Identification of assets for operating lease; Integrated Finance Company Limited

Abstract

The project involved the identification of the assets where-there-is a potential for operating lease in the city of Madras. This involved two aspects. The identification of the customer need, and The existence of a profitable secondary market. This was sought to be probed through detailed structured interviews with senior finance professionals and by administering questionnaires. The companies targeted were a mix of existing customers and potential customers so to minimise any biases from coming in. The assets to be identified were put into two distinct categories - productive assets and non-productive assets. The-response to the concept of operating lease was good with almost half the respondents expressing a desire to go in for it. The non-productive ‘assets that emerged as having strong potential were cars and computers. The respondents - showed price sensitivity for the cars since there was perceived to be an organised, profitable secondary market. However it was found that a lot of misgivings came up on introducing the respondents to the concept of operating lease and most of the people felt that even for assets like cars and computers a lot would depend on the residual values offered by the leasing companies. Computer was the asset which was next only to cars. This is a high risk area but returns can be equally high since as of now there. are not enough leasing companies ‘offering leases on computers. Of course, as is obvious, it would be necessary to tie up with manufacturers to be able to hedge against the high technological | risk associated with computers. This does not seem that impossible given the fact that elsewhere in the world such tie-ups have been successfully operated. The assets which offer some potential are air-conditioners and two Wheelers. However a further probing might be able to give a clearer idea of the potential these assets might have to offer. The other non-productive assets probed consisted of two wheelers and HCVs which did not show much potential and do not warrant an entry.