 "On the road but miles to go")
Gone are the days when people waited outside airports or railway stations for taxis or auto-rickshaws. With fraudulent meters and rude taxi drivers, travellers often felt they got a raw deal. In the mid-2000s, car rental companies entered this segment, transforming it. Initially, these catered purely to business process outsourcing (BPO) companies. Realising volumes were higher in the retail segment, car rental companies stepped into this market as well. These ensure vehicles are available when required, the rates are transparent and the drivers professional.
With this objective, companies such as Meru Cabs, Ola Cabs and Carzonrent came about. Meru, according to its managing director, Neeraj Gupta, entered the market in 2000 to cater to the BPO sector; it entered the radio taxi business in 2006. Ola Cabs started operations in December 2010. Bhavish Aggarwal, co-founder and chief executive, said unlike others, the company doesn't own most of the cabs. "We are more of a technology company and a technology platform for this ecosystem to thrive." Carzonrent began operations in 2000, seeking to offer a safe and reliable medium of travel. Executive Director Sakshi Vij said the company was launched to give a structure to the unorganised Indian personal ground-transport industry and help it get due recognition.
Those in the segment say there is a demand-supply gap in this segment in India. Though intra-city travel accounts for the bulk of the business, companies say demand for short, inter-city trips, especially in areas such as Mumbai and Delhi, is increasing. (HOW THE CAB FIRMS STACK UP)
Business model
These companies follow the pay-per-use model. For corporate clients, contracts are usually signed on an annual basis and payments received monthly and annually. Investors say while the the mass market is where the volumes are, corporate clients are beneficial, as far as revenue is concerned. While corporate clients are only 10-15 per cent of total clients, they contribute 30-40 per cent of the total revenues. Maintenance of cars forms the bulk of costs for these firms at 40-45 per cent, followed by technology at 35 per cent; the rest are personnel expenses. For luxury cars, the share of maintenance in costs could rise up to half. As cars are monitored round the clock by companies, apart from call-centres, traffic and in-car devices installed in the cars also have to be regularly updated and replaced.
The fuel cost, which taken separately accounts for almost 40 per cent of total costs, is recovered from customers. Since cars have to be replaced every eight-10 years, there are additional costs involved. Experts say entering into multiple partnerships with automobile companies would help. "While this is an attractive proposition for car-rental companies, some auto companies might not be comfortable associating with them. After all, owning such luxury cars is a status symbol for several people and these auto firms would not be ready to devolve their brand perception," said a brand consultant.
Sakshi Vij of Carzonrent says the company has focused on being a personal ground-transport provider for all levels of uses. "Our model is more collaborative with suppliers of services and allows us to engage with drivers and, sometimes, owners of cars as our business partners," she said. Carzonrent has a slew of offerings - car rentals, radio taxis (under the Easycabs brand), international car rentals and self-drive options. It also has offerings such as in-car entertainment, an instant payment system, mobile-charging units and Wi-Fi, along with a limousine segment. To VIPs and other high-end customers, it provides sports-utility vehicles and armoured vehicles.
A Carzonrent investor says the key aspect is to diversify and offer solutions across segments. "If a company is known to be only a radio taxi operator, it could shut off a potential customer base. Carzonrent has offerings from radio taxis to luxury cars and self-drive, which would suit the needs of users across income groups," said the investor.
Ola Cabs, which has a fleet of 5,500 cabs, has partnered owners of vehicles for using their cars. It works with drivers/owners on a commission basis. As it doesn't own the cars, it is able to cut maintenance and servicing costs.
Apart from the regular business, Meru Cabs also earns by selling ad space on its cars. The company has a separate division to help advertisers reach consumers across cities, through Meru Cabs. The Meru Cabs website says cabvertising (as the company puts it) rates stand at Rs 2,500 (product sampling), Rs 5,000 (seat covers), Rs 15,000 (door panels) and Rs 1.5 lakh (bill rolls). An angel investor involved with a cab rental company said while there was an opportunity in this area, companies needed to devise other models of revenue generation. "In-house entertainment through installing TV screens for long-distance travel and renting out ad-space in vehicles are of utmost need if companies want a steady flow of income," he said.
The USP
The technology and services provided, companies say, are the differentiating factors between peers. Meru, for instance, has GPS- and GPRS-based tracking systems, monitored at the company's control room that is functional 24x7. All cars are also equipped with speed alarms.
Mobile applications are also becoming essential. Ola Cabs has a mobile application to book a cab; it also has wallet-like payment service for customers, through which fares are deducted automatically after a journey. It also has a traffic-prediction system.
Market and investors
Sunil Gupta, chief executive of luxury car rental firm Avis India, saidthe Indian car-rental market is growing at a healthy rate of 15 per cent and is large enough to accommodate more players.
With its growth and potential, this segment hasn't escaped the attention of investors. In May 2011, Ola Cabs recorded a fund-raising round from angel investors such as Anupam Mittal, Kunal Behl and Rohit Bansal of Snapdeal. Last year, it saw a series-A round of funding from Tiger Global.
In January 2011, BTS India Private Equity Fund acquired a minority sake in Carzonrent for Rs 36 crore. "As radio taxi and cars-on-rent businesses are in a nascent stage, we expect 30-40 per cent growth annually," BTS had said while signing the deal. Carzonrent has attracted three investors - Sidbi, Sequoia and West Bridge/BTS Advisors.
India Value Fund Advisors is a steady investor in Meru Cabs. Justifying the investment, an India Value official said this segment offered immense opportunity and was marked by the lack of good and reliable service.
"The average investment period is usually five to eight years. If it is an organised player, the profits could be very high," said an industry source. Another said for most investors, the exit route was either an initial public offering (IPO) or a strategic sale. "While we are seeing a steady flow of revenue, the future looks uncertain, with several players entering the market. Therefore, exits could become painful, as none of the rental companies in India are immediately ready to bring out an IPO," said a private equity investor.
Growth
Companies in this segment aim to expand fleet sizes and extend services across the country. Carzonrent operates at a revenue run rate of Rs 350 crore and annual growth of 30 per cent. It plans to invest Rs 1,400 crore to expand business and add 23,000 cars by 2017. "For this year, our goal is to strengthen our position in the retail market. The car rental market in India is worth about Rs 6,000 crore. Currently, only 10-15 per cent of this is accounted by organised players. Our aim is to increