Arval enters the lease plan market

BNP Paribas, through its subsidiary Arval, plans to tap significant profits from India’s automotive leasing industry. Arval, which is already present in 22 countries worldwide, is a fleet and fuel management company in the UK, and is now in India.

Arval intends to tap at least 15 percent of the Indian market share in the next four years. The company currently owns nearly 500 vehicles available for leasing in Mumbai, Chennai, Bangalore and Delhi. It plans to expand to Pune, Hyderabad, Kolkata and Ahmedabad and own a fleet of at least 10,000 vehicles in the next five years.

The parent company has already invested Rs 27.5 crore to set up the India operation and intends to source at least Rs 400 crore more for purchase of assets in the future. This amount however will be funded by either BNP Paribas or through loans from Indian banks.

Arval already has 60 clients (including TBWA, Whirlpool, Honda and others) in India and will tap clients of its parent BNP Paribas in the other markets who are already present in India.

Big business opportunity

According to Liam Donnelly, managing director, Arval India, “India is a terrific market opportunity for operational lease. With over 350,000 corporate vehicles in the market, we expect to see this sector nearly double in the next five years. If we can play our part in this growth, then we would expect our total managed fleet to be approximately 10,000 vehicles by the end of 2012. This means we will have created a business with an annual turnover in excess of Rs 270 crore and have purchased vehicles during this time with a market value in excess of Rs 630 crore.”

Operational leasing implies that corporate companies can use the vehicle fleet without actually owning it. Here, the leasing company leases a vehicle for a specific period to a corporate against a rental.

According to a study by Corporate Vehicle Observatory, Arval’s independent research arm, Indian companies either have a tendency to buy cars or give cash to employees as part of their annual salary as car allowance. This mode of car leasing will bring down such expenditure to a great extent, removing this financial burden from company balance sheets. It will also reduce maintenance, service and the insurance risk as under operational leasing mode, all these risks are taken care of. Also, the client gets to save substantial amounts of money as it does not have to invest in car purchase.

Donnelly is optimistic about the growth that Arval will tap from the Indian market. Despite the grim economic scenario worldwide, he sees growth coming in from this part of the world. He reasons, “Our experience in Europe tells us that during such times corporate clients bank on lease formats like ours. Thus, more and more Indian corporate clients would be interested in this kind of format.”