a backhoe economic output. Developing the rural equipment industry to spark demand loader purchased by an individual infrastructure, especially irrigation and acquire new customers. In 2011, user to Rs 20 crores for a construction and roads, is crucial not only to sustain India’s ECE fnancing industry was frm’s bulk equipment purchase, the the population’s livelihood but also to valued at Rs 23,000 crores. Financing variety of players offering equipment improve mobility and connectivity. accounts for about 80% of the fnancing has grown. The competitive Irrigation is one of the most intensive equipment purchased. For imported landscape now consists of banks such as HDFC Bank and Kotak Mahindra Group, NBFCs such as Srei Infrastructure Finance and Magma Fincorp, leasing companies such as Figure 3 ORYX India and Srei BNP Paribas, external commercial lenders, and cross-border leasing frms. NBFCs handle 75 to 80% of ECE fnancing. Large players are expected to continue to dominate, thanks to the growing ticket size of construction- frm purchases and the continued dependence on imports, which require large banks to settle the transaction. The Rental financing Market Globally, rental is a well-established, Number of Urban Centers preferred way to fnance because it is simple and cost effective. However, Construction equipment inancing in india is expected to grow India’s rental ECE market is underdeveloped compared with other developed and emerging economies (see fgure 5). India’s market is highly fragmented with organized players such as Quippo Rentals and Sanghvi Movers accounting for only 30% of the market. The unorganized sector consists of about 10,000 players, each with small feets of two to 50 machines. These players typically offer equipment only from Indian manufacturers and don’t have any dedicated maintenance team. The limited presence of large Source: A.T Kearney Analysis Figure 4 organized players is restricting the Vol: 3 Issue: 11 November 2014 Built Expressions PG 63