Interview with Sunil Gupta, CEO, Avis India

Company Description: India’s leading car rental provider Avis India is a joint venture between The Oberoi Group and New Jersey-based Avis Budget Group. It has a fleet of more than 1,400 premium cars across India. With a network extending across 42 conveniently located rental stations in 19 cities. It’s a one-stop-shop for all car rental needs. In India, it has a vision to continue to build an infrastructure for car rental operations which would be second to none and would meet the highest expectations of business, corporate and leisure travelers.

Avis India started with car rentals and has now entered the car leasing business. Do you see a huge market in the car leasing business in India?

Actually, we have been eyeing this business for a long time. It’s a natural extension of what we are doing at present (car rentals). We always catered to the corporate sector. But the decision to foray into car leasing is well-timed.  A lot of awareness was required to create this concept. Moreover, the growth in this business was also low. Now, we have seen a growth of 25pc+ growth in the operational lease. The market is ready for expansion and new players to come in. Furthermore, the regulatory issues have become a bit clearer. So if you are in the operating lease segment, you are free to run the business. But if you are thinking about financial lease, then you need to comply with FDI regulations.

Typically how does a corporate gain from going into leasing cars rather than buying them outright?

First of all, when you buy it outright, then you need to put in margin money. And you don’t get 100pc financing. But in getting a car on lease, there is no down payment required. So it’s a fully ‘paid-for services’ offer. Secondly, when you buy a car, you need to manage it yourself. You need an administrative department to manage and look after the cars i.e. bearing the registration, insurance and maintenance expenses. The third issue is you are also involved with manpower and other service expenses. But if your car is leased, you pay a fixed amount every month spread over the entire duration of the lease agreement. So there is full predictability for the corporate. So they (customers) know how much it is going to cost because we advertise the entire cost for the entire fleet of 6,000-7,000 cars over that many number of cars.  So we can obviously manage the fluctuation of individual cars in the large fleet.

You are offering a Red Carpet Lease, besides a Premium Lease and fleet management and fleet consultancy. What are the features that distinguish one from the other?

Basically, in the ‘Red Carpet Lease’, we are offering a complete suite of solutions which means it has got a vehicle and all the services which we feel are critical for customers. It has got a built-in vehicle financing solution, maintenance, insurance and other expenses, roadside assistance, pick-up and drop service, etc.  So a ‘Red Carpet Lease’ customer will be shorn of any headaches or anxieties involved in leasing. However, there might be some customers who opt for ‘Premium Lease’ and many not require all such facilities. So there is a little bit of flexibility for them to choose what kind of services would be conducive for them. In the case of ‘Fleet Consultancy’, we provide expert guidance to a lot of companies pertaining to the kind of cars they would like to buy, or the best deals, etc.  Then there are companies who already have cars, but would like to outsource the administrative expertise to us. Such a programme is called ‘Fleet Management’.

What is competition like in the car leasing business? There are already existing companies like ‘Lease Plan’ and others in this space, so would it mean grabbing their share of business or the market itself is big enough to accommodate a lot of players?

The way the Indian market is witnessing an unprecedented growth in the operational leasing space, I feel there is a scope for every player to expand. In fact we welcome more players because that will ultimately expand the fleet size. Then it will be easy for us to convince our business model to the corporates. We would want this industry to grow at a much faster rate.

How is your car rental business progressing? Is this business model confined to the major metros only or are you looking at tier II cities too? Are you able to also tap ordinary homes or are these customers again from corporate houses etc?

We are very happy with the way the car rental business has shaped up. This is because as the market is evolving, our clients are feeling the need to have high-quality organised sector players who offer a very high standard of services. And they also want the players’ coverage across the country.  This is primarily owing to the fact that they are increasing worried about compliance, safety, security, etc.  A company like ours has a nationwide presence with consistent quality. Our client can have a single-window interaction with us. We deal with a single procurement agency and all the billing and transactions are done with that entity. As a result, we have doubled our corporate turnover in the last couple of years. And as and when the demand increases for our kind of services, we will reach out to smaller towns too. Currently, we are present, in 19 cities. Going forward, we are planning to enter Coimbatore, Aurangabad, etc which are becoming major hubs for textiles, automotives respectively. Right now, 98pc of our sales are derived from the institutional segment and the remaining ones from the retail segment. We are also promoting the concept of ‘Self Drive’ despite the fact that it is not very buoyant as of today.

This segment has a large number of unorganised players. How do you function in such scenario?

As I mentioned earlier, we have to work much harder to prove to the corporates that our kind of services would be much more beneficial. Although we are commanding a premium, the returns on their investment are worth it. Secondly, we have to invest a lot in the IT solutions in order to have pan-India coverage. We also want to make sure that the users are empowered. For example, we are now developing a corporate portal wherein our clients can know the size of the deal and execute a transaction. And we use a car which is only 1.5 years old and not beyond 3 years. So that has a big impact on quality and reliability.  And we also make sure that all the models are serviced at authorised service centers of the companies. And our drivers are also well paid and are well groomed for driving and other soft skills. The reliability factor also comes into the picture.

Recently you launched ‘Chauffeur-driven family Getaways’. What has been the response to this? Again, here do you merely offer your car and driver or do you also recommend destinations and have a tie up with hotels there?

During the holiday seasons, a family usually wants to go out on their own. But they don’t want to drive. They would like to book a chauffeur-driven car. What we have done is making it easier for the customers by offering them packages for extended weekends, maybe 3-4 days.

Your car leasing business will require additional infrastructure at your end. Have you increased the number of your offices across India and the support staff required?

No, we actually need support staff for business development, operations, etc. But for finance, IT and HR services will be pooled in together.

Avis India is a JV between Avis Budget group in New Jersey and the Oberoi Group. How are these companies leveraging on the strengths of each other?

Basically, EIH (under the Oberoi Group) wants to make sure that the quality of service gets received once they get a public transport is a luxurious experience for their guests.  And they also wanted to implement the practices which are in tune with global standards. Avis has been in this business for the last 66 years internationally. So they have developed systems and processes which ensure quality of services is high. Likewise, Avis wanted a local partner. So it’s a win-win situation for both of them.

Do you recommend destinations and hotels to your customers?

It depends on what product we want to sell. For example, when you want to promote self-drive for some domestic or international destinations, we make it easier for our customers by tying up with a travel partner.  So we and our travel partner take care of our customers’ traveling, hotel and ticketing requirements etc. So it’s a one-stop shop for the customer. And yes, we have promoted amenable destinations like Thailand, Europe, etc. And we get better returns on our packages.

Out of your total business, how much will the leasing domain contribute?

As the need for both leasing and rental car is there, we are expecting a 50:50 split by 2015-16.

What are the numbers, both in terms of revenue and fleet size; what do you hope to do in the next few years in terms of leasing out vehicles to corporates as well as in terms of total revenues?

What we are looking at is that we will do US$ 30 million per year in the rental car business on a sustainable basis. In the leasing business too, we aim to post a similar turnover on an annual basis in the next 4 years. By that time, we should be having 7,000 cars for leasing and 2,500-3,000 for rentals. So we should be having a net fleet size of 10,000 cars by 2016-17.