Final Report on Leypower Rentals

Office :

19, Rajaji Salai, Chennai - 600001

Reporting: 3-A/1 & A/2, North Phase, SIDCO Inds. Estate, Ambattur, Chennai - 600098 Ph – (044) 25342493,

Summer Internship Report LEYPOWER RENTALS AND LEYPOWER BUSINESS Submitted To:Mr. C. G. Belsare General Manager – Engines Ashok Leyland Limited UNDER GUIDANCE OF Mr. Abhilekh Mathur Astt. Manager (Engines) Ashok Leyland Limited Submitted By:Sumit Gupta MBA, Batch of 2007- 2009 Institute Of Management, Nirma University Ahmedabad

Summer Report: Leypower Rentals & Leypower Business

EXECUTIVE SUMMARY Ashok Leyland has been a highly reputed firm with more than 8,000 crores turnover in India. Ashok Leyland Limited (ALL), in the flagship company of the Hinduja Group, is a manufacturer of commercial vehicles in India. In 1955, the company entered into an agreement with Leyland Motors, UK, to manufacture Leyland vehicles and laid root to Ashok Leyland trucks and vehicles. AL’s main emphasis was on automotive section, which kept them providing higher margins and better growth rate. However, Engines as a different product has been on a slow growth rate and slowly gained its significance. Now with the Launch of their new product “Leypower DG sets” which are completely sold under the name of AL they are planning for expansion and consider rentals as one of their plans. This report on “Leypower Rentals and Leypower Business” has been prepared to provide them a brief feedback of the project. Rentals Business in the prevailing scenario has huge margins and profits. Due to regular shortage supply of power and non-ability of government to fulfill demand it is currently having a better growth rate. To extract maximum profits out of the business Ashok Leyland needs to develop a better and highly effective network with dealers, OEM’s and local vendors. This network is an actual base on which this business can prosper. The report on this project provides them an analysis of the complete rental business. This analysis has been completed under many sections. Rental Business section gives them a brief idea of the business working and its major issues. Market Analysis gives them an idea of the players and their strengths that should be kept in mind to prosper. Rental profits provide an idea of the actual profits and earnings they can have. Business structure section gives them an outlook to the roadmap of following this business. In addition, the last section of proposal is one, which tells what can be their Break-even period for the Business. Considering the recommendations and limitations we recognize this sector to be highly profitable and in 4 years of time they can achieve their Break even if they start with a fleet size of 35 sets in the prescribed cities.

Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

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PART 1:

ORGANIZATION OVERVIEW

ASHOK LEYLAND IN INDIA


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1. ORGANIZATION OVERVIEW 1.1 COMPANY PROFILE Company

Ashok Leyland Limited

Head quarters

Chennai

2007 Sales

83,477,000,000 Rs.

Subsidiaries

Gulf-Ashley Motors Limited Ashley Holdings Limited Ashley Investments Limited Ashok Leyland Project Services Limited

Major Industry

AUTOMOTIVE

Sub Industry

TRUCK & TRAILER MANUFACTURERS

Country

INDIA

Employees

12,125

Annual capacity

84,000 Units

1.2 BUSINESS PROFILE Ashok Leyland Limited (ALL), in the flagship company of the Hinduja Group (an England-based transnational conglomerate), is a manufacturer of commercial vehicles in India. Ashok Leyland Limited, incorporated in 1948 as Ashok Motors started business as an assembler of Austin car parts in India. In 1955, the company entered into an agreement with Leyland Motors, UK, to manufacture Leyland vehicles and changed its name to Ashok Leyland. Early products included the Leyland Comet bus chassis, which sold in large numbers to many operators, including Hyderabad Road Transport, Ahmedabad Municipality, Travancore State Transport, Bombay State Transport and Delhi Road Transport Authority. By 1963 the Comet was operated by every State Transport undertaking in India, and over 8,000 were in service. The Comet has joined in production by a version of the Leyland Tiger.


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Summer Report: Leypower Rentals & Leypower Business The company’s principal activity is to manufacture commercial vehicles and spare parts. It also manufactures special vehicles and engines for industrial, generator set (genset’s), marine requirements and automobile spare parts. Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 500,000 vehicles being put on the roads have considerably eased the additional pressure placed on road transportation in independent India. Eight out of ten metro state transport buses in India are from Ashok Leyland The company has six plants having a total installed capacity of commercial vehicles and ferrous castings of 84,000 nos. and 36,000 Tonns (T) respectively. The company is the second largest manufacturer of Commercial Vehicles i.e. bus and truck in India. ALL and Sundaram Industries have together joined hands with Irizar of Spain, a luxury bus manufacturer, to float a joint venture company, Irizar TVS. This new joint venture will manufacture bus bodies in India. ALL plans to invest Rs 5,500 million in the next two years on capacity expansion for all its commercial vehicles. This will include setting up of a unit in Dubai to build bodies of buses, a bus-manufacturing factory in north India and a unit to manufacture gears for export. The plan is to take the capacity to 100,000 units. The company also has plans to enter the small vehicle segment i.e., small trucks of less than nine tons. The company is setting up a new Plant in the North Indian state of Uttarakhand at Pant Nagar at an investment outlay of Rs. 1200 crores. This plant is expected to go on stream in the year 2008. The Plant will have a capacity to produce around 40,000 commercial vehicles and is expected to cater mainly to the North Indian market taking advantage of the excise duty and other tax concessions. The company has signed an agreement with Ras Al Khaimah Investment Authority (RAKIA) in UAE for setting up a new manufacturing base in the Middle East. The company also announced that it might set up a manufacturing base in South Africa. The company was involved in exporting vehicles to the Sudan against UK government export restrictions to the region. Last year; the company acquired Czech-based Avia's truck business. The newly acquired company has been named Avia Ashok Leyland Motors s.r.o. The company has recently


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Summer Report: Leypower Rentals & Leypower Business announced a joint venture with Japanese auto giant Nissan (Renualt Nissan Group) which will share a common manufacturing facility in Chennai, India.

1.3 QUICK FACTS Founder

Mr. Raghunandan Saran

Year of Establishment

1955

Industry

Manufacture of Commercial Vehicles

Business Group

Hinduja Group

Listings & Its codes

BSE: 500477

Collaborations

• Land Rover Leyland International Holdings Ltd. (LRLIH) - UK based, jointly with IVECO. (Hinduja Group is 100% holder of LRLIH since July 2006.) • In-house R&D with world leaders such as Hino Motors and ZF

Head Office

19, Rajaji Salai Chennai 600 001 India Tel.: +(91)-(44)-25342141 Fax: +(91)-(44)-25342493

Website

www.ashokleyland.com

1.4 COMPANY FLASHBACK Ashok Leyland has been the technology leader in the country's commercial vehicle industry for more than five decades. It has molded India's commercial vehicle profile with technologies and product ideas that have become the industry norms. The company took shape when Pandit Jawaharlal Nehru, the then and first Prime Minister of India, persuaded an industrialist, Mr. Raghunandan Saran to manufacture automotive vehicles in India. In 1948 the concept was implemented in Madras for the assembly of Austin Cars. It was known as British Leyland. Soon, in 1955 it was changed to its current name and commenced the manufacturing of commercial vehicles.


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Summer Report: Leypower Rentals & Leypower Business Today, Ashok Leyland is the first automobile company in India to win the ISO 9002 certification. It was the year 1993. In 1994, the company became an ISO 9001 certified, in 1988 QS 9000 and in 2002 ISO 14001 for all vehicle manufacturing units. The company has also grabbed the credit of becoming the first Indian auto company to receive the latest ISO/TS 16949 Corporate Certification. This certificate is specific to the auto industry.

1.5 MILESTONES 1966

Introduced full air brakes

1967

Launched double-decker bus

1968

Offered power steering in commercial vehicles

1979

Introduced multi-axle trucks

1980

Introduced the international concept of integral bus with air suspension

1982

Introduced vestibule bus

1992

Won self-certification status for defense supplies

1992

Launched vestibule buses

1993

India’s first automobile industry to receive ISO 9002

1997

India's first CNG powered bus joined the BEST fleet

2001

Received ISO 14001 certification for all manufacturing units

2002

Launched hybrid electric vehicle

2006

India’s

First

Auto

industry

to

receive

TS16949

Corporate

Certification.

1.6 PRODUCTS The major Products of Ashok Leyland can be categorized as Buses Trucks Defense & Special Vehicles Engines Diesel Generator Sets


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Summer Report: Leypower Rentals & Leypower Business The company manufactures a wide range of products, which can be differentiated under Non-Exhaustive and Goods carrying Segment. They are Non-Exhaustive Luxura i-bus Viking BS-I - city bus Viking BS-II - city bus Viking BS-III -city bus Cheetah BS-I Cheetah BS-II Panther 12 M Stag Mini Stag CNG 222 CNG Lynx Double Decker Vestibule Airport Tarmac Coach Double-decker buses Goods Carrying Segment Bison Haulage Tusker Super 1616 Comet CO 1611 1613 H Comet Gold 1613 Comet Tipper (4X2) Taurus 2516- 6 X 4 Tipper 2214 Bison Tipper Tusker Super 2214 - 6 X 2 Tusker Gold 2214 (6X2) Taurus 2516 - 6X4 2516 H (6X2) Taurus 2516 - 6 X 2 4018 Tractor Artik 30.14 Tractor Tusker Turbo Tractor 3516 ecomet 912 ecomet 111i 4921 Boosted by higher production and sales in the last quarter, Ashok Leyland (ALL) reported an all-time sales high of 54,740 vehicles for the just-ended fiscal, 12.5 percent more than Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

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Summer Report: Leypower Rentals & Leypower Business last year's sales of 48,654 vehicles. At 6,812 vehicles, exports grew by 80 percent in comparison to 3,782 vehicles last fiscal. Overseas markets accounted for one out of every eight vehicles sold. Out of the total domestic sales of 47,928 vehicles, the goods segment contributed 37,137 numbers, up 10.9 percent from 33,471 vehicles last fiscal.

