Two brothers, Ravi and Raju Sinha established Classic Dealership (CD), a partnership that is a bike dealership with its main office in Mumbai. The…

Two brothers, Ravi and Raju Sinha established Classic Dealership (CD), a partnership that is a bike dealership with its main office in Mumbai. The dealership imports premium bikes from countries like China, Taiwan, Japan, Germany among others. These are luxury bikes, that are purchased by avid bikers who ride them extensively for recreational and off-road adventures. The dealership has state of art service network that is spread all across India to take care of after sale service and maintenance of bikes. Both brothers are active working partners in the business. Ravi Sinha is of the opinion that "the purpose of a business is to acquire and retain a customer. In order to run a profitable and sustainable business, we must be able to determine the net profit that can be attributed to the future relationship with a customer. “ Based on the buying preferences and culture, the dealership categories its loyal customers into two categories: Good and Excellent. Customer profile for imported bikes Age analysis of customers taken by CD reveals a general statistical estimate that a person may become the first customer by buying a bike when he attains 20 years of age and rides bikes until he reaches the age of 40 years and 3 months. It is further observed that the “Good” category customers would not prefer waiting to purchase the bike beyond 5 years. Relevant details pertaining to the sale price and profit margin from the sale of imported bikes are given in Annexure 1. Brand endorsement to increase the share of "Excellent" customers for the sale of imported bikes Ravi came up with the idea of engaging Formula 1 bike racing icons to promote the bikes that are being imported. This brand endorsement would cost the dealership 25 crore over a period of time. Ravi, a conservative analyst by nature predicts that this brand endorsement is likely to turn 500 customers who attain 30 years of age, and who are bound to be otherwise "Good" customers into "Excellent" customers. Dealership of Electric Bikes Due to its clean energy technology, low pollution emission, the popularity of electric bikes is increasing within India. Currently, Coco Motors Limited, Zoho Motors Limited and Polo Motors Limited are three companies who manufacture bikes for the domestic market. Although the market is still in its nascent stage, Raju Sinha expects electric bikes to become popular very soon. The market for imported bikes caters to a niche market primarily consisting of avid bikers. Electric bikes can cater to a larger customer segment ranging since these bikes can be used for regular daily commute, which is a very basic requirement for a large section of the population within India. Therefore, the market for these bikes will be much larger as compared to imported bikes. Therefore, Raju Sinha proposes to that CD should start a dealership of such electric bikes in the upcoming year 2026-27. While both partners are enthusiastic about the proposal, they wish to make a thorough analysis of this venture. Being still nascent in India, electric bike market can be subject to a lot of risks and volatility. Hence, they initially plan to start this venture only for 4 years and extend it if found successful. Further, they wish to do a sensitivity analysis of the project to understand the impact of fluctuations on initial project cost, annual cash inflow and cost of capital. Details of the project are given in Annexure 2. Strategy to maintain sustained customer relationship for electric bikes CD aims to be build a large dealership of electric bikes. In order to develop and maintain customer relationship, it plans the following measures to appeal to and appease them. Firstly, CD plans to increase public awareness about the environmental benefits of using electric bikes. This will appeal to the environmentally conscious customers. Secondly, CD's sales and marketing team feel that electric bikes would be most appealing to youth and young professionals below 35 years of age. For this segment the team determines that owning a car would not yet have become necessary. Further, CD plans to use digital marketing to reach out to potential customers across India. In Addition to above strategic measures, CD also plans to provide annual maintenance contracts for these electric bikes. Hence, their sales team is being trained to cross sell these AMCs at attractive rates, once the warranty period for the electric bike is over. Remuneration to partners for FY 2025-26 as authorized by the partnership deed Classic Dealership has earned a net profit of 11 crores for the year ended 31st March, 2025. This is before deduction of certain items. These items include Salary of 5,00,000 each per month payable to the working partners Ravi and Raju Sinha. This has been authorized by the deed of partnership. Additionally, Depreciation on plant and machinery under section 32 (computed) 8 crores, has not yet been deducted. The profit also does not account for Interest on capital @15% per annum as per