'India’s Car Leasing Market Is Worth Rs 1.5K Cr & Poised For 15-20% CAGR'

India's leading car rental, leasing and fleet management provider, Avis India, is a joint venture between Avis Budget Group, Inc. and The Oberoi Group. Avis India has a fleet of around 6,000 premium cars across the country, with a network extending across 50 located rental stations in 20 cities.  BW Businessworld caught up with Sunil Gupta, MD & CEO, Avis India who revealed that the car leasing market is worth Rs. 1,500 crore and is poised for 15-20% Compound annual growth rate (CAGR)  over the next decade.

How important is the Indian market for Avis and how big are you betting on it?
For Avis, all emerging markets, including India, are important.  In most of the categories, growth rates in North America and Europe are declining. India and China are the only two countries where we have a JV as opposed to franchisee or licensee operations elsewhere. We see India and China contributing a lot more in the growth of Avis Budget Group (ABG). We are earning about Rs. 350 crore (in India) with Lease Division accounting for 40% of the business. We are posting a CAGR of 25% for the last few years largely because of the growth of Rent-a-Car in the corporate segment followed by leasing solutions to various companies. Since Leasing is a young segment for us, we hope to post record growth here.  Our overall growth will be 20% over the next few years.

What is the market size in terms of volumes and worth of the Indian car leasing market? And what is your presence here?
The Indian car leasing industry is worth Rs. 1,500 crore.  Fundamentally, the market consists of Finance and Operating Lease and the players are clearly well separated. Operating lease market is in excess of 20,000 vehicles annually and the finance lease market is well over 3 times that. Although most of the cars in India are sold on Financial Lease, Operating Lease market is our forte which we are solely focusing on. This is because, in Operating Lease, you are paying only for the actual value (of the car) in multiple instalments after deducting other residual costs. Under Operating lease, we can also offer services like roadside assistance, Pick-up and Drop-Off replacement of the car. Currently, the market (in India) is 80% unorganised with a majority of them running a fleet of 10-15 vehicles operating through neighbourhood outlets. Only the remaining 20% are through the organised route operated by 5-6 players including us.

How many vehicles are there in your existing fleet and what kind of models are they? Most importantly, what is the average holding period?
Our vehicle fleet count is 6,000, with around 4,000 of them dedicated for leasing operations. We are brand-agnostic and are sourcing all kinds of vehicles barring compact cars. Our line-up starts from entry-level sedan like Etios or Swift Dzire to Mercedes-Benz S-Class and A8.  We usually run our vehicles for 3-5years and later dispose it off in the second-hand market once the agreement ends.

How do ride-hailing app services like Ola and Uber impact your business?
Actually, most of the leased cars are given by companies as a retention tool to their employees. So it is a win-win situation for the employer and the employee as the former can retain the latter for about 4-5 years. For the employee also, it is a good option as any deduction made from his salary on account of lease rental is tax deductible benefit. Coming back to your question, these app-based companies have disrupted the taxi market in a big way which is into the point to point movement of people. Radio taxis have literally disappeared from the market. Even the black and yellow taxis have to come to the aggregator kind of model.

Which states and cities see the maximum traction in terms of demand?
Metros have been the ground for selling leasing traditionally as most large corporate are headquartered there. However, the fleets are deployed all across India.  Some of the marquee clients that we have tied up with are LG, HMSI, Coke, U-Flex, Barclays, Deloitte, Sandvik, etc.

What are your current challenges and what kind of opportunities do you foresee in India?
Customer needs are not only fast evolving but also their expectations. Patience, tolerance, product life cycles, etc are narrowing down at an alarming pace – thanks to smartphones.  Answers / Solutions are expected to be delivered instantaneously as all information is assumed to be real-time all the time. Generally, no one is easily convinced to pay for service as it’s perceived to be available for free. Most products in India are generally sold where hardware is chargeable and software is not. Therefore, it is very important for Avis lease to keep innovating to offer solutions as per ever-evolving customer needs but also deliver its high-quality service consistently to not only grow its customer base but also retain them.

Can you tell us your projected outlook for the company?
Basically, we (the entire group) want to have a fleet of 10,000 cars and clock a turnover of Rs. 600 crore in the next three years and continue delighting our customers by offering personalised solutions.