Sales in the passenger segment were 10,469 units, as against 11,025 last fiscal. Total production during the year grew 10.9 percent from 49,148 to 54,524 vehicles. Reflecting the hike in installed capacity from 50,000 units to 67,000 units, ALL's monthly production has stayed over the 5,000 mark since December 2004. Consequently, production in the last quarter was up 15.8 percent and sales rose 15.9 percent, on a year-on-year basis.


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PART 2:

BRIEF THEORY ON DIESEL GENERATOR

WHAT’S IMPORTANT IN DIESEL GENERATORS?


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2. BRIEF THEORY ON DIESEL GENERATOR 2.1 WHAT IS A DIESEL GENERATOR? A diesel generator is the combination of a diesel engine with an alternator to generate electric energy. Diesel generators are used in places without connection to the power grid or as emergency power-supply if the grid fails. Small portable diesel generators range from about 1KVA to 10KVA, while the larger industrial generators can range from 8KVA— 30KVA for homes, small shops & offices up to 2000KVA used for large office complexes, factories and power stations. These generators are widely used for not only emergency power, but also many have a secondary function for providing back up power to utility grids.

Figure 1: Ashok Leyland Generator Ships often also employ diesel generators, sometimes not only to provide energy for electric systems, but also for propulsion. The use of diesel generators for propulsion is actually becoming more common due to the fact that in this arrangement the generators do not need to be close to the propeller and instead they can be placed in better positions, usually allowing more cargo to be carried. Such a diesel-electric arrangement is also used in some very large land vehicles.


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Summer Report: Leypower Rentals & Leypower Business Power generators are selected based on the load they are intended to supply power for, and that load's "mission critical" needs (e.g. a hospital needs to have 100% redundancy and up-time, a backyard standby unit to keep a hot tub warm isn't nearly as critical). Diesel generators can be operated together (in parallel). The use of parallel running generators provides the advantages of more capacity, efficiency and redundancy. A power plant driven by diesel generators will typically include between three and six machines. There are internationally agreed definitions of the rating levels for diesel engines.

Standby - Output available with varying load for the duration of the normal source of electrical supply. In essence it is the "prime overload" condition with no time limit for an engine which is normally not operated.

Prime - Output available with varying load between 25% and 100% of the rating for an unlimited time. The unit can be overloaded to 110% of the rating for one hour in twelve.

Continuous - Output available without varying the load for an unlimited time.

If the standby rating were 1000 kW, then a Prime Power rating might be 850 kW, and the continuous rating 800kW (Taking unit power factor). Generally to gain the maximum of product life cycle for diesel genset it requires various cost considerations. A diesel generator need a fuel running cost, maintenance costs and may even involve an employee working on it. Also various law governing noise pollution, air pollution and area for use should be considered by manufacturer as well a customer before using it. Diesel fuel is a form of light fuel oil, very similar to kerosene, but diesel engines, especially older or simple designs that lack precision electronic injection systems, can run on a wide variety of other fuels. One of the most common alternatives is vegetable oil from a very wide variety of plants. Some engines can be run on vegetable oil without modification, and most others require fairly basic alterations. Biodiesel is a pure diesel-like fuel refined from vegetable oil and can be used in nearly all diesel engines. The only limits on the fuels used in diesel engines are the ability of the fuel to flow along the fuel lines and the ability of the fuel to lubricate the injector pump and injectors adequately. In general Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

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Summer Report: Leypower Rentals & Leypower Business terms, inline mechanical injector pumps tolerate poor-quality or bio-fuels better than distributor-type pumps. Also, indirect injection engines generally run more satisfactorily on bio-fuels than direct injection engines. This is partly because an indirect injection engine has a much greater 'swirl' effect, improving vaporization and combustion of fuel, and also because (in the case of vegetable oil-type fuels) lipid depositions can condense on the cylinder walls of a direct-injection engine

2.2 DIESEL GENERATOR’S AS PER REQUIREMENTS Selection of a generating set is not merely adding all the loads to arrive at the set rating. Following points need special consideration while selecting a genset.

Generator for rapidly fluctuating loads: Loads such as welding loads, compressors, furnaces etc. are ones which fluctuate under wide limit. These fluctuations can lead to change in output voltage and frequency of generator. This will affect other connected loads. It is better to use oversized generator rated 30% to 40% higher than the estimated steady continuous load, as this functions satisfactorily. A detailed study is always required to calculate the set ratings.

Wave form and Radio/Telephone Interference: Most of the industrial generators meet the requirements of the wave from deviation (with respect to ideal sinusoid) as per the standards. Instruments like computer are said to be sensitive to wave forms and the standard generator may not be suitable for the same. Hence there is a need to design special generators for them. The distortions which are generally created in industries are due to non liner loads like thyristor converters. They result in malfunction of the motor due to malfunction of the excitation control of the generator. Generally proper filters are used for such kind of loads. Radio interferences caused by rubbing contacts at slip rings can be largely suppressed if desired by fitting suppressor capacitors.

Number of Sets required: Distribution of loads, sizes and types of loads, available sizes of generator and the study of economics of a set used in parallel should be done before installation. If the loads are not Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

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Summer Report: Leypower Rentals & Leypower Business concentrated at a single point its always advised to use different no of sets instead of using a single generator as this gives a chance to overcome the difficulties of failure if occurred in a set. These different sets can be easily maintained and serviced without affecting the total load. The only disadvantage is the additional complications and the cost involved in introducing parallel generators.

Environment in which generator is used: It plays an important role and determines the type of enclosure and the degree of protection for the generator which in turn affects the rating that can be obtained for a given machine. For example if the set is running in chemical and corrosive environment special treatment for winding and other parts, and special materials are required while manufacturing the generator set.

2.3 PARTS OF DIESEL GENERATORS There are many components, which are required in running for generator. The major segments under which it can be analyzed are:

1. Engine: A diesel engine is an internal combustion engine, which operates using the Diesel cycle. Invented in 1892 by German engineer Rudolf Diesel, it was based on the hot bulb engine design. A diesel engine relies upon compression ignition to burn its fuel, instead of the spark plug used in a gasoline engine. If air is compressed to a high degree, its temperature will increase to a point where fuel will burn upon contact. This principle is used in both four-stroke and two-stroke diesel engines to produce power. A diesel's compression ratio is usually between 16:1 and 25:1. This extremely high level of compression causes the air temperature to increase to 700 to 900 degrees Celsius (1300 to 1650 degrees Fahrenheit).


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Summer Report: Leypower Rentals & Leypower Business Problems and solutions with Diesel Engines In cold weather, diesel engines can be difficult to start because the mass of the cylinder block and cylinder head absorb the heat of compression, thus preventing ignition. Spark ignition engines undergo the same problem, though they have the added benefit of a spark plug to help cause ignition. The main reason diesel engines take a long time to warm up in cold weather is the lack of a throttle. Spark ignition engines are throttled, so only the right amount of air comes in at a time. This is less efficient, but spark plugs only work near the stoichiometric, or the proper ratio of air to fuel for complete and most efficient combustion, mixture of fuel and air. Diesel engines accept a cylinder full of air and measure in the right amount of fuel. So each time the intake valve on a diesel opens, a full charge of cold air enters the cylinder. This cools the cylinder back down. The heat gained from each combustion process therefore can only cause a gain in temperature that is much, much smaller than it would be in a spark ignition engine. Glazing occurs due to low combustion temperatures and pressures in the engine cylinder. Running an engine under low loads low cylinder pressures and consequent poor piston ring sealing – these rely on the gas pressure to force them against the oil film on the bores to form the seal. Low initial pressure causes poor combustion and resultant low combustion pressures and temperatures. This poor combustion leads to soot formation and unburnt fuel residues which clogs and gums piston rings. This causes a further drop in sealing efficiency and exacerbates the initial low pressure. Glazing occurs when hot combustion gases blow past the poorly-sealing piston rings, causing the lubricating oil on the cylinder walls to 'flash burn', creating an enamel-like glaze which smoothes the bore and removes the effect of the intricate pattern of honing marks machined into the bore surface. Un-burnt fuel leaks past the piston rings and contaminates the lubricating oil. At the same time the injectors are being clogged with soot, causing further deterioration in combustion and black smoking. This cycle of degradation means that the engine soon becomes irreversibly damaged and may not start at all and will no longer be able to reach full power when required. To remove this problem an engine should be loaded correctly, the load resists the movements of the crankshaft and piston during combustion. This causes the combustion pressure to rise as the volume of the cylinder cannot increase directly in line with the increase in pressure during combustion. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

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2. Alternator: An alternator is an electromechanical device that converts mechanical energy to alternating current electrical energy. Most alternators use a rotating magnetic field but linear alternators are occasionally used. In principle, any AC electrical generator can be called an alternator, but usually the word refers to small rotating machines driven by automotive and other internal combustion engines. It's mainly a mechanical device, concealing a pulley, wheels, brushes and wires, which hooks to the crankshaft and runs to the battery. This way, the gasoline powers the engine to turn the crankshaft, which in turn connects to the alternator. The alternator converts that motion into current. The resulting electricity operates the cooling fan, headlights, windshield wipers, radio, defogger, and air conditioning. To be more specific, an alternator is very efficient at producing a constant, high voltage, even when the car is idle, because of how it works. The belt (from the crankshaft) connects to a pulley system, called the rotor, such that when the belt is turning, it moves magnets across a special surface, called a conductor. Moving magnets, in the stator, generate an electrostatic field, otherwise known as electricity. This alternating current is controlled by a voltage regulator to keep the voltage steady. Another part, called the diodes, convert alternating current into direct current that flows on to the battery and other components. The output frequency of an alternator depends on the number of poles and the rotational speed. The speed corresponding to a particular frequency is called the synchronous speed for that frequency.

