Emm Vee Motors Limited (EVML) is one of the largest manufacturers of commercial vehicles in India. The company has grown over a period of time under…

Emm Vee Motors Limited (EVML) is one of the largest manufacturers of commercial vehicles in India. The company has grown over a period of time under the dynamic leadership of its Managing Director, Mr. Ramesh Chander. Vehicles manufactured by the company are appreciated for their resilience, reliability and exceptional value. In F.Y 2022-2023, EVML recorded a Profit after Tax (PAT) of 180 crores on sales of 4,860 crores, as compared to previous financial year PAT of 325 crores on sales of 5,670 crores. With the manufacturing industry reeling under recession, the freight generating sector saw a steep decline. EVML's supply chain had gone haywire under the recession which eroded 14.29% of its revenue from operations in one year, forcing the company to helplessly allow inventories to build up. In 2023-24, EVML decided to meet the challenge by re-gearing its systems, be it material order, handling, procurement or inventory control. EVML conducted brainstorming sessions inviting ideas on cost cutting. It became clear that cost-cutting would only be effective if the supply chain operated smoothly. It was decided to revamp its inbound and outbound supply chain. It identified two methods to reduce costs in supply chain: firstly reduce material costs and secondly reduce inventory carrying costs by implementing Just in Time technique. The Procurement and Quality Engineering team jointly formed the single window vendor management system. Within the centrally negotiated price, unit material functions interacted with the approved panels of vendors to "pull" materials in line with the production plans. The single window system created ease for the vendors for sharing drawings, negotiating prices and for any assistance on quality related issues. EVML purchasing policy was to maximize the bought-out parts both indigenous and imported. It believed in global sourcing. It started creating database for the 18,000 plus parts which were matched with the supplier's part numbers. A classification of 1,500 odd suppliers based on business volumes revealed that 25% accounted for 80% of the business while 60% handled just 5%. EVML aimed at reducing the supplier's base from 1,500 to 800. It considered new suppliers for the required components based on their ability to meet quality, specification, price and delivery schedule. EVML cutback its panel of direct suppliers through Tiering and system buying. Tiering formed the basis of the vendor consolidation drive. It dealt directly with the tier-I suppliers who in turn were supported by the tier-2 and tier-3 suppliers. Lean manufacturing practices focused on reducing waste, improving process efficiency, and increasing production flexibility. Value engineering analyzed the composition of parts to reduce costs through substitution or elimination of materials and methods with less expensive alternatives without sacrificing functionality. The resultant cost benefits were shared with the suppliers. It moved to JIT ordering system for high value/low volume items and low logistic cost for low value/high volume items. It moved from 'Push' system to 'Pull' system, which resulted in substantial reduction of inventory holding period of components. Each stage produced only as much as the next stage needed. The local suppliers were advised to have their warehouses at a distance of 35-40 minutes from the EVML's production plants. Suppliers' being partners in progress were given necessary technical assistance to maintain quality standards and deliver the required components on time. Main components used in production were classified into 'ABC' category with their suppliers also being classified accordingly. It developed different delivery norms for each category. The plant sent JIT card through email to the suppliers who dispatched the required components directly to the assembly line. EVML introduced RFID, GPS tracking, EDI, bar coding system to enhance inbound logistics. JIT system reduced the annual average inventory of materials by 75% from the current level of 240 crores. Annual insurance and warehousing costs for inventory reduced by 60% of previous year figure of 5 crores. Annual Payroll expenses for current inventory management staff reduced to 60% of the previous year figure of 12 crores. Additional annual costs for JIT system implementation and management, including personnel costs were - 7.5 crores. EVML's required rate of return on inventory investment is 10%. JIT system also enabled the company to reduce the delivery time of products to end customers. With all the above activities at shop floor, EVML did not lose sight of the customer. Customer satisfaction was the prime objective of EVML. EVML revamped distribution network for its finished products. EVML set different delivery schedules for its various products. EVML launched new 3S (Sales, Services and Spares) dealerships in various cities to enhance customer service and reach. The 24 x 7 operational service outlet incorporated advanced