lease & purchase for puja maam

7/28/2019 Lease & Purchase for PUJA MAAM

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Financial management



LEASING

DEFINITION: Leasing as financial service is a contractual arrangement

where the owner (lessor) of equipment transfers the right touse the equipment to the user (lessee) for an agreed period

of time in return for a rental. At the end of the lease period, the asset reverts back to the

lessor.

A financing arrangement that provides a firm with the

advantage of using an asset without owning it, may betermed as „leasing‟.



THE FEATURES OF A LEASE

PARTIES

LESSOR LESSEE

person who conveys toanother person (lessee)

the right to use an asset inconsideration of a

periodical rental payment,under a lease agreement

person who obtains theright to use the asset fromthe lessor for a periodical

rental payment for anagreed period of time.



ASSET TERMLEASE

RENTAL

THE FEATURES OF A LEASE

• Leasing is used for financing the use of fixed assets of highvalue.

• Common assets:aircraft, plant andmachinery, building,oil drilling machine.

•The term of thelease is called thelease period.

• It is the period for which the leaseagreement is inoperation.

•Constitute theconsiderationpayable by thelessee as specified

in the leasetransaction.•Rentals is theinterest.



TYPES OF LEASING

Lease

Financelease

Operatinglease

Sale andLeaseBack

Leveragedleasing

Directleasing



FINANCIAL LEASE (CAPITAL LEASE)

Long-term, non-cancellable lease , contracts are known asfinancial leases.

contains a condition whereby the lessor agrees to transfer the

title for the asset at the end of the lease period at a

nominal cost.

At lease it must give an option to the lessee to purchase the asset

he has used at the expiry of the lease.

High cost high tech equipment.

The lease agreement is irrevocable. All the risks incidental to the asset ownership are transferred

to the lessee who bears the cost of maintenance, insurance

and repairs.

Only title deeds remain with the lessor.



OPERATING LEASE

Contrast to the financial lease.

Cancelable and short term.

A lease agreement gives to the lessee only a limited right to use

the asset.

the lease rentals are not sufficient to totally amortize the cost of

the assets.

Maintenance cost is borne by the lessor



SALE AND LEASE BACK

Sub-part of finance lease

The owner of an asset sells the asset to a party (the buyer), who in turn

leases back the same asset to the owner in consideration of lease rentals.

Under this arrangement, the assets are not physically exchanged but itall happens in records only.

Sale and lease back transaction is suitable for those assets, which are

not subjected depreciation but appreciation, like land.

The seller assumes the role of a lessee and the buyer assumes the role of

a lessor. The seller gets the agreed selling price and the buyer gets the lease

rentals.



Process of sale and lease back:



DIRECT LEASING

• Under direct leasing, a firm acquires the right to use an asset from themanufacturer directly.

• The ownership of the asset leased out remains with the manufacturer itself.

• In a direct lease, the lessee and the owner are two different entities.

• A direct lease can be of two types: Bipartite lease and Tripartite lease.

Bipartite Lease: In this type of lease, there are two parties to the transaction-the

equipment supplier-cum – lessor and the lessee..

Tripartite Lease: Under this arrangement, three different parties are involved;they are the equipment supplier, the lessor, and the lessee.



LEVERAGED LEASING

lessor

trusteeLeases the

equipment tolessee

Loanparticipant

• There are three parties to the transaction: (i) lessor (ii) lender and(iii) lessee.

•The leasing company buys the asset through substantial borrowing

with full recourse to the lessee and without any recourse to it.

• The lender (loan participant) obtains an assignment of the leaseand the rentals to be paid by the lessee.

•The transaction is routed through a trustee who looks after the

interest of the lender and lessor.



SINGLE INVESTOR LEASE:

•The leasing company (lessor) funds the entire investment by

raising an appropriate mix of debt and equity.•the lender cannot demand payment from the lessee in the event of

the leasing company defaulting on its debt-servicing obligations.

MASTER LEASE :

• Provides period longer than the assets life and hold the lessor

responsible for providing equipment in good operating condition

during the lease period.

PERCENTAGE LEASE:• Provides fixed rent plus some percent of the previous years gross

revenue to be paid to the lessor. This ensures protection against

inflation.



WET AND DRY LEASE:

In the aircraft industry, when the lease involves financing as well as

servicing and fuel, it is called wet lease. Dry lease provides only for

financing.

NET NET NET LEASE :

In the triple net lease , the lessee is obliged to take care of

maintenance, taxes and insurance of the equipment.UPDATE LEASE :

Protect the lessee against the risk of obsolescence. Lessor agrees to

replace obsolete asset with new one at specified rent.

SUB-LEASE :

A transaction in which leased property is released by the original

lessee to a third party, and the lease agreement between the two

original parties remains in effect.