3. Control Panel: The Manufacturing of AMF Panels and Standard Control Panels are fabricated from the best raw materials to ensure effectiveness and hence the reliability of the products. Generally we have two types of panels as: Automatic Panels: A complete range of AMF control Panels are fabricated our of 16 SWG thickness, high grade CRCA Sheet steel. Control Panels are suitable for 240/415V, Single/three phases, 2/4 wire 50 Hz. AC supply. The quality materials used to manufacture the control Panels make them dust and vermin proof. They are meticulously wired as per international standard and powder coated to ensure a long life.


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Summer Report: Leypower Rentals & Leypower Business Standard Panels: We also fabricate Standard control Panels our of 16 SWG CRCA sheet steel suitable for 240/415V, single/three phase/ 2/4 wire 50Hz AC electric supply. The standard Panels are well engineered and leave no scope for errors.

4. Acoustic Enclosures/Canopies: Silent D.G Set container is of modular construction with the provision to assemble and dismantle easily as per site condition. The structure is fabricated using CRCA (cold rolled cold-annealed) sheets. 14/16 SWG perforated sheets of 22 gauge with 6mm diameter are used to support the panels and roof. Rock wool slabs of suitable thickness and high density is used for acoustic purpose to reduce the sound level to permissible limits, i.e. as per pollution control norms. The doors are gasket with high quality EPDN gaskets to avoid leakage of sound. The door handles are lockable type. These Enclosures are made keeping in mind the following points:

Adequate ventilation for genset cooling air requirement. Absorbent / insulating material used is fire radiant. Suitable thermal lagging to avoid localized heating of adjoining part of exhaust. Easy access to service points on genset’s. The acoustic enclosure is designed with the help of CAD software. The enclosure can be tailor made as per the requirement and depending upon the capacity of D.G. Set. The enclosure is ideal for all locations of installation. For Acoustic purpose Rock wool slabs with high density 64kg/m3 and confirming to IS8183 are used. Also a high-density fiber glass is used for clear view and better prevention purpose. To increase the life of acoustic material, resin coated fiberglass cloth is provided on exposed surface of rock wool. For modifying reverberations, sound absorbent and sound reflecting materials are used. Thickness of Acoustics will be nearly 100mm, confirming to sound level of 75 db at 3mtr distance from acoustic enclosure. Excellent Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

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Summer Report: Leypower Rentals & Leypower Business results of acoustic enclosures are achieved by creating the proper balance between sound absorbing and sound reflecting materials.

The enclosure is painted with polyurethane epoxy paint with zinc oxide primer base, for the longer life and to make it weather proof. The paint is highly resistant to acids, alkali’s, salt spray, halogens, solvents, lubricants etc. It has very good dielectric properties and resistant to abrasion and cracking. This surface treatment is 100% non-yellowing aliphatic polyurethane which provides heavy-duty long-term protection for equipment. For the proper ventilation and to maintain the temperature inside the enclosure, exhaust fans are used. Some Enclosures may also be naturally aspirated. Air volume required for ventilation is calculated keeping in view the combustion, cooling air, & alternator cooling air as per the specifications given by the engine and alternator manufacturer. If required a blower (Coaxle flow fan) is used to meet total air requirement & air charges. Temperature of enclosure does not exceed beyond 7 degree of ambient temperature difference. These enclosures provide wide features as: Guaranteed performance Complete size flexibility Sturdy construction Access doors from all sides Ventilation options include acoustic louvers ad attenuates if required. Proper surface treatment for longer life and better aesthetics. Proper designed to achieve best acoustic qualities. Consistent quality, dimensions and performance. 5. Base: Base frame is fabricated either in ISMC channel or in sheet metal. The base frame is generally primer coated and painted. 6. Battery: It is another important part of DG, which helps to start DG and provide power to client. A generator battery charger is different from the battery chargers for car. A generator battery charger is meant to keep your battery charged by supplying a precise "float" voltage to it. This voltage should be neither too low, nor too high.


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PART 3:

RENTAL BUSINESS

WHAT’S IMPORTANT IN RENTAL BUSINESS?


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3. RENTAL BUSINESS 3.1 PRESENT POWER SCENARIO India is the world’s sixth largest energy consumer, relying on coal as the primary energy source for over half of its total energy needs. Thermal power plants produce more than three quarters of India’s electricity, taking advantage of India’s position as the third largest producer of coal in the world. The electricity sector has long experienced capacity shortfalls, poor reliability and quality of electricity (voltage fluctuation, etc.) and frequent blackouts. Industry cites electricity supply as a major impediment to economic growth. Despite reforms introducing private participation during the 1990s, the India’s electricity sector has remained dominated by the state since India’s independence in 1947. The Electric Supply Act of 1948 integrated smaller fragmented utilities into 19 state electricity boards. SEBs remains the dominant institutions within India’s electricity industry, controlling well over half of the electricity supply and the vast majority of distribution. The SEBs fall under the jurisdiction of individual state governments. Currently, the financial losses of the SEBs total to nearly US$ 6 billion, amounting to 1.3% of India’s GDP.

Graph 1: Demand Supply Gap


Source: EIA 2006-07

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Summer Report: Leypower Rentals & Leypower Business Because India could not adequately address the country-wide shortage in electricity supply through state and federal deficit spending, federal and state reforms aimed at minimizing the role of cash-strapped and inefficient state electricity boards (“SEBs”) and empowering independent regulators across the country. States were given wide latitude to pursue their own reform plans. Some states privatized distribution, others unbundled their SEB, and a few opted against structural reform, keeping the SEBs intact and reforming internally. With the introduction of independent regulators in 1998, independent electricity regulatory commissions at the state level have primary responsibility for setting retail electricity tariffs and approving tariffs between IPPs and the state SEBs. From 1990 to 2000, annual electricity generation and consumption nearly doubled and India’s projected annual rate of growth in energy consumption (2.6% to 4.5%) is the highest of any major country. Estimates of the current electricity supply shortage for peak capacity range from 11% to 18%. A summary of electricity generation, by project type, and electricity consumption during the period under review in the IPP study is set forth below in Table 1. TABLE 1: ELECTRICITY GENERATION AND CONSUMPTION 1990-2001 Net Generation hydroelectric Nuclear geo/solar/ wind/biomass conventional thermal Net consumption Imports Exports

1990

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

275.5 70.9 5.6

395.8 72.0 6.5

412.7 68.4 7.4

441.2 73.9 10.5

470.7 82.2 10.6

503.7 79.9 11.5

512.0 73.7 14.1

533.3 77.4 18.2

545.4 78.4 19.2

560.9 87.4 21.2

565.9 88.4 23.4

570.3 86.4 25.2

0.0

0.1

0.8

1.0

1.1

1.4

1.6

1.8

2.0

2.3

2.6

2.8

198.9

317.2

336.1

355.8

376.8

410.8

422.6

435.8

445.8

449.8

451.8

455.8

257.1 1.0 0.1

369.7 1.7 0.1

385.4 1.7 0.1

411.7 1.6 0.1

439.1 1.5 0.2

469.4 1.4 0.3

477.5 1.5 0.2

497.2 1.5 0.3

505.2 1.5 0.3

515.6 1.5 0.3

530.5 1.5 0.3

548.8 1.5 0.3

Note : generation components may not add to total due to rounding Source: DOE/EIA Thus it is clear from the data that the lack of electricity in India is high and causes a huge influence on its development. Thus this deficiency is due to two reasons, one due to shortage of supply during peak period (Also known as period of high demand) and second due to lack the of regular supply shortage. Looking at the consumer prospects there are very less options in front of them to gain electricity either for a short term or for a period of high use. This available


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Summer Report: Leypower Rentals & Leypower Business electricity can thus be further differentiated in two categories. These can be said as 1) Grid Power and 2) Capative power. The grid power electricity has many options like: a) State Electricity Board b) Own Power Plants (Could be of coal, Nuclear Fuel, Hydro power, Wind power) The second one is of capative power, which again can provide power for a short duration or as per high utility, they are: a) Uninterrupted power supplier (UPS): It is a device, which automatically starts ones the power goes off. There is a huge use of these machines in Information technology and Telecomm industry. They are short load bearers and can offer there service for a short time period only. b) Inverter: They are also one of the sources, which provide electricity within no time of the power loss. They can be used to carry high loads as compared to UPS and can actually be used for longer time duration. They are highly effective for residential purpose and for offices/business with limited use of power work. c) Natural gas sets: These are Natural Gas generator sets, which have very low emission of NOx. While these versatile new generator sets are very fuel efficient, they also serve a high output to the user. Another important feature of these series is that it has been designed for extended maintenance intervals. Less required maintenance means lower operating expenses. They are also the biggest threat to substitution to the DG sets prevailing in market. d) Diesel Generators: Working part of DG has been already explained. These can be used for high load carrying purpose. They are not only used under power failures but also used for peak period of power requirement.

