The company car and the vehicle leasing markets in India are at an emerging stage, but have shown potential for high mid-term growth.

Fleet leasing companies still continue to offer traditional vehicle leasing models (operating and financial lease) but slowly, untapped markets such as short-term rentals, corporate car sharing and cab leasing are being explored. Large corporates is the focus market for leasing companies seeking growth, improve profit margins and mitigate risks whereas small and medium enterprises (SMEs), start-ups and private lease remain underserved, high-potential markets, according to research by Frost & Sullivan.

New analysis from Frost & Sullivan on Strategic Analysis of Indian Fleet & Leasing Market, finds that more than 52,000 passenger vehicles were leased in India in 2015. Operating leases contributed close to 80 percent of the total vehicle leasing market. The total vehicle leased is estimated to increase by 35 percent by 2020 and operating lease is expected to be the key growth driver, according to the researchers.

“Large corporates are increasingly warming up to the concept of leasing as they wish their service teams to be mobile and want to provide them with a safe means of transport,” said Frost & Sullivan’s Intelligent Mobility Senior Research Analyst Neha Makdey. “They are gradually shifting from outright purchase to vehicle leasing to take assets off balance sheet, lower cash outflow, mitigate resale risk and reduce fleet ownership costs.”

Currently the Indian tax structure is ambiguous and complex for lease transactions. The expected GST implementation in 2016 will give a boost to the vehicle leasing industry by reducing the complexity of the tax structure and making the monthly rentals cheaper as leasing companies pass on the tax benefits to the customers. Indians tend to replace cars every three to four years, and if this trend persists, private leasing will have opportunities to grow in the premium car segment. Additionally, the entry of cab aggregator to the cab leasing market is expected to give a fillip to passenger vehicle leasing in India, according to the researchers.

“Overall, the leading fleet lease companies can increase sales by creating awareness about the benefits of vehicle leasing and exploring the emerging markets such as car rental, cab leasing, and corporate car sharing,” noted Makdey. “Improvements and upgrades in fleet analytics and reporting will play a major role in the reducing the total cost of ownership for the vehicle, giving added thrust to the fleet and leasing market.”