Submission BCS
This solution is not just a vehicle to reduce the carbon footprint of the rider but also a technology-embedded vehicle to make the ride enjoyable and seamless. Take care of your vehicle the right way.
Submission Date & Time: 2021-10-19 04:10:43
Event Name: NMO S4 Sprint One
Solution Submitted By: Shrey Chheda
Assignment Taken
Fund raising and financial target for the next 5 yearsCase Understanding
With the growth and awareness of the renewable energy sector, customers are now more aware of their footprint than ever. They are now demanding vehicles that will help them travel smarter and contribute to saving the environment. New initiatives taken by the Indian Government to support the industries and technology growth in this sector and act keeping the SDGs in mind, subsidies are provided to increase the acceptance of such innovative solutions. This case is regarding a scenario when a team of enthusiastic entrepreneurs with prior industry exposure and knowledge about electric vehicles want to start the production of electric vehicles. Limited cash available to put into the business, they have to find ways to optimize their solutions yet make sure that their company sells as much as they produce during a stipulated time. They have options for fundraising. Some of them are already experienced in marketing and other engineering specializations. They are to start the operations and plan for the upcoming five years.BCS Solution Summary
With the customers demanding more innovative and intelligent devices, there is a need to provide intelligent vehicles which cater to each individual's demands in a unique way. This is only possible when the customer's preferences are understood, and the offerings are changed from time to time to suit the customer's requirements. The solution should be a mobile application that connects with the rider's previous rides data and can predict the future events and performance required. This will help to cater to each rider in the best possible way using AI. The mobile application will help the rider quantify the amount of distance that can be travelled before the battery runs off. It can also track the health of the vehicle and show alerts on suspected breakdowns. For the production of electric two-wheelers, which are customizable, the components will be outsourced and fitted by skilled personnel in a company-owned warehouse. The customization will be done based on the key performance parameters like battery capacity, motor power etc. Other superficial customizations like slight alterations in the design and modifications in the two-wheeler will be done at additional costs. An extensive network of charging stations with collaboration with restaurants, malls, etc. and battery swapping kiosks at significant areas in the city where the riders travel frequently will be set up. The data collected from the mobile application will help cater to the riders better, along with the feedback collected from time to time.Solution
Panchratna Private Limited (PPL) was formed in 2020 and comprises of a core team of 8 directors. The company was started with the main intention of capitalizing on the government push towards adoption of electrical vehicles (target of 30% adoption by 2030). The tax benefits and expertise that the team has in electronic vehicles make up for a solid combination which can lead to bumper profits in the short and middle term, and sustained profitability in the long term.
The team comprises of two mechanical engineers, one member is electrical engineer. One member is a computer science graduate and two members are from the sales and marketing domain. The remaining two are from management domain.
The team already has an experience in making electronic vehicles. The engineers have already designed and developed a prototype for the same and are well versed with the cutting edge technology that is being used in the manufacturing of the electric vehicle. Scaling up the same after hiring and providing training won't be an issue at all.
Currently, Panchratna Private Limited has a corpus of 46 lacs at it's disposal which it'll use towards paying the fixed costs and creation of charging station. One charging station costs Rupees 20 lacs of which Rupees 15 lacs is required even before the first car starts using the service. The costs of setting up the outsourcing line is Rupees 37.5 lacs. It is assumed that quarterly bookings are done and hence, initial investment of Rupees 9.375 lacs will be required upfront.
The same is for the customization of bikes and servicing of components wherein we will be requiring initial investment of Rupees 11.625 lacs. Wages, electricity and salary expenses for the first quarter shall amount to Rupees 17.22 lacs. The total requirement of upfront costs is Rupees 53.22 lacs. This means, an additional cost of Rs. 7.22 lacs will be required. But this will leave us with no additional buffer. Hence, the directors have decided to take a funding of Rupees 20 lacs.
To bridge this gap, a loan proposal will be floated with the following pitch:
The unique features that merit sanctioning of loan are as follows:
1. Experienced Team who has experience of working in the same segment.
2. Mobile Application with features such as:
â—‹ Checking amount of charge left in the battery; how far can one ride
â—‹ Monitor vehicle performance and key component performance indicators
â—‹ Health of components & component failure alerts
â—‹ Availability of charged batteries at kiosks
â—‹ Anti-theft and parking location and customizable scooters as per requirement
3. Setting up of kiosks attached with charging stations to cater to our customers, who have opted for customization of their vehicles.
4. Positive profitability as can be seen in exhibit 1 attached herewith, right from year 1 onwards.
We will seek the funding from financial institution at 16% interest charged annually. After accounting for interest and depreciation, the business is still viable and is showing a robust year on year growth.
Financial Target:
Panchratna Private Limited (PPL) is a startup in the Electronic Vehicles segment. The four business operations are as follows:
â— Charging stations
â— Sale of bikes
â— Customization of new or sold bikes
â— Servicing of components
The financial targets for the five years are mentioned in Exhibit 1 attached herewith.
For the first year, based on logical assumptions, PPL will be able to earn a revenue of Rupees 2.31 crores with a corresponding cost of Rupees 1.7288 crores. The PBT For year 1 is Rupees 45.92 lacs and the PAT+Depreciation (added back) amounts to Rupees 47.11 lacs. The PAT+Depreciation for Year 2, 3, 4 and 5 are Rupees 2.52 crores, Rupees 5.75 crores, Rupees 10.31 crores and Rupees 22.31 crores respectively.
The discounting factor for the project is assumed to be 5% and consequently, the financial target for the five-year period is Rupees 31.83 crores.
This is a healthy profitability and a very high NPV.
Conclusion
Assuming the production and sales go according to the forecasted data, the model can be expanded to more than one city in a few years. The revenue collected can also be invested in R&D to increase the battery capacity and reduce the frequency of swapping required. It is a new market and holds a lot of potential for new businesses to enter. With the growing technology, soon, we will be able to deliver customized two-wheelers across India.Attached File Details
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Article Type: Business Case Scenario, Case Study Solution Submission
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Participant
Indian Institute of Management Shillong My name is Shrey Chheda. I am a first-year student at IIM Shillong. I am also a qualified Chartered Accountant and have formal work experience of 21 months.
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