the deed of partnership. The amount of capital eligible for interest is 10 crores. Further, When Classic Dealership was incorporated, the partnership deed allowed a salary payout to each of the working partners only to the extent of 2,00,000 each per month. The partnership deed was amended on 1st April 2024 to allow for salary payment of 5,00,000 each per month payable to Ravi and Raju. The current amended partnership deed also allowed for a salary payout of 25,00,000 each to Ravi and Raju as extra payment towards salary of the previous years that is prior to F.Y. 2024-25. Warranty replacement of electric bike or its parts and repair services during warranty period As proposed, CD started a dealership of electric bikes- manufactured by Coco Motors Limited, Zoho Motors Limited and Polo Motors Limited from April 1, 2026. During the warranty period CD replaces certain parts or provides services to its customers on behalf of the manufacturers. As per the arrangement with Coco Motors Limited, CD replaces the bikes or its parts to the customer under warranty either by using its stock or by buying from a third party vendor. It charges the consideration for the part(s) so replaced from Coco Motors Limited, by the issuance of a tax invoice, for the said supply made by itself to the company. Whereas in the case of Zoho Motors Limited, CD raises a requisition to the manufacturer for the bike or its parts to be replaced by it under warranty. Zoho Motors Limited then provides the bike or its parts to CD for the purpose of such replacement to the customer as part of warranty without separately charging any consideration at the time of such replacement. As per the terms with Polo Motors Limited, CD replaces the bike or its part(s) to the customer under warranty out of the supply already received by it from the company. Polo Motors Limited then issues a credit note in respect of the bike or part(s) so replaced subject to the provisions of section 34(2) of the CGST Act, 2017. Further, CD provides repair services in addition to replacement of bike or its parts to the customer without any consideration, as part of warranty. This is done for bikes sold on behalf of all the three manufacturers Coco Motors Limited, Zoho Motors Limited and Polo Motors Limited. CD then charges the respective manufacturer for such repair services either by way of issue of tax invoice or a debit note. Extended warranty Extended warranty is a service or maintenance agreement that provides against unexpected repair or break-down after the initial warranty period expires. Extended warranty can be availed by the customers either at the time of original supply or at any other time different from the original supply. Due to the cross selling efforts of the sales and marketing team at CD, almost 60% of the customers purchase the extended warranty from CD at the time of original supply. Many of the other customers purchase the extended warranty from CD after the original warranty period has ended. Yet few other customers prefer to purchase extended warranty from service providers other than CD. Mr. Ravi has recently won a lottery prize this year and wishes to remit USD 30,000 from his lottery winnings to his son abroad. Also, he intends to obtain USD 50,000 to facilitate the travel expenses of a cultural troupe that he plans to send on a tour of the United States. Mr. Ravi approached CA. Abhishek, a well renowned expert and practitioner in foreign currency transactions and corporate laws, seeking consultation on above two important matters. Annexure 1: Sale price and Profit margin from sale of imported bikes Summary Analysis of Sale price and Profit margin from sale of imported bikes: Type of customer Periodicity of buying Selling Price per bike Service/Maintenance charges Good 1 bike every 5 years 6,00,000 1,00,000 per bike Excellent 7 bikes as a whole from the date of his first buying 9,00,000 1,20,000 per bike per year Profit margin: Profit margin Good Excellent On sale of each bike 25% 30% On service / maintenance charges 50% 60% Annexure 2: Project details of dealership in electric vehicles Project Overview: Dealership in Electric Vehicles With the rise of clean energy technologies and increasing concerns about pollution, electric bikes are gaining rapid popularity in India. These eco-friendly vehicles offer a sustainable solution for daily commuting, appealing to a much broader market than imported premium bikes, which cater mainly to niche biking enthusiasts. Key Financials: Particulars Details Initial Project cost 13 crores Annual Cash Inflow 5 crores Project Life 4 years Cost of capital 10% Annuity factor for 10% for 4 years is 3.169, Annuity factor for 11% for 4 years is 3.103. Strategic Highlights: One of the key strategic advantages of entering the electric bike dealership market at this stage is the first-mover advantage. By establishing an early presence particularly in underdeveloped or semi-urban regional markets the venture can capitalize on limited competition, quickly building brand recognition and customer loyalty. These areas are often underserved, presenting an untapped opportunity for growth.