Toyota Car dealership case

There is Mr..Shyam, he got to know Toyota Motor wants to expand its dealership network in
India. They are looking for dealers in India. Now he is seeking your assistance for his
dilemma of whether he should go for this or not.
Information:
Toyota has over all 67 dealers across the country. Annual sales for the company last year was
around 1,00,000 cars. With this Toyota holds around 8% market share, in the 12,50,000
annual car sales in India during the year 2017. Toyota want to increase its market share to
15% by 2021, to do so it need to increase its dealer network to 125 dealers across the country.
This is the requirement for the company and hence the current business opportunity.
The following chart shows the average sales witnessed by a Toyota dealer in 2017
Models Number of Price Commission
Units Sold / (%)
month
Pradoo 1 30,00,000 4%
Fortunerr 12 22,00,000 4%
Camryy 1 20,00,000 4%
Corollaa 10 12,00,000 3%
Innovaa 50 10,00,000 3%
Etioss 50 7,00,000 3%

The sales numbers are expected to increase by 10% per annum going forward.
Commissions are fixed on different models.
Dealer requirements:
Dealer should invest in having a showroom (for display of cars and effecting the sale) and a
go-down (to keep inventory of cars)
Show room space of 15,000 Sqft and go down space of 30,000 sqft.
Staff requirements:
Staff No. Salaries
/Month
manager 1 35,000
Sales 3 25,000
Admin 2 20,000
Go Down 3 12,000

Assumptions:
Debt 50% , cost of debt is 13%
Equity 50% and cost of equity 25%
Increment in salaries 10% per year
Operations and maintenance 15% as % of revenues
Interest on commercial loan 13%
Tax 35%
Year on year revenue growth 10%
Rent for showroom 150 rs/sqft/month
Rent for godown 30 rs/sqft/Month
Initial renovation cost Rs 25,00,000
Deposit for show room (6 months advance) Rs 13,500,000
Deposit for go down (6 months advance) Rs 54,00,000

Questions:
What are the returns on this project?
What is the initial investment?
How is the funding arrangement going to be ?
What are the profits/cash flows from the project?
Mr. Shyam now has required details of the franchise to decide if he should take up the
opportunity or not?
2. Datsun has over all over 300 dealers across the country. Annual sales for the company last
year was around 80,000 cars. Datsun holds 1.8% of the market share in India during 2018
financial year. Datsun want to increase its market share by 8% by 2020. Datsun wants to
increase its dealer network by entering into district hence the current business opportunity.
The models and price and commission details are added in the data sheet.
Dealer requirements:
Dealer should invest in having a showroom with 10,000 Sqft space and a go-down with
30,000 sqft. Space.
Staff requirements:
Staff requirements and salaries per month are given in the data sheet.
Assumptions:
Sales growth 7%per annum going forward.
Commission is fixed on all three models
Debt 50% , cost of debt is 10%
Equity 50% and cost of equity 20%
Increment in salaries 10% per year
Operations and maintenance 12% as % of revenues
Interest on commercial loan 12%
Tax 30%
Year on year revenue growth 10%
Rent for showroom 100 rs/sqft/month
Rent for god own 15 rs/sqft/Month
Initial renovation cost Rs 15,00,000
Deposit for show room Rs 15,00,000
Deposit for go down Rs 10,00,000
3. Neon Motors- Mahendra commercial vehicles dealer, sells Mahindra Alfa CNG three-
wheeler load and Mahindra Alpha plus three-wheeler.

Model Price

Mahindra Alfa CNG three-wheeler load 1,52,000

Mahindra Alpha plus three-wheeler. 1,74,000

The dealer commission for Mahindra Alfa CNG three-wheeler load 14% and Mahindra Alpha
plus three-wheeler is 12%. The number of vehicles sold per month are given in the template.
The selling price is expected to grow at 8% every year for both the vehicles. The commission
percentage remains constant.
Neon motors is currently located in Kondapur, Hyderabad. They are thinking to open one more
outlet near Warangal. To operate another show room, they need to have 1000 sqft space for the
shop. The expected lease rental for the show room is Rs 120 per sqft per month and with a
rental advance of 8,00,000 at the beginning. Interiors and showroom setup cost is estimated to
be 15,00,000. The operation cost is estimated to be 20% of the revenues. The salaries and wages
are estimated to be 20% of the revenues. Tax rate is 30%. The initial setup cost and deposit can
be funded by 60% bank loan. The remaining should be using equity fund. The bank loan is to
be repaid at the end of 5 years lumpsum and the cost of bank loan is 12% per annum.
Neon has other investment opportunity which is expected to provide a return of 15%. Evaluate
the business opportunity with a franchise agreement of 5 years. Suggest Neon which one to
undertake, is this Warangal show room opportunity or the other business opportunity which is
expected to provide a return of 25%?
Analyse the sensitivity of the IRR to the debt percentage and interest rate change
4 . ABC Co a franchise of Apolloo pharmacy,
1. Sells 150 strips/day of low budget drugs at an average contribution of Rs.25/ strip and
2. 100 strips/day of high budget drugs at an average contribution of Rs.60/ strip Sales
volume and average price are expected to grow by 5% every year for both the drugs .
3. To operate a franchise , it needs to have a 750 sqft space for retail shop with a lease
rental of Rs.100 / sqft / month
4. Rental contract for 5 years and a deposit of Rs.10,00,000 at the start
5. A one time renovation of the premises worth Rs.20,00,000 will need to be incurred at
the start.
6. Required personnel costs are Rs 80,000/month Wage
7. Inflation in the economy is 7%.
8. Other operational expenses are expected to be 25% of the contribution, generated for
the period
9. Tax rate in the economy is 35%. Tax losses cannot be carried forward.
10. The initial investment (deposit + renovation) can be funded by 60% bank loan
(@12% interest rate).
11. The remaining should be funded using equity.
12. The debt is to be repaid at the end of 5 years in lump sum
13. Other investment opportunity with ABC Co. is expected to provide a return of 20%.
Evaluate the business opportunity with a project life of 5 years.
After 5 years the franchise will be handed over to Apolloo and the deposit will be refunded to
the ABC Co.(Ignore depreciation)
If ABC Co. invests in the project, what is the expected IRR?