DEFINATION:

•Hire – purchase is a type of installment credit under which the

hire-purchaser, called the hirer, agrees to take goods on hire at a

stated rental, which is inclusive of the repayment of principal aswell as interest, with an option to purchase

HIRE PURCHASE

•The Hire-purchase Act 1972,

defines a hirepurchase agreement as “an agreement under which

goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement .



Manufacturer Hirer Hirer

Process of Hire Purchase•The Dealer, contracts with finance co. for financing his hire purchase deals.

•The customer selects the goods for HP, and dealer arranges for the complete

set of documents.

•Down payment by customer on completion of proposal form.

•Dealer sends documents to finance co. with request to purchase the goods,

and accept the HP transaction.

•The finance co. signs the agreement and sends copy along with EMI details

to dealer.

•Dealer delivers the goods to the customer, property passes on to the finance

co.

•Hirer pays EMIs, and on last payment , the ownership passes on to him, with

loan completion certificate by the finance co.

SELLS

ASSET

TO

HIRES

ASSETTO



ADVANTAGES OF LEASING:

To the Lessee:

i. Flexibility in structuring of rentals.

ii. Financing of capital goods.

iii. Ownership preserved.

iv. User oriented variants.

v. Quick disbursement.

vi. Obsolescence risk.

vii. Tax benefits.

To the Lessor:

i. Full security.

ii. Tax Benefit .

iii. High profitability.



DISADVANTAGES OF LEASING

1. No Ownership

2. Costly option - high interest rates, costlier than

straight buying

3. Long Term Expense

4. Maintenance

5. No working capital



ADVANTAGES OF HP Allows to buy more expensive items on credit. It may be easier to get a hire purchase agreement

than a bank loan or credit card.

DISADVANTAGES OF HP You do not own the goods untill you pay the full

amount.

HP company may take away the goods if payments

are not kept up. HP can be more expensive than a loan or a credit

card.



LEASING IN INDIA PRESENT INDUSTRY ORDER

SREI InternationalFinance

Sundaram Finance

Cholamandalam Finance

Mahindra & Mahindra

GE Capital

Shriram Finance

Tata Finance

Countrywide Finance

Citicorp



CASE STUDY

Swastika Investsmart



• SWASTIKA FIN-LEASE LIMITED was incorporated as aPublic Limited Company on 3rd June, 1992

• It obtained the certificate of commencement of businesson 24th June, 1992 from Registrar of Companies (ROC)Maharashtra at Bombay.

• Presently the company is engaged in the business of Hire Purchase, Leasing.

• The Company is primarily engaged in providing Hire-purchase finance on vehicles and consumer durable toindividual customers and institutional buyers.



The Company has made tie-up with the authoriseddealers of various automobiles vehicles & consumer

durable products for implementing its leasing and hirepurchase business.

To improve the business the company has adopted the

institutional approach for financing the employees.

The Company has already enter215 Hire-Purchase andLease Agreements with individual and institutional clients.

The Company has disbursed following amount in leaseand hire-purchase activities:-



Hire Purchase

Period Ended31.3.2004



Disbursement 6,24,096 8,96,600 8,94,700

Recovery % 100 100 100

Bad Debts NIL NIL NIL

Income Earned 61,769 1,81,086 57,791

Lease

Disbursement Nil 2,41,300 Nil

Recovery % Nil 100 Nil

Bad Debts Nil Nil Nil

Income Earned Nil 7,500 60,000



Since all debtors, Loans & Advances are considered good, noprovision for the same are made.

There are 100% recovery of interest/principle due from clientsand there are no bad and doubtful debts from the companiesin which the director are interested.

None of the directors are interested with these transactions.

The Gross Income of the Company has increased from Rs.1.32 lacs in 2003-04 to Rs. 4.28 lacs in the year 2004-05.

The Company has achieved the Gross Income of Rs. 9.03lacs upto 31st October, 2006.



DIFFERENCE BETWEEN LEASING & HIRE PURCHASING

• OWNERSHIP - in lease the ownership rests with the lessor throughout & hirer has no option to purchase the goods.

• METHOD OF FINANCING – leasing is a method of

financing business assets, hire purchase is a method for both business assets & consumer articles.

• DEPRECIATION - investment allowance can not beclaimed by the lessee, depreciation and investment

allowance can be claimed buy the hirer



Difference..• MAINTENANCE – maintenance of the hired asset is borne by

the hirer, in lease maintenance is responsible by lessee.

• REPORTING - the asset on hire purchasing is shown in thebalance sheet, the leased assets are shown by way of foot note

only.

• DEPOSIT - lessee is not required to make any deposit, 20%deposit is required in hire purchasing

• EXTENT OF FINANCE – In hire purchasing the extent of financeis not 100% because of down payment whether in case of leasing extent of finance is 100% because there is no downpayment.



MEANING

Venture Capital (VC) is defined as long term funds in equity or

semi equity form to finance hi-tech projects involving high risk& yet having strong potential of high profitability.

