Annual Operating plan of Electrika Private Limited for Financial year 2020-21

Assignment Taken

Annual Operating plan for Financial year 2020-21

Case Understanding

In today’s world, pollution poses a serious threat to environment and life. As the world is moving towards renewable and cleaner sources of energy, sectors pertaining to renewable energy and electric vehicles have a great scope in the developing countries like India. A group of budding entrepreneurs plans to develop and penetrate the growing sector of electronic vehicles in India. They already have a prototype electric vehicle. Problems identified 1. The fund available with start-up is low, although prototype has been prepared which will significantly reduce the cost of research and development but the huge manufacturing cost will still be the hindrance for the start-up. 2. As a new entrant to the automobile industry, the company will face competition from big and established players. 3. The costs in the e-vehicle industry is uncertain as the industry is still under development. 4. It will be difficult for the company to attain breakeven in near future. 5. Various alternatives have to be explored so that the funds can be raised.

BCS Solution Summary

In the initial years company will rely upon outsourcing manufacturing and will set up their own manufacturing plant by the end of FY 2023-24. As the prototype has already been prepared, it will reduce the R&D cost of the company. The company is expected to start generating revenue from September, 2021. The capital will be raised from time to time to facilitate smooth business operation.

Solution

• It has been decided to incorporate a company named Electrika Private Limited, having its head office in Bengaluru. All the required procedures for the same will be completed in a month, so the company could proceed with its working.
• Due to lack of funds it was clear that Electrika Private Limited will not be able to open its own manufacturing plant, to convert their plan into reality they will have to rely upon contract manufacturing.
• The prototype has already been prepared, so now the focus of the company will be to get the patents and other related documents.
• Company will be using the corpus fund available for initial months and in the later half of FY 2020-21 loan of ₹30 lakhs @ 16% p.a. will be procured.

 

Operating Plan

• The company will perform R&D to further improve the prototype vehicle already prepared and perform extensive tests to make the vehicle market ready.
• After completing all the required modifications, company will file for patent which usually take around 15 months for approval.
• Meanwhile, the company will try to find potential manufacturers and distributers and invite quotations from the same. After the screening process is completed and the manufacturers and distributers have been finalised, the company will enter into binding contracts containing non-disclosure clause.
• Company will start the marketing campaign by the end of second quarter of FY 2020-21. The vehicle is expected to be first revealed at the Auto Expo.
• Company will procure a loan of ₹30 lakhs @ 16% p.a. in December 2020 to meet the working capital requirement.
• By the end of first quarter of FY 2021-22, company will be able to raise some additional capital from seed funds.
• The aim of the company is to start sale of the vehicle by the end of second quarter of FY 2021-22. The company is expected to start its own manufacturing plant by the end of FY 2023-24 will achieve economies of scale by FY 2027-28 and is expected to attain the break-even by FY 2025-26.

 

Budget

• Company will utilise the fund available with them and then procure a loan of ₹30 lakhs @ 16% p.a. from bank in December, 2020.
• Loss of ₹66,18,000 will be booked by the entity during the financial year 2020-21.

Please find detailed Cash Budget (Image name - Cash Budget for FY20-21.JPG) and Profit & Loss (Image name – Profit and loss for FY20-21.JPG) in attached file.

Conclusion

EV sector has great potential of growth, especially in developing countries like India. As per the estimates given by the government, by the year 2030, there will be around 69 million electronic vehicles in India. To grab this opportunity and have the first move advantage Electrika Private Limit will launch electric vehicles of different classes in coming years. Because of lack of fund in the initial years Electrika Private Limit will rely on contract manufacturing and it is expected that their car will hit the showroom by September, 2021. The company is expected to start its own manufacturing plant in FY 2023-24 and achieve economies of scales by FY 2027-28. Meanwhile, to facilitate smooth operations in the company capital will be raised time to time.

Attached File Details

View Attachment file (Cash Budget for FY20-21.JPG) View Attachment file (Profit and loss for FY20-21.JPG)