“IT leasing is the way to go in India”

HP Financial Services’ managing director for Asia-Pacific, Charles Jolley, speaks to Shipra Arora about the IT leasing phenomenon and trends in India

What are HP Financial Services’ business operations?
HP Financial Services is a leasing company with offerings ranging from leasing of IT equipment, which includes hardware, software and services for HP customers. Our financial service portfolio includes operating and finance leases, variety of acquisition strategies for multi-vendor/multi-technology solutions, utility structures and lifecycle asset management. There is also a range of re-marketing services to maximise value of older equipment, add-ons and upgrades for corporate accounts and financing for printing and imaging services.

The APAC region comprises almost 18 percent of company’s total portfolio, which is quite substantial. Since the merger of Compaq and HP, that portfolio in both cases has more than doubled.

Please elaborate on your Indian operations and key markets here?
In India we have approximately 100 customers. We leverage our relationship to reach the different verticals that our customers target, which includes telecom companies, banking, finance, manufacturing and the government sector. Our offerings can cut across any vertical. The financial and telco segments, followed by government have been the most prominent markets in our portfolio in terms of volume of business. In future we are looking at servicing the manufacturing sector and will try to strengthen our presence there.

How mature is IT leasing in India?
The total leasing industry itself is very large, of which IT leasing forms a part. In our estimate in APAC alone the size of the IT leasing market in terms of portfolio size is around $100 billion. The IT industry slowdown has positively impacted IT leasing as companies generally tend to go for leasing and financing options now.

Though leasing has been there for a long time, the market in India is not that mature for leasing IT equipment. This is because of tax law amendments that have been affected over a period of time and also the way a typical company looks at IT as a different kind of capital investment as compared to investments in an aircraft or a truck. The contribution of India to our APAC business is only about 1 percent in terms of leased portfolio and the value of our leased portfolio here is presently around $15 million. In the next two years, we plan to almost double the size and take it to $30 million. Today banks in India are looking at extending IT solutions to all their branches and there is also a lot of activity happening on the government front. These factors, assisted by mindset change are leading to a shift from buying to leasing of IT assets. In fact, India has been outlined as a high focus and growth engine for the company in the future.

What benefits does IT leasing offer?
Some key benefits are reduction in total cost of ownership, conservation of capital, preservation of existing credit lines and protection against obsolescence. In a globally competitive scenario, companies are looking at ways of reducing amount of capital tied-up in assets to increase competitiveness. This is possible with flexibility of leasing and financing options instead of buying upfront. For instance in an industry like aviation where a huge amount of capital is tied-up in aircrafts, there is not enough cash left for IT requirements, throwing them open to financing options, thus conserving credit lines.

What competition do you face from banks who also offer leasing options?
We do face tough competition from banks in this regard because they have the ability to access funds at lower rates. They can also finance everything without restricting themselves to IT, which gives them the ability to handle different kinds of portfolios. So, they might be able to take more risks in certain cases than we would ever do. But the advantage we bring is that we are dedicated only towards IT leasing and we understand the IT business better than anyone else. We understand when technology is to be refreshed (replacing older equipment) and offer end-of-term solutions, under which we take responsibility for replacing equipment and reselling it to somebody else. That’s our responsibility and the customer is not paying for it. We offer residual value, which banks are not providing. We take up the residual value of risk involved, typically ranging from 10 to 25 percent of total contract, which is going to be our responsibility at the end of term. This gives us a definite edge over banks.

There are also other value adds like an asset management offering, which allows for Web-enabled tracking and management, helping the customer understand where the equipment is, details of the equipment, how much is paid for it and other such information.

What are the emerging trends in IT leasing?
Utility services and pay-per-use is an emerging trend in IT leasing. The offering allows customers to buy computing power on a pay-per-use basis. Metered billing capability allows paying for actual usage. HP Financial Services tracks usage, bills customers and collects the billing.