3.2 WHY “RENTAL BUSINESS” – MARKET OPPORTUNITIES Genset Providers gain a huge margin on rentals then on sales of there generators. Still there is huge profit to the customer who prefers to use Generators on rentals. All starting entrepreneurs or even the bigger organizations need genset’s on rentals to make a full-fledged use of it and get their job done without interruptions. Renting genset’s make a lot of sense owing to these factors: Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

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For Establishing a new enterprise and which is going to take some time to reach the full capacity

Organization under expansion and the power requirement is growing

Process industry requires backup for critical loads

If customer does not want to make capital investments in captive power facilities.

Customer inadequate to fulfill his seasoned demand and need short term additional power.

Customer is setting up a new project site where SEB supply is not immediately available.

Customer is in a new industrial area, where SEB supply is yet to be streamlined.

The client has seasonal requirements of additional power.

Client is experiencing inconsistent and poor quality SEB power.

Client needs to limit his maximum demand with SEB.

Client needs limited power during his planned plant shut downs.

3.3 WHAT IS “RENTAL BUSINESS”? Rental business works on certain principle and predefined norms formed by organizations to follow. Generally an advance for 2 months is taken and a contract agreement is signed between the company and the client, which includes the details of Pricing, Time period and other minute details about expenses. These expenses can be given as a) Loading and Unloading: These expenses are born by client or are as agreed in agreement. This may also depend on DG set to be used. The costing may be based on the location; availability of transfer and no of times the loading or unloading needs to be done. b) Transportation: DG’s upto 250KVA may or may not be trolley mounted, which is done strictly based on the client needs and requirements. DG’s of higher KVA are loaded on trailers for transportation and are taken to the customer place. The costing done here is again based as per the availability of resources. c) Installation and commissioning: This can be further divided as i) Foundation: Generally born by customer. ii) Earthing: A DG set needs four earthings are per requirement. Two for DG body and two for the neutral. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

22

Summer Report: Leypower Rentals & Leypower Business iii) Cabling: It is done from alternator to control panel. Company provides this cabling service, which costs as per their charges, and client need. iv) Exhaust pipe: For the removal of flue gases pipes should be raised around 5 meters above the nearby buildings. v) Temporary shed: This is an essential requirement for the DG, which keeps it prevented from environmental hazards. *A few certifications are required from CPCB, Electricity inspectorate and PWD. Megatest and Earthtest are to be done for this purpose. The responsibility of these tests lies onto the customer; organizations just give test certificates of their company.

3.4 USER BASED RENTAL CLASSIFICATION The Rental Business of the Generators provides huge margins to the businessman. These Generators are generally taken from daily basis to yearly basis. These generators have a huge variation in their usage and hence their usability differs from every customer to customer. The major classification of the business can be done in two categories as: 1) Duration of Generator Rent The major classification of these durations are done as: a) Short Term: These periods of rentals are actually the ones, which can vary from daily basis to 2-3 months basis. b) Long Term: These are the ones, which vary from 2-3 months to 1-year basis. They give a better usage to Generators and hence more earnings to the rental provider. c) Project Work: These are the ones, which give maximum utility to the diesel generators and provide a better payback to the investment made on the generator sets. These generator sets are generally of high KVA and requires a huge customer satisfaction before they are taken. 2) Type of Generator Used a) Residential/Single Room Generators: These are the ones, which are below 15KVA power capacity and are taken for a seasonal period or on hourly periods for low power supply. This category of generators is the one, which give lower return and also for a shorter duration. The major players in this category are Honda, Birla, Kirloskar, Greaves etc..., whose engines are highly utilized by unorganized sectors for rentals. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

23

Summer Report: Leypower Rentals & Leypower Business b) Commercial/Small Business Generators: These are the ones, which range from 15KVA to 125KVA. They are taken from hourly period to monthly period basis. These DG’s provide better margins if rented for a shorter period. The Major Players in this category are unorganized sector like local players and some of the players like National hiring which provide all range requirements. Other players have less fleet in this section. c) Medium Firm Generators: These are the ones, which range from 125KVA to 1000KVA. They are generally taken from monthly basis to yearly basis. These generators are the ones, which carry major organized sector, and Cummins hold the highest market share in it. They provide a huge margin rate to the players. The major players in this segment are Cummins, Caterpillar, Nityanand, Modern Hiring, National Hiring, Marco and Powermak. d) Large Firm Generators: These are the ones, which range from 1MW to 10MW. These generators are generally taken for project works. They involve a huge service network for proper running of the generator. The major players are Cummins and Caterpillar.

3.5 ADVANTAGES OF RENTAL BUSINESS OVER OTHERS There are many advantages of using a genset either on rentals or preferring to buy your own set. However Genset Providers offer following advantages:

Guaranteed availability

Immediate delivery

Quality power

Zero Capital Investment

Mobility of available Power

Total service support

One phase relationship for services.

3.6 CUSTOMER EXPECTATIONS FOR RENTAL DG Service is the most important aspect for any heavy equipment. Moreover, when it comes to Rentals it becomes even more important because people go for rented DG mostly to overcome disruption or lack of power availability. They expect it to be free from problem and even if problem comes they expect it to be corrected within 4-5 hours or at most 1 day. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

24

Summer Report: Leypower Rentals & Leypower Business Depending on the type of usage dealer might even need to keep a back up generator. For example in case of marriage, an exhibition, or religious processions it is quite possible that a genset failure could occur. In that condition it is certain that you will not get paid anything for the rental. Those in the field tell that even violent scenes erupt in such critical cases. People generally don’t want to take any headache regarding DG and expect the company to do the maintenance activities according to their convenience.

3.7 CONSIDERATION IN RENTAL BUSINESS There are some major and minor issues involved with rental business, which an organization needs to look for profitability and working. These issues are: 1) Costing Issues: Here organization needs to look after the negotiation that they can undergo with there clients for rentals of DG sets. a) Transportation b) Loading/Unloading c) Fuel costing d) Octri, MVAT and Service tax cost e) Other outstanding costs 2) Maintenance and Services Issues: Organization needs to provide regular maintenance to their customers and need to have a proper network to provide better response in case of failures. The issues basically here are a) No of vendors available b) Dealers Availability and powers to them c) Battery and its maintenance issues during working d) Services provided on Breakdown 3) Features issues: Customer may need some specific features or services that must be fulfilled to provide better scope of work. a) Acoustics size and requirements b) Mobility features c) Earthing issues d) Base Making and preparation e) Exhaust considerations Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

25

Summer Report: Leypower Rentals & Leypower Business 4) Authority with the Team: Every section of an organization needs to work on independent basis. Therefore there must be a complete devoted team for rental business, which can fulfill and look after customer needs and demand. The concern here should be on. a) Rentals as a different business group. b) Negotiation Power. c) Clearing bills on spot decision.


26


PART 4:

MARKET ANALYSIS

RENTAL MARKET IN INDIA


27


4. MARKET ANALYSIS 4.1 LEADING PLAYERS IN RENTAL BUSINESS 1. Cummins: Cummins India Limited (CIL) is a 51 percent subsidiary of Cummins Inc. USA, the world’s largest independent diesel engine designer and manufacturer above 200 HP. Set up in 1962 . Today, CIL is India’s leading manufacturer of diesel engines with a range from 205 hp to 2365 hp and value packages serving the Power Generation, Industrial and Automotive Markets. CIL also caters to the growing market for gas and dual fuel engines. Cummins Power Generation Business is the market leader in the Diesel and Gas power systems. They are a single window provider for complete energy and power solutions, offering top-of- the-line products (diesel & gas) and services. CIL is one of the leading and major players in rental business with DG range of 125KVA to 1500KVA spread across India. The reason for Cummins being a strong player in this field is their strong network and their own manufactured diesel generators. This gives them a chance to use their own customer base (of diesel generators), as a rental client. 2. Gmmco (Caterpillar): For more than 80 years, Caterpillar Inc. has been building the world's infrastructure and, in partnership with its worldwide dealer network, is driving positive and sustainable change on every continent. With 2005 sales and revenues of $36.34 billion, Caterpillar is a technology leader and the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. As a leading power systems supplier, Caterpillar and the worldwide Cat® Dealer Network are committed to supplying client with the electric power solutions he need to operate his business at maximum efficiency. Caterpillar Electric Power Systems — generator sets, automatic transfer switches (ATS), uninterruptible power supply (UPS) and switchgears — are all engineered to work together to offer them the convenience of a singlesource provider. Caterpillar generator sets have a powerful reputation in a variety of electric power markets - and they have it for a reason. Cat has been into the business of rentals through GMMCO from past 10 years. They are also one of the major players who are successfully earning profits from this segment. GMMCO Limited is the largest distributor of Earthmoving, Mining, Construction Equipment and Diesel Engines / Generating Sets in Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

