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Ab Bus Hogaya

It was 9 a.m. Monday morning. Mr Moorthy, Regional Manager at Raleigh Leasing


Ltd broke out into a sweat as he put the phone down. The accountant at Amla Group
of institutions, his old buddy who worked at 2%, rang to tell him that in spite of his
sincere recommendations, the trustee had second thoughts and had put his foot
down. No way was he going to pay the Rs.1 lakh administration fee for Raleigh
Leasing Ltd to get a loan to buy school buses. The Managing trustee of Amla group,
Mr.Abdul had calculated differently. The interest was okay and so was the 36 month
pay-time. He could go to someone cheaper- the Katak finance co had wanted only 25k
for the same deal and were ready to even throw in free service and besides, give
trustee a buy-back option at the end with a low-low price for the bus. The Group
would need more buses in the coming months. They needed at least one right away.
On Friday afternoon, the accountant had given a cheque to Moorthy to deposit as
advance payment- a whole lakh. Moorthy, feeling elated at the order, put the check
away in his desk drawer, reminding himself to send the office peon to bank it after he
came back from the urgent meeting at regional headquarters. Invicta Bus Ltd., the
suppliers, had wanted a Rs.1 lakh Demand Draft as advance payment from Moorthy
to book the bus and if they did not have the draft by Friday afternoon, then there
would be a delay of 3 months in getting a bus. The accountant was clear that the
school classes would resume a week from today and the bus was required a.s.a.pi.e.
in 7 days flat and Moorthy just wanted to help him and already the cheque was with
Invicta who no doubt had banked it.
The situation was simple. Amla would stop their Cheque, cancel the order and Invicta
would demand Rs 21 lakhs more which he would legally owe them and at the end of
it even if he coughed up the balance, all he would have is a bus which no one wanted
and a lot of explaining to do to the higher-ups.
This was not the first time or the last time. Though his branch recorded the lowest
number of default clients, Moorthy was able to hide this using creative accounting. It
*Dr.Swamynathan, Asst.Professor (Senior Grade), PSG Institute of Management, Coimbatore
**Prof. Umesh Chandrasekar, Professor, PSG Institute of Management, Coimbatore

was not his fault if his client rammed the vehicle to a tree and the insurance company
was delinquent in paying up. The company had a great market share: over 2/3 of the
new business and of the repeat business would come to them. Thanks to friends
like the accountant, he had a good hold on the institution and corporate business as
part of the game. He was pushing for the company to go into consumer finance- a
lucrative growth area.
Katak finance had cornered the market and were competitively pricing their deals and
talking in terms of offering 48-60 month leases with attractive buy-back options.
Wearily he picked up the phone to see if Invicta would see reason well, in short
they did not. The bus which Moorthy had ordered was a one-off cancellation and the
only bus they had. Besides, an overtime-hungry operator had painted the Amla livery
and logo on the bus overnight and there was nothing they could do.
The trustee was a man with a short fuse. The accountant was told in no uncertain
terms to get a bus in by next week or else. He had burnt the Moorthy bridge- now
only Katak could save him.
Goota at Katak offered him tea and sympathy and rang Invicta to order a bus. The
reply he got was that there was a three month wait, sorry. The account gesticulated to
Goota to ask Invicta about Moorthys order- Invicta promptly replied that they were
not in a position to discuss other clients but it was suffice to say that the expected to
deliver the bus to Raleigh by Monday.
The accountant walked out of Katak in the RIP (Resignation In Pocket) mode- He
dragged his feet and walked the long walk back to his office. Moorthy too was in a
similar mood. He had committed a huge blunder and his world had unraveled. This
was only the proverbial tip of the iceberg.
Raleigh Leasing was a funny company to work for. Started by the chit-fund king
Rally, the company specialized in leasing trucks and buses to SMEs across India.
Coimbatore office was the hub for the 20 men sales team who covered the district.
Educational institutions were a major client and Rally personally had invested time,
sweat and money to cultivate this market. Besides a lot spinning mills regularly leased
buses for ferrying their employees and indeed Coimbatore was a lucrative market.
*Dr.Swamynathan, Asst.Professor (Senior Grade), PSG Institute of Management, Coimbatore
**Prof. Umesh Chandrasekar, Professor, PSG Institute of Management, Coimbatore