tools and equipment and pneumatic systems-integrated mobile service vans to attend to breakdowns. It set up regional distribution centres at strategic locations to ensure that products were delivered quickly to dealers and customers. It organized dealers training program twice a year to keep them well equipped with latest changes in automobile industry and technology. Customer Relationship Management (CRM) was used to monitoring trends and forecast demand on the basis of inputs received from customers. Company automated the post- delivery feedback report. A customer feedback report revealed three major parameters for service level targets: order to delivery time, reliability of deliveries and availability of order status information. As a result of the steps taken by the company to revamp its supply chain, there was a significant increase in profits during the year 2023-24 compared to year 2022-23. EVML provides assurance type warranty for one year which is included in the selling price of vehicles. To increase customer satisfaction and trust in the company's products, EVML offers flexibility to customers by allowing them to purchase the extended warranty plan either at the time of the original sale or just before the standard warranty expires. An extended warranty plan offers to repair or replace mechanical parts. Company determined that the two years of extended warranty represent a separate performance obligation. Standalone selling price of extended warranty is fixed at 15,000. On the basis of past experience, it is estimated that - 7,500 will be incurred to repair defects that would arise within one year coverage period for the assurance type warranty. In a board meeting held on 01.11.2024, Board of Directors of EVML, made a resolution in the Board meeting that the technical errors in the vehicles will be rectified even if warranty expired. But this matter was neither announced to the public nor intimated to affected parties. In a Board meeting held on 01.01.2025, Board of Directors of EVML had taken strategic decision to set up a new manufacturing plant at Hisar. The initial capital expenditure was estimated to be around 120 crores, for which EVML decided to borrow 90 crores from the company's bankers by following due procedure as per the Companies Act, 2013. Loan was sanctioned on 28.02.2025 and directors of the company provided personal guarantee to bank for sanctioning the loan. EVML also provided corporate guarantee of 12 crores for four years in case of loan given by bank to its associate Indian company DEF Ltd. and charged a fee of 10,00,000 from DEF Ltd. The Board of the Directors of EVML has appointed Mr. Nilesh, a qualified management professional, having 25 years of rich industrial experience, as Additional Director, on 01.10.2024 by passing a board resolution by circulation. Mr. Nilesh is also a managing Director of PQR Limited, which is engaged in the manufacturing of industrial spare parts. On 15.11.2024, Mr. Ramesh Chander suffered a severe heart attack and being hospitalized, decided to retire from his position as Managing Director. Management of the company proposed to appoint Mr. Nilesh as a Managing Director of the company. Notice of meeting was sent to all the ten directors present in India. On 08.12.2024, he was appointed as managing director by Board of Directors by passing resolution in the board meeting with the consent of eight directors present in the meeting. Mr. Vinod, a Director of the company, who had not attended the meeting, raised concern regarding validity of his appointment, as he was of the view that proper procedure as per the provisions of The Companies Act, 2013 was not followed. EVML imported some components from a German Company in the month of February 2025. The finance manager of company needs to borrow 5,00,000 euros for 90 days to settle the payments. Policy of the company is not to take any currency risk. The following rates are quoted: ₹/€ spot: 90/90.35 and 90 days swap: 20/25. € Interest rates: 4.00/4.25; Banker suggests another alternative of US dollar loan. Enquiries reveal that interest rate is 5% and $/€ rate is 1.0220/1.0240 and 90 days swap points of 15/10. The income tax return filed by EVML on 30th October, 2023 for the Assessment Year (A.Y.) 2023-2024 was selected under CASS (Computer Aided Scrutiny Selection) by the Income Tax Department. During the assessment proceedings, the assessing officer identified transactions related to foreign borrowings amounting to US $45,00,000 at an interest rate of 8% from its overseas associate company, and referred the matter to the Transfer Pricing Officer (TPO). Upon examination, the TPO determined that the interest rate was excessive by 3%, a finding that was subsequently accepted by EVML. As a result, the Assessing Officer made an addition of 1.20 crores on account of the excessive interest rate. Additionally, other additions amounting to 1.5 crores were made to EVML's income for the A.Y. 2023-2024. The assessment order was received by EVML on 30th January, 2025. Multiple Choice Questions: [Please provide the correct option to the following questions]