28

Summer Report: Leypower Rentals & Leypower Business India. They have been in this business from the last three decades. GMMCO is the dealer of products from leading companies like Hindustan Motors Ltd. (Power Products Divisions), Caterpillar and Hindustan Powerplus (a joint venture between Caterpillar and CK Birla Group of Companies). The company operates in the Southern, Western and Central parts of India, having 28 offices and over 800 committed employees. They have arrange from 60KVA to 2500KVA in offering for genset’s. There being manufacturer adds to there strength. 3. Nityanand: It has Twenty-Eight years experience in supplying Power Generators on rentals all over India with a list of Reputed Clients. They are the acknowledged specialist in temporary power generation packages all over India, which ensure quick response in even the most inaccessible location to huge spectrum of industries from Refineries to Factories, Onshore to Offshore; Construction to emergency under the name of Nityanand Infrastructure Limited. Nityanand Infrastructure Limited has been established specifically to provide readymade power Rental Solution for all type of projects regardless of the application, size, duration, industry / location, which includes consultation, design, installation, operation & maintenance, emergency repairs & replacement without much time loss at remote places. They have a range from 30KVA to 1500KVA in offering which generally works on the diesel engines of Cummins (even older sets of KCL). There Major strength has been better dealer network. 4. National: National Hiring, the No.1 power generators hiring company of India is a trusted name in the Genset’s hiring industry. They provide perfect solutions to all power needs with a complete range of generators from 2.5 K.V.A to 1250 K.V.A for varied commercial and consumer’s application. 25 years in the service, it has emerged as a major suppliers of Genset’s on hire to various segments of industry such as small to large scale industry. They are having Genset’s of latest models and if there is a long-term project they are ready to supply brand new Genset’s. They are preparing hiring scheme as per client’s requirement. They have provided Genset’s in the very difficult situation like recent rain flood in Mumbai for which they have received award from Government of Maharashtra. They have supplied to reliance energy in those flood days in which they were helpless for which they have Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

29

Summer Report: Leypower Rentals & Leypower Business received their certificate of thanks, for good services and apprehension. They have even supplied to Gujarat, Kutch earthquake when there were blackout in that region and had supported them by their Genset’s supply. 5. Marco: MARCO has been successfully providing power to various industries for the past five decades. Not withstanding their high performance level in the market, they are constantly striving to upgrade their services and technology to meet the stringent demands of their esteemed customers. Their present strength of Diesel Generator Sets of capacities ranging from 60 KVA to 1250 KVA and in multiple units is being augmented accordingly to meet the ever-growing demand of power all over India. Rental power is made available at short notice as they have service centers with DG sets stationed in most of the major cities. This ensures power supply any where in India whether at client’s factory premises or project sites as per clients schedule. Their range of various capacities of DG sets ensures that client’s have the choice of meeting their exact requirements without incurring huge investment in the purchase of the Generator sets and recurring expenditure for repairs, maintenance and operation. 6. Modern hiring: Modern Hiring Service (MHS) is a reputed Mumbai-based Company that offers need-based quality services & solutions in the area of Rental Power. They provide an extensive range of Power Generating (PG) Sets to match varying client needs, right from 30 KVA to 1250 KVA. With a solid expertise and a diverse experience of 20+ years in this domain, MHS has a focused, problem-solving approach. Clients can also avail the flexibility of ‘dual fuel option' (LDO/HSD) for their PG sets. They rent out only premium quality, eco-friendly DG sets of Cummins make, that are known for their excellent performance. The Company has a conveniently located, wellequipped Service Center at Rabale in Navi Mumbai. They also provide guidance to the required type of PG on the client’s site. This value added consultancy service on their part, empowers their clients with knowledge about the precise KVA ratings, which helps them, tune in to their needs. 7. Powermak: Powermak has been in this business for the last 20 years. It provides Diesel Generators from 62.5KVA to 1500KVA to industrial units on short-term lease. The company gains its success, mainly due to its reliable service and efficient management. It is Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

30

Summer Report: Leypower Rentals & Leypower Business associated to major companies in India to execute contracts on turnkey basis. At present it possesses 50,000KVA capacities of Diesel generator sets and is in growing phase. They provide their genset’s both on trolley and truck mounted basis. They have a huge no of employees consistently working on the project to improve their market creditability and networking. They specifically provide their operators to handle their sets and look after it for which arrangements have to be made from the customer side. They also have their own manufacturing section for their home acoustic and sound proofing systems.

4.2 ENVIRONMENT ANALYSIS – “PORTER MODELS” I - THREAT TO ENTRY The threat to entrance in this industry is very evenly biased. Many engine producers in India (like Greaves, Koel, Mahindra, Eicher, and many more) provide a very large range of engines for manufacturing of DG. These DG’s can very from lower KVA segment (of lesser then 15KVA) to 1,000KVA or above. Now for rental business an entrant would require a high capital and network to gain profits. It’s easier for the engine producers to enter the market as they can easily capitalize on their pre-nurtured network. Present players in this segment (like Cummins and Caterpillar) are already providing huge range of engines on basis of KVA. This gives them enough chance to attain a better economics of scale then a new entrant. The product differentiation from customer prospects is not much. For him it’s just a DG providing him power backup. Still Ashok Leyland provides a better quality DG’s with low maintenance and less operating cost. The major players in the segment have a high experience and better fleet arrangement; they lead the business with an experience of above 15 years. This shows that other engine manufacturers can easily enter the market; still the need of capital and network is concern as it makes the segment competitive for new bees. Thus the threat to entry is limited. II - BARGAINING POWER OF BUYERS The bargaining power of buyers is dependent on the type of DG required by him. The higher KVA requirement the lesser the players and hence the bargaining power decreases. The negotiation can be completely based on the understanding of the supplier and the client, infact this is completely based on the assignment given by the client to supplier i.e, the size Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

31

Summer Report: Leypower Rentals & Leypower Business of DG set required. The presence of experienced players gives them better chance to achieve economy of scale at lower prices also. Hence the rental prices can only negotiated with better services and other facilities. III - POWER OF SUPPLIERS: The power of suppliers completely depends on the Fleet strength they have. The higher the fleet strength the better options of negotiations. This fleet strength needs to have depth and width to attain negotiations. The depth with involve higher range availability of that product while the width will account for the no of DG sets and the various features that can be given to the customer for better satisfaction. The power of suppliers can also be accounted from their network and services that they can provide to satisfy their customers. However the market is lead by monopoly of Cummins engines as they manufacture the highest range of diesel engine sets with varied fuel run and dual fuel work availability. IV - PRESSURE FROM SUBSTITUTE PRODUCTS: The substitutable products could be Inverter, UPS, Natural Gas generators and SEB. The pressure of substitution is not much. Inverter, UPS and Diesel generators are not efficient enough to deal the complete demand for the client. NG sets can deal it but the constraint of gas availability remains for its working. Now SEB is a very easily available substitute product but in cases of industrial charges (which are very high as compared to running a DG set) and in non-available zones this is the best available product. V - INTENSITY OF RIVALRY AMONG EXISTING PLAYERS: Industry Growth for rentals is quite high. Due to lack of availability of electricity and high growth of electric demand the scarcity can be fulfilled with DG sets. The Competitors diversity is growing at a high rate with higher technological advances and regular research and development work. This makes the competition intense. Ashok Leyland provides a better engine quality with lower operating cost and overall costing. In this business the customer loyalty is not dependent on the type of engines used by the supplier. Clients only need backup power without interruption. This is the main base of the business.


32


4.3 FLEET AVAILIBILITY WITH MAJOR PLAYERS Total market distribution of rentals is done in many pockets. These pockets are generally divided under the KVA distribution range. Now the major players of this segment have different pockets and different no of sets in each pocket. The complete market pocket distribution can be given by following table 2. DG (KVA) 2.5 5 7.5 10 20 30 50 62.5 75 82.5 100/110 125 140 160 180 200 250 320 380 500 625 750 1000 1250 1500 Total % above 250 KVA

Caterpiller

Cummins

--------1 2 -2 ---1 8 1 6 10 2 3 4 --40

-----------15 1 7 8 3 13 9 15 23 1 8 12 16 -131

85%

74.05%

National Hiring

Nityanand

Marco

Modern Hiring

Powermak

Table: 2 In the above table it is as clear that the complete market leadership belongs to Cummins who has the highest feet size. Still the best option is to go for the sets of higher KVA as they give them better margins and the demand is high here.


33


4.4 PRESENT MARKET RENTALS (ORGANIZED PLAYERS) The approx market rentals for the prevalent section can be segregated in two parts. The first is from 30-125KVA and other is for 125 above range. These contracts are given generally on a minimum of 1-month duration. The basic rental charges of these genset’s are classified for 240Hrs, 360Hrs, 480Hrs and 600Hrs for a period of 1-month. For longer periods and less usage the rental charges decreases. The charges for Lower Segment from 30-125KVA is shown in Table 3: KVA ratings

30

40

50

62.5

75

82.5

100

125

240 hrs

16,000

17,000

19,000

20,000

24,000

25,000

31,000

34,000

360 hrs

22,000

23,000

25,000

27,000

33,000

34,000

42,000

45,000

480 hrs

25,000

27,000

30,000

31,000

40,000

41,000

50,000

52,000

600 hrs

30,000

31,000

35,000

36,000

47,000

48,000

58,000

62,000

1 Mths-100 hrs

20,000

21,000

24,000

25,000

30,000

31,000

39,000

41,000

2 Mths (monthly)

15,000

16,000

18,000

20,000

24,000

23,000

30,000

31,000

3 Mths(monthly)

14,000

15,000

17,000

17,000

21,000

22,000

27,000

29,000

>3 months

13,000

14,000

16,000

16,000

20,000

21,000

25,000

27,000

Table: 3

However, the longer the period of rent the rent charge is decreased and hence the margin rate decreases. By long term utility of set is high and improves relationship. The complete market of above 125 has lesser players (comparative) and their approx. rentals are shown in Table 4:

KVA ratings

140

160

180

200

250

320

380

500

625

750

1000

1250

240 hrs

38,000

40,000

43,000

51,000

61,000

75,000

88,000

115,000

137,000

170,000

235,000

330,000

360 hrs

51,000

53,000

56,000

67,000

80,000

97,000

116,000

150,000

176,000

220,000

300,000

385,000

480 hrs

61,000

63,000

66,000

80,000

93,000

115,000

136,000

175,000

205,000

255,000

345,000

440,000

600 hrs

72,000

74,000

77,000

94,000

110,000

140,000

165,000

205,000

235,000

300,000

400,000

510,000

1 month

47,000

50,000

53,000

62,000

75,000

90,000

106,000

145,000

170,000

210,000

305,000

380,000

2 Months 3 months >3 month

36,000

39,000

41,000

48,000

58,000

70,000

82,000

110,000

135,000

160,000

235,000

290,000

33,000

35,000

38,000

44,000

53,000

64,000

75,000

100,000

120,000

145,000

215,000

265,000

31,000

33,000

35,000

42,000

50,000

61,000

71,000

95,000

115,000

140,000

205,000

253,000

Table: 4 Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

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4.5 PLAYERS IN CHENNAI The Details of present players [only in Chennai (T.N.)] with the persons contacted during training period from the Rental players is shown in Annexure 2. In addition, some of the contracts as provided by these players for DG hiring are enclosed in Annexure 3. It is requested to refer the Annexure attached with the report.


35


PART 5:

RENTAL PROFITS

HOW CAN AL MAKE PROFITS IN RENTAL BUSINESS…


36


5. RENTAL PROFITS 5.1 PRESENT RANGE OF ENGINES WITH AL Looking into the fact that rental prospers ones a proper network is used with availability of fleet of DG sets. Ashok Leyland has strength of having its own diesel generators. However the range of their DG sets varies from 10KVA-500KVA. The availability is shown in Table 5.

Model no LP 10 BA3 LP 15 BA 3 LP 20 BA 3 LP 25 BA 3 LP 30 BA 3 LP 30 BA 3 LP 40 BA3

Electrical Power KVA/ KW 10, 8 15, 12 20, 16 25, 20 30, 24 30, 24 40, 32

Phase 1, 3 1, 3 1, 3 1, 3 1, 3 1, 3 1, 3

Fuel Consumption L/Hr 2 2.9 3.6 4.4 5.3 5.4 6.9

LP 50 BA3

50, 40

1, 3

8.5

LP 55 BA3

55, 44

1, 3

9.4

LP 63 BA3 LP 75 BA3 LP 82.5 BA3

62.5, 50 75, 60 82.5, 66

1, 3 1, 3 3

10.7 12.8 14.1

LP 100 BA3 LP 125 BA 3

100, 80 125, 100

3 3

17.6 23.1

LP 140 BA 3

140, 112

3

24.4

LP 160 BA 3 LP 180 BA 3 LP 200 BA 3

160, 128 180, 144 200, 160

3 3 3

27.8 30.7 34.1

LP 250 BA 3

250, 200

3

39.9

LP 500 BA 3

500, 400

3

82

Table 5 Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

Aspiration NA NA NA NA NA NA NA TC Intercooled TC Intercooled TC Intercooled TC TC TC Aftercooled TC TC Aftercooled TC Aftercooled TC TC TC Intercooled TC Intercooled

Power O/P Engine (BHP) 24.8 24.8 44.3 44.3 44.3 46.7 52.5

Cylinde rs of engine 4 4 4 4 4 4 4

Base Price List 159000 167000 205000 211000 274000 278000 283000

(Single Phase) 164000 177000 217000 226000 N /A N/A N/A

81.9

4

N/A

N/A

81.9

4

N/A

N/A

81.9 113.3 113.3

6 6 6

343000 396000

N/A N/A -

131.3 163.8

6 6

435000 524000

-

188

6

N/A

-

215.3 234.5 264

6 6 6

N/A N/A N/A

-

327.8

6

936000

-

601

8

2200000

-

N/A= Not Available 37


5.2 COSTING CALCULATION Diesel generator has its own capital cost and its own operating costs. These costing are generally divided in two categories: 1. Costs incurred by Clients: 1.1.

Loading and Unloading Charges

1.2.

Transportation

1.3.

Operator Charges

1.4.

Installation and Commissioning Charges (Earthing and additional Features)

1.5.

Fuel Charges per Hour.

1.6.

Incidental Expenses (Recouped)

2. Costs incurred by Owner: 2.1.

Incidental Expenses faced by owner

2.2.

Operators charges

2.3.

Acoustic Enclosures

2.4.

Dealers Commission (Assuming AL enters through Dealers Network)

2.5.

Running cost per hour

2.6.

Interest Payment to the capital invested.

The section of running cost is studied with the availability and experience in particular engines (those that have been sold in past and are running) with various checks and cost analysis of it. The Running cost accounts for • • • • • • • • • •

Oil Costs for running B check cost Air Cleaner Total cost Serv. Engineer Cost (Who goes for checks) Alternate cost of Electrical spares Control panel Cost Abnormal Costs E check Cost Overhaul Cost Total Miscellaneous Cost

To conclude to the total costing; keeping in mind the market analysis and looking after the available DG sets by Ashok Leyland , only sets of 30, 40, 62.5, 100, 125, 250 and 500 KVA where taken for further analysis part. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

38

Summer Report: Leypower Rentals & Leypower Business There are various others features that a rental player needs to take care before providing his DG on rent. He needs to charge some of the incidental expenses and provisions on guarantee and fuel efficiency. These cost once considered can help a player to known his returns from the complete project invested in.

5.3 RUNNING COST OF SETS (As mentioned above) The Detailed Analysis of the Costing of sets is shown in the Annexure 1. These are the costs, which any DG buyer will have to face once he buys an available DG set of Ashok Leyland. As a customer (buyer/owner) of DG only first few services provided by the dealers are free, rest is paid. Hence the total running costs of some sets is shown in Table 6.

Model Ratings (KVA)

LP 30 BA 3 30

LP 40 BA3 40

LP 63 BA3 62.5

LP 100 BA3 100

LP 125 BA 3 125

LP 250 BA 3 250

LP 500 BA 3 500

1

Oil Cost per hour

6.56

6.56

6.56

13.67

13.67

20.50

19.68

2

B check cost per hour

3.00

3.00

3.00

3.00

3.00

3.00

3.00

3

Air Cleaner Total cost Per Hour

1.05

1.05

1.05

1.49

2.66

2.66

3.00

4

Serv. Engr. Cost / hour

1.67

1.67

1.67

3.33

3.33

3.33

3.33

5

Alternate Electrical spares Cost/hr

1.67

1.67

1.67

1.77

2.69

3.27

3.40

6

Control panel Cost/hour

0.8

0.8

0.8

1

1.2

1.2

1.2

7

Abnormal Costs Rs /hr

0.75

1.25

2.00

3.00

3.25

4.00

5.00

8

E check Cost per Hour

3.97

3.18

3.18

2.57

4.50

4.79

5.39

9

Overhaul Costper Hour

2.18

2.18

2.18

2.76

3.12

3.72

4.41

Total Miscellaneous Cost per Hour

2.59

5.99

6.10

7.99

9.72

11.75

11.89

24.22

27.34

28.19

40.58

47.13

58.23

60.30

10

TOTAL Running Cost per hour Table :6


39

Summer Report: Leypower Rentals & Leypower Business These maintenance services are classified as A, B, C, D and E checks. Each of the checks has their own costs and maintenance type. These checks, which are done for the DG clients, now have to be beared by DG players also.

5.4 CUSTOMER’S PROFIT IN RENTALS If we take the running cost of the DG set into consideration, which will be same for the rental player with the DG set capital cost. The total break even for the customer while giving the rent will occur as shown in Table 7:

Table: 7

Capital cost

30 KVA

40 KVA

62.5 KVA

100 KVA

125 KVA

250 KVA

500 KVA

361680

373560

452760

574200

691680

1235520

2904000

27.34

27.34

28.19

40.58

47.13

58.23

60.30

240 hrs rent

38

36

34

27

30

26

29

360 hrs rent

30

28

27

21

25

21

23

480 hrs rent

30

27

26

19

24

19

20

600 hrs rent

27

26

24

17

21

16

17

1 month rent

27

26

25

20

23

20

22

2 month rent

43

40

34

28

35

28

30

3 month rent

49

44

44

33

39

32

34

Running Cost

Break Even @

Break-Even is in months It is evident from the market report that higher utility sets have higher breakeven points like those that 125KVA set has higher break even as compared to others. These rentals are based more on market equations and the negotiation that the team can undergo with the client for the most of their benefit. The capital cost considered here are completely different from those considered in the margins due to the fact that these costs are the ones, which are beared at the time of buying the DG set, by the consumer.


40


5.5 CONTRACT COSTING SHEET

This Contract Costing sheet will actually help to calculate the monthly margin and margin rate that a DG owner can earn from his set. The sheet made for the project is worked considering the sets 30, 40, 62.5, 100, 125, 250 and 500 KVA. Here the user first needs to put the DG range for which he wants to calculate margin rate then he needs to fill hours of contract and for months of usage and at last the rental he is going to take for the client. These all blocks are highlighted with orange colour. The rest values highlighted with yellow are based on the contract made. This sheet will take care of rest costs as the blocks are linked with the other sheets making it more users friendly. This sheet will give the Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

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Summer Report: Leypower Rentals & Leypower Business margin rate and the monthly margins earned from the rental contract per month. If the owner wants to provide any discounts to the client he can even show and the total margin will be calculated. The most important part for concern here is that, these rentals are based more on the duration for which they are taken. Therefore the team should have the skills enough to handle the costing and then calculate their profits as per the need. The decision taken are strictly taken by the team from their past experience.

5.5 MONTHLY MARGINS FROM RENTALS Every set has its own margin and margin rate for different hours and usage. This margin gives us a clear view about the contract, and tells which one is beneficial for the DG set and which increases its utility. The following margins shown are strictly based on the assumption that these sets are given for on rent for a period of 1 month and follow the above mentioned rental charges. 240 hrs

360 hrs

Margin

480 hrs

600 hrs

Margin

Margin

Dg

Per

Margin

Per

Margin

Margin

Margin

Per

Margin

Range

Month

Rate

Month

Rate

Per Month

Rate

Month

Rate

30 KVA

10,104

38%

13,194

41%

13,765

39%

16,015

40%

10,301

37%

13,120

39%

14,259

38%

15,398

37%

11,943

39%

15,539

41%

16,614

40%

18,530

40%

18,032

43%

23,987

46%

27,422

45%

30,857

42%

18,352

41%

23,762

43%

32,533

46%

30,384

42%

34,043

48%

45,254

50%

51,426

50%

60,957

51%

63,305

50%

87,807

55%

103,910

56%

124,212

58%

40 KVA 62.5 KVA 100 KVA 125 KVA 250 KVA 500 KVA


42

Summer Report: Leypower Rentals & Leypower Business If the client goes for a higher period of need obviously the total rental taken will change as mentioned before. The monthly margin will therefore reduce heavily. But these contracts are signed with a 240 hrs usage only. If the clients have higher usage the rentals may further differ as per negotiations. The 240 hrs usage of the sets for longer contract period has margins as shown below: 2 Month Dg Range

3 Month

>3 Month

Margin Per

Margin

Margin Per

Margin

Margin Per

Margin

Month

Rate

Month

Rate

Month

Rate

30 KVA

9,264

36%

8,424

34%

7,584

32%

40 KVA

9,461

34%

8,621

32%

7,781

30%

62.5 KVA

11,943

37%

9,423

32%

8,583

30%

100 KVA

17,192

40%

14,672

37%

12,992

35%

125 KVA

15,882

36%

14,152

34%

12,472

31%

250 KVA

31,523

44%

27,323

41%

24,803

39%

500 KVA

59,105

48%

50,705

45%

46,505

43%

As we can see that the greater the period the lesser margins we get but the utility of the complete DG is improved.


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PART 6:

BUSINESS STRUCTURE

ROADMAP TO RENTAL BUSINESS…


44


6. BUSINESS STRUCTURE 6.1 BUSINESS DEVELOPMENT FOR RENTALS To start with their market development plan AL needs to follow some roadmap and then try to proceed to achieve their goals. For expansion it is important for AL to formulate their complete business strategy. The new segment of rentals can be formulated with the shown roadmap.

This roadmap can be easily followed by analyzing the 7-S framework and SWOT analysis of Ashok Leyland in the rentals section.

6.2 7-S FRAMEWORK FOR RENTALS The 7-S framework depicts the combination of basic parameters on the basis of which the organization is completely studied. It further describes organization’s ability to change, and its proper mode of change. All these factors are interdependent and it is impossible to make significant progress in one area without making a progress in the others as well. There's a lot more to the 7S framework of course, especially how the company applies it in practice.

The Traits in 7-S framework

depicts the following important issues for working. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

45


Strategy

A set of actions that you start with and must maintain

Structure

How people and tasks / work are organized.

Systems

All the processes and information flows that link the organization together

Style

How they handle their issues and Clients

Staff

How you develop managers (current and future)

Super-ordinate

Longer-term vision, and all that values stuff, that shapes the destiny

Goals

of the organization

Skills

Dominant attributes or capabilities that exist in the organization

STRATEGY Strategy is a way by which an organization aims to execute its business and further plan its working to achieve its target. Ashok Leyland is one of the leading players in heavy transport automotive vehicles. It manufactures a wide range of products, which can be differentiated under Non-Exhaustive and Goods carrying Segment. Their main plants at Ennore & Hosur are producing diesel engines and other required parts, their assembly plants are at Alwar and Bandra. Being advanced and competitive in the field of Engines they have entered in various market segments like Marine Engines, Diesel generators and other Industrial application. Now with their current product of Diesel Generators they want to enter new market of Diesel Generators rental and hence they need to apply Market Development Strategy. They need to develop their market by following a proper structure as suggested. STRUCTURE The structure of an organization helps coordinate various tasks of the organization and hence enhance efficiency. Ashok Leyland has been working as a single working unit and hence the centralized working of the organization has not enhanced the efficient working of the complete organization. They have different Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

46

Summer Report: Leypower Rentals & Leypower Business To plan for this new business unit we need to follow the following structure to know the performance and the area of improvement on regular basis. The rental unit of the organization should have a separate team or may act as a different business unit to start with. The proposed unit for this segment for the proper flow of information and processing could be as:

GM-Engines Marketing and Sales

Sr. Manager (Rentals)

Area / Divisional / Business Development Manager

ACCOUNTANT

Crew of 2-3 Members Working For Divisional Rentals

Here the Sr. Manager should be directly reporting to GM-Engines for the goal formulation and profit results. This complete team can be installed for all India basis at most profitable centers. SYSTEMS Systems of an organization include all the formal and informal procedures that make the organization run efficiently. The working of the whole organization should be executed by proper coordination between the Dealers, Area Offices, Zonal Offices and the Corporate Office through computer network. The jobs to be performed, the skills required and responsibilities should be fixed. The Area Heads work in consultation with the Sr. Manger to make profits. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

47

Summer Report: Leypower Rentals & Leypower Business STYLE Freedom of work and speech is the most important aspect of the organization. The employees should have direct access to any level of the organization. There should be no intervention by the Heads in the work being done by the subordinates. The organization should offer complete flexibility of working by achieving the ends by any means. Complete support at any point should be provided. The delegation of work at main offices should be at the discretion of the Area Head. STAFF Staff presently in Ashok Leyland is a combination of technical and marketing individuals. The sales force has a degree or diploma in engineering as the basic qualification and professional training or degree in management as an added advantage. Therefore the privilege of holding a good staff can be easily enchased in this department also. SKILLS Ashok Leyland should be divided in strategic business units mainly for Engines and Automotive division. Due to the continuous expansion plans and regular improvements in different segments of product line this decentralization will enhance their efficiency and effectiveness. Area manager should be responsible for the development and recruitment at the regional level, where as executive level appointments should be done from head office. SUPER ORDINATE GOALS Super ordinate goals of the Rentals Business should be reflected in its Mission and Vision statements, which are as follows: Vision: To enter World market for power solutions after capturing Indian Market. Mission: To Provide complete Power solution to the growing Indian Market.

6.3 SWOT ANALYSIS STRENGTHS: Ashok Leyland has recently entered the market of Diesel Generators. However they have developed a better network in last 50 years in the field of engines. There major strength is their pre-developed network in this field. They can also give competition to their counter parts in the scale of economics due to their better engine performance under various conditions.

They can also use their goodwill of past

performance to enter this field. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

48

Summer Report: Leypower Rentals & Leypower Business WEAKNESS: They have no experience in this field and are new-bees in this segment. They would require vendors and dealers in large numbers to provide the services and other facilities that their competitors are providing in this segment. They don’t have the higher range DG’s which provides a better margin and could help to expand business. As being late entrant the economics of scale will be low. Ashok Leyland is stringent with its policies and rules, whereas their new Business Unit (as Rentals) could demand some strategic steps for execution. This hurdle can be dealt successfully with some policy changes. OPPORTUNITIES: With the Entrance in this segment they can actually advance to develop a complete range of DG sets available for rentals. For the clients who can’t buy new DG’s because of high investment, Ashok Leyland can also provide them older sets with the specifications required. These older sets can also be further used for research and development section for further improvement and development. They can also enter to Resale and Buy of DG sets business as their resale value is high. THREAT: The segment is highly unorganized and thus the lower segment can attract many players for rentals. The initial investment is high and so as the switching cost if AL decides to switch from it. The major threat to AL could be the rising prices of Diesel, which may make the rentals costlier then the SEB.

6.4 NETWORK SUPPORT Local Rental Players for Support

Providing immediate help and service.

To gain more clients and contracts

Rental Player (AL)

Local Vendors and service providers

Dealers Support System To maintain your DG set for which you provide commission


49

Summer Report: Leypower Rentals & Leypower Business To expand into this business and gain better margins the need of local support is very necessary. The above shown network diagram shows the exact need of getting help and from the person you need. When we are into a local market we will need to grab the maximum contracts out of it. This will keep our fleet’s utility high and will help us gain better profits. This can only be possible once we are tied up with the local Rental players. Not only this we need to build up a strong bond with our own dealers so that they can take care of our sets and maintain them. For this purpose we need to give them some amount of share from the rentals gained and we should train their team to use it in best efficient way. The other important thing is to develop relations with local vendors and maintenance players of the prevalent market. This is done so that if in emergency there is nonavailability of our own dealer we can solve the problem by their help. These persons will also help us in brand building with their word of mouth. AL should get into these detailed analyses before stepping in the business.