Venture capital is attractive for new companies with limited

operating history that are too small to raise capital in the publicmarkets and have not reached the point where they are ableto secure a bank loan or complete a debt offering.

VENTURE CAPITAL



FEATURES OF VENTURE CAPITAL

: Venture financing is potential equityparticipation through direct purchase of shares, options or convertible securities.

: Venture financing requires long-term investment attitude that necessitates the Venturecapital firms (VFCs) to wait for a long period, say 5 to 10years, to make large profits.

: Venture financing ensurescontinuing participation of the venture capitalist in themanagement of the entrepreneur‟s business.



STAGES OF INVESTMENT



VENTURE CAPITAL INVESTMENT PROCESS



EXISTING PLAYERS IN VENTURE CAPITAL

Accel Partners India Artheon Ventures

DFJ India

Epiphany Ventures Helion Venture Partners

IFCI Venture Capital Funds

Intel Capital

Nexus India Capital

http://en.wikipedia.org/w/index.php?title=Accel_Partners_India&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Artheon_Ventures&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=DFJ_India&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Epiphany_Ventures&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Helion_Venture_Partners&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=IFCI_Venture_Capital_Funds&action=edit&redlink=1

http://en.wikipedia.org/wiki/Intel_Capital

http://en.wikipedia.org/w/index.php?title=Nexus_India_Capital&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Nexus_India_Capital&action=edit&redlink=1

http://en.wikipedia.org/wiki/Intel_Capital

http://en.wikipedia.org/w/index.php?title=IFCI_Venture_Capital_Funds&action=edit&redlink=1




http://en.wikipedia.org/w/index.php?title=Epiphany_Ventures&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=DFJ_India&action=edit&redlink=1









NEXUS INDIA CAPITAL

Nexus India Capital is one of the two firms fromIndia to be named in the Red Herring top 100Global Venture Capital firms.

According to Red Herring, this group of Top 100Venture Capital firms represents almost all of theexits, returns, or liquidity events that havehappened since 2003.



NEXUS INDIA CAPITAL

What they like to invest Passionate and driven entrepreneurs Innovative products, potential markets Differentiated product and services

When they invest Early stage of companies Range up 10 million yearly or at every stage Do not seek to control the company where they invest in.

How they work Limit 6-8 investment per year the amount of involvement in a company depends on the

stage of the company and the need of the entrepreneur get involved in recruiting talent, market intelligence,

business development, strategy and future financings.



PRIVATE EQUITY

Private equity consists of investors and funds that make

investments directly into private companies.

Medium to long term investment.

PE funds are raised from pension funds, insurancecompanies, large corporate, HNWI, etc.

Investors in PE funds are called “Limited Partners”.

PE funds are managed by the “General Partners”.

Among the most common investment strategies in privateequity are: leveraged buyouts, venture capital, growthcapital.



STRATEGIES IN PRIVATE EQUITY

Leveraged buyouts

Venture capital

Growth capital

Distressed investments Mezzanine capital.

http://en.wikipedia.org/wiki/Leveraged_buyout

http://en.wikipedia.org/wiki/Leveraged_buyout



WORLD’S BIGGEST PE FIRMS

CARLYLESince inception, Carlyle has invested $49.4 billionof equity in 836 deals for a total purchase price of $220 billion;

BLACKSTONE

Global AUM $119.4 billion in private equity, realestate, Funds of Hedge Funds, CLOs, Mutualfunds;



INVESTMENT BENEFITS

Adding a risky asset with a low correlation of pricing trends compared to traditional assetclasses can reduce the risk of an overall portfolio;

Relatively good returns of PE over the last years.



DISADVANTAGES

Illiquid investments: PE funds are closed-end funds (except secondary market);

Time line too long: PE funds has a 5-year investment period and a 10-year life;

Restricted information disclosure: Only LPs have access to the fund‟s performance.



TOP PRIVATE EQUITY DESTINATION

IN ASIA

72%

52%

43%

24%

10%

India Australia/ NZ Greater China South Korea Japan

Annual Growth in Private Equity Investments (1998-2007)

• From 1998 – 2007, India was the fastest growing private equity market in Asia

• In 2007, India was the largest market for private equity investments in Asia (ex. Australia)



INDIAN PRIVATE EQUITY OPPORTUNITY

• Second fastest growing major economy in the world, projectedto grow at 8% p.a. until 2020

• Projected to be 2nd largest global economy by 2050

• Favourable demographics, consistent policy decisions anddomestic consumption driven economy

India’s Growth

Potential

Development of

Private Equity

in India

• Private equity investment in India has increased 28x fold from 2003-2007

• In 2007, US$14.2 billion of private equity transactions were completed

• Increased diversification by both industry and types of investment

Overview of

ICICI Group

• One of India‟s pre-eminent financial institutions

• Relationships with a broad range of corporate across all sectors

• One of the largest India-focused private equity funds

lease & purchase for puja maam

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