Rudra Industries: Bidding for Generator Leases

In April 2020, Rudra Industries and Services Private Ltd., a diesel generator product and service provider in Uttar Pradesh, the largest state in northern India, was facing a dilemma. Diesel generators (DGs) were heavily used by telecommunication companies to provide uninterrupted power supply to their towers, despite frequent power outages. However, consolidation in India’s telecommunication industry had led to stagnation in the company’s core business. To maintain a continuous flow of income, the company was considering a business expansion to leasing diesel generators to clients. The company was asked to prepare a bid proposal for leasing 100 DG sets to a local bank with numerous branches across the state. What factors would influence the pricing estimates in the bid? How should the company finance the purchase of generators that will be leased out to the client? How could the pricing estimate be calculated to ensure the project would be profitable? Should the company even consider entering the leasing sector, considering recent reductions in power outages and increasing diesel prices?

This case is suitable for beginner and intermediate courses on corporate finance or financial management at the undergraduate and graduate levels. The case can also be used in executive training programs for both beginners in finance and senior executives looking to delve more deeply into competitive bid pricing. Training programs aiming to teach finance basics to non-finance professionals can also benefit from using this case. After completion of this case, students will be able to do the following:<ul><li>Use information provided in the case to identify the type and structure of a lease.</li><li>Use the concept of an annuity to calculate the annual instalments required to repay the funds borrowed to purchase generators that will be leased out to the client.</li><li>Reduce the pricing in a bid proposal with a tax shield from interest payments.</li><li>Use the internal rate of return and free cash flow to equity to estimate return on equity.</li><li>Explore various scenarios regarding uncertainty in operating cost due to fluctuations in diesel prices and ongoing power outages.</li></ul>

• energy
• fuel
• COVID-19
• lease
• bid price
• free cash flow to equity
• FCFE
• return to equity
• RoE