50


PART 7:

BUSINESS PROPOSAL

STARTING RENTAL BUSINESS…


51


7. BUSINESS PROPOSAL 7.1 CITIES TO START WITH DELHI: Energy is a critical input for economic development and one of the vital needs of every citizen. Globally, the per capita consumption of energy is often used as a barometer to measure the level of economic development. All forms of economic activity, be it agriculture, industry or services, is reliant on the uninterrupted supply of power. Delhi has the highest per capita power consumption among the States and Union Territories of India, with a consumption of 1265 KWH per capita per annum in 2004-05 as compared to the national average of 606 KWH. The power demand in Delhi is growing at the rate of 5-6% per annum. From a peak demand of only 27 MW in 1951, Delhi's power demand crossed 3600 MW on 23 June 2005. As per the projections made by the Seventeenth Power Survey Committee of Central Electricity Authority (CEA), Ministry of Energy, Govt of India, the maximum demand of Delhi will grow to 6961 MW by the end of 11th Five Year Plan.

While demand has been growing rapidly, capacity addition has remained relatively stagnant. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

52

Summer Report: Leypower Rentals & Leypower Business The net cost of generating power from Delhi’s own plants is high due to low capacity utilization and high fuel consumption by the plants. Delhi’s own generation installed capacity is 994.5 MW but availability is only around 750 MW. Nearly 38% of Delhi’s power needs are met by its own plants, BTPS, remaining 62% by import from NTPC, and other sources. Delhi Being capital of India is one of the major attractions for MNC’s and other coming Industries. All these large or small Scale industries have been looking forward to come in the National Capital Region (NCR) to gain the most for their business. New and growing SEZ’s like Gurgauon, Greater Noida and Ghaziabad are in shortage of supply with electricity. The Pattern of the Electricity Usage can be shown as…

We can see that Industrial usage being less due to the fact of Industrial Development occurring majorly at the outskirts of Delhi. MAHARASTRA (PUNE AND MUMBAI) The Prayas (Energy Group) Report on Maharashtra State Electricity Board suggests that MSEB operates as one of the largest SEBs in India (and the largest as of 2002-03). With nearly 13,000 MW of capacity on its grid as of 2002-03 (including 728 MW of offline capacity from the Dabhol Project), with 9771 MW of that capacity owned and operated by Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

53

Summer Report: Leypower Rentals & Leypower Business the MSEB. Private generation capacity in 2002-03 represented only a 12 percent increase in total statewide capacity on the grid since 1996-97. The MSEB’s own capacity increased 26 percent over this same six-year period. Tata Electric Company (now Tata Power) and the Bombay Suburban Electric Supply Company (now Reliance Energy) have also provided additional capacity to the grid through licensed generating units. Through the 1990s, the MSEB had a reputation as one of the best managed SEB’s in the country. In 2002-03, the MSEB reported its peak demand at 13,418 MW, which outstripped its ability to supply, particularly when factoring in the several thousand megawatts of load shedding occurring at the time of peak demand. As for the predicted Growth rate of Electricity demand in Maharashtra is as high as in Delhi. The state is facing severe power deficit and energy shortage. As per the data published by CEA, the power deficit is as high as 19.8 per cent or 2,718 MW against a peak demand of 13,697 MW and 13.4 per cent energy shortage or 11,680 million units during the period 2002-03. This shortfall is so significant that the state cannot ignore the power supply position from the perspective of development. The power Growth of Maharashtra is shown below…

As indicated above, the present peak demand is 13,697 MW and only 10,979 MW is met during the period 2002-03. Including the present deficit and projected growth rate, about 18,759 MW shall be added till the end of 12th Plan Period. Considering the immediate requirements of energy and till the end of the present 10th Plan Period of 2006-07, about 5,737 MW shall be installed during the next four years. Another 5,632 MW shall be added during 11th Plan period ending 2012. This Even leaves a shortage of 2500MW of Peak power. In total there is a huge shortage of power in Maharashtra State even being the best SEB managed state.


54


7.2 PROPOSED FLEET DISTRIBUTION Taking into account the supply shortage and present fleet of major competitors into the above-mentioned regions, we need to start with smaller fleet. This will also give us a chance to gain more experience and once the business is gripped with good network AL can expand its Fleet size and focus more Pockets in India. The Proposed fleet for 4his business as whole Indian market is shown below. DG Range 30 KVA 40 KVA 62.5 KVA 100 KVA 125 KVA 250 KVA 500 KVA Total

No of Sets 4 6 3 4 6 8 4 35

This Fleet can be divided into two pockets as Delhi and Maharashtra region. The Division of the Fleet for these Segments is as shown Delhi DG Range 30 KVA 40 KVA 62.5 KVA 100 KVA 125 KVA 250 KVA 500 KVA

Maharashtra (Pune And Mumbai) DG Range No of Sets 30 KVA 40 KVA 62.5 KVA 100 KVA 125 KVA 250 KVA 500 KVA

No of Sets 2 2 1 2 2 4 2

2 4 2 2 4 4 2

This is what the total fleet should be there for the development of the complete business. Now with no of Fleet the total Initial Investment that Ashok Leyland needs to do will be as shown below… DG Range 30 KVA 40 KVA 62.5 KVA 100 KVA 125 KVA 250 KVA 500 KVA Total

No of Sets

Cost of 1 Set (In Rs) 4 6 3 4 6 8 4 35


2,74,000 2,83,000 3,43,000 4,35,000 5,24,000 9,36,000 22,00,000

Capital Invested (In Rs) 10,96,000 16,98,000 10,29,000 17,40,000 31,44,000 74,88,000 88,00,000 Rs 2,49,95,000 55


7.3 EXPENSES OF TEAM CONSIDERED As suggested the team of this segment should have at least 10 members. These members can be segregated as shown below… Sr. Manager Divisional/ Area/ BD Manager Crew under BDM Accountant

1 2 6 1

Divisional Managers should be divided under Delhi and Maharashtra region. In addition, the crew of six Persons under them should be divided region wise. Assuming that Sr. Manager Reporting to GM-Engines under whom this new business unit can work the further total expenses of the complete department will be as shown… Name Sr. Manager BDM Crew under BDM Accountant

No 1 2 6 1

Expense 800,000 650,000 275,000 275,000

Total (In Rs) 800,000 1,300,000 1,650,000 275,000

Telephone (Monthly) Department Expenses (Monthly)

12

17,000

204,000

12

50,000

600,000

Total

10

-

48,29,000

Hence the total yearly expenses of the team will occur nearly as 48,29,000Rs.

7.4 BREAK EVEN PERIOD FOR BUSINESS Taking into consideration the Initial investment of Rs. 1,17,52,000 with yearly expenses of Rs. 45,20,000

the breakeven for the complete Business should be deduced. Assuming that an

set is on hire at an average period of 10 months in an year and at an average it is given at 240hrs usage and not considering the capital cost interest which was shown previously. Hence the yearly income will be… Dg Range 30 KVA 40 KVA 62.5 KVA 100 KVA 125 KVA 250 KVA 500 KVA

Margin Per Month Margin Rate Yearly Income 13,541 51% 541,640 13,838 50% 830,280 16,231 53% 486,930 23,470 57% 938,800 24,902 56% 1,494,120 45,763 64% 3,661,040 90,805 72% 3,632,200 Total Yearly Income Rs.1,15,85,010


56

Summer Report: Leypower Rentals & Leypower Business This achieved margin and margin rate is strictly considering Investment cost zero as shown in contracting sheet to the AL. For the Break Even of the project we have formula as… Break Even = (Total Initial Investment) / (Yearly Income – Yearly Investment) Break Even = (2,49,95,000) / (1,15,85,010– 48,29,000) (All in Rs.) Hence the Break Even of the complete project can occur in a minimum of 3.7 years or 4

years approximately. 7.5 LIMITATIONS OF REPORT 1. The Market rentals taken are most from tele-conversation and 1-2-1 conversation basis. These data where however confirmed by competitors but may be misleading. 2. Running cost of DG calculated is more of the information delivered by dealers and OEM’s. These data may not be highly true due to approximations and business details. 3. Monthly margins taken are assumed on approximation of 240hrs and 10 months utility, this might or might not be the exact utility of DG. 4. Expenses of the team and department may vary as per usage and hence the total breakeven of the project may be varied. 5. Investment required to be done in this new project needs to follow organization policies and hence may vary. If investment is decreased the breakeven will increase while if investment is increased the breakeven decreases. 6. A complete and proper analysis of Indian market could not be done due to nontouring facilities.

7.6 WHY NOT CHENNAI? The survey being done in Chennai does inclines for the option to select it as one of the starting pockets. However, there are some reasons due to which the choice of Chennai was not preferred. They can be stated as; 1. Non-availability of actual Leypower DG sets near Chennai. 2. Load shedding in less in T. N. region. 3. No. of genset players are lesser in Chennai as compared to Delhi and Maharashtra. This shows less demand here. Prepared By: Sumit Gupta, MBA Batch of 2007-2009 Institute of Management, Nirma University

57

Summer Report: Leypower Rentals & Leypower Business 4. The fleet size with the players is also less. These fleet of DG are used in Chennai and nearby region which also deflects less demand.

7.7 RECOMMENDATIONS The implementation of the project should be done keeping the following recommendations in mind. 1. The network should have strength with all dealers and vendors given proper share. 2. The DG sets on rentals should have the tag of Ashok Leyland’s “Leypower”, and not the tag of the OEM assembling it. 3. The study of Maharashtra and Delhi market should be done properly before entering into it. 4. Ashok Leyland needs to properly link with the local players who can use their DG for rehire purpose. 5. The team should be trusted and given free hand to deliver their best for the organization.

7.8 CONCLUSION The complete project is quite lucrative and gives good margin to the DG rental player. As the Power demand will remain unfulfilled for at least 8-10 years from now, this project is certainly a good option to look for expansion, which could be implemented considering the recommendations and limitations of the work.


58

Final Report on Leypower Rentals

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