Given the share they had, certain complacency had set it. The branch had over 1000
live accounts and the default rate was very good at a 1-2% in numbers- in value if was
as much as 30%. That was worrying. The sales force was based on a fixed salary plus
overriding commission on the deals they managed to finalize. They worked to a set
template for due diligence enquiries and many times clients were deterred with the
sheer amount of paperwork. Kataks strategy was different. They worked only
through clients banks and even paid a fee to them to vet the applicants. Besides, they
spread their risks well, never exposing themselves to risks and hence their market
share was barely inching forward in the commercial business. In retail business, they
were the king since they had agreements with various companies for direct deduction
of vehicle loan installments from the salary accounts.
Moorthy decided to convince Abdul of Amla institutions to bear with the contract this
time for some lucrative offer in near future. His appointment was honored over phone
and Abdul was only insisting that he wanted that future promise to be delivered now
and so that their business relationship could continue longer. Something else
happened which made his life slightly better. The bank called to confirm the Amla
cheque he banked earlier in the day , just as a gamble, had cleared.
Abdul on the other hand had few more problems looming up. The first and fore-most
was that he was not in a position to buy the buses at full cash payment- for the trust
committee would object unanimously.

He could not go crawling to the committee

and admit it was his mistake that he delayed booking the school buses, and when he
booked, it was a time when Invicta was having a full order-book and was meeting
the peak demand of the school season. The parents of schoolchildren would not
accept

any excuses if the school buses were not running from the re-opening day.

This was the selling point for the school and parents would deeply resent this failure.
Raleigh Leasing Ltd, would not refund the Rs 1 lak cheque and, if at all they did, it
would be a good six months. Katak finance, though economical, could not get the bus
since Raleigh Leasing Ltd had paid the advance. Invicta motors would most certainly
claim for an indemnity if the bus was not purchased in 5 days for they had already
painted Amlas logo and name into it, and they could not sell it to some other party
immediately.
*Dr.Swamynathan, Asst.Professor (Senior Grade), PSG Institute of Management, Coimbatore
**Prof. Umesh Chandrasekar, Professor, PSG Institute of Management, Coimbatore

Imbran, the secretary of Amla Institutions had booked four fancy numbers with the
RTO office by paying Rs.25,000/- for each number .The RTO had asked him to
register those numbers within 10 working days or he would lose them.

The loss of

the numbers would dent their prestige further. The Tamilnadu government had started
looking closely into school education by introducing fee ceiling, Uniform syllabus
scheme, new safety regulations for the approval of school buildings etc. This would
have a real impact on the revenue of private schools in the State.
The question was, how could this mess be sorted out without making any enemies ?
1. What should Moorthy do as a team head to manage the current market share?
2. As a marketing/sales executive, can you understand the tensions involved in
this business deal? If yes list them and try to improvise certain sales strategies
for the same.
3. Abdul is an example for a typical corporate customer in India- comment
4. Identify the business operation strategies of RLL and Katak, and also the
benefits to corporate clients arising out of intense competition among
suppliers.

*Dr.Swamynathan, Asst.Professor (Senior Grade), PSG Institute of Management, Coimbatore


**Prof. Umesh Chandrasekar, Professor, PSG Institute of Management, Coimbatore

Exhibit - 1

- Net discounted cost of Rental

1768389.94

- Net discounted cost of Hire Purchase

1809506.81

- Net discounted cost of Cash Purchase

1967241.29

Summary of Contract Terms

Financial Assumptions

Cost
equipment
Annual
rate

Lease

Hire

Purchase

Rental

Purchase

date(month)

of
Return on
2260000.00 2260000.00
employed

interest
6.82 %

7.58 %

3 Years

3 Years

Monthly

Monthly

69005.36

69696.78

Term
Payment
frequency
Periodic rental

January
capital

Tax
End(month)

Year

12%

March

Tax Rate

19%

Tax Allowance

25% WDA

Cashflow analysis comparison is RENTAL with a net saving of 41116.87 over HIRE
PURCHASE and 198851.35 over CASH PURCHASE

*Dr.Swamynathan, Asst.Professor (Senior Grade), PSG Institute of Management, Coimbatore


**Prof. Umesh Chandrasekar, Professor, PSG Institute of Management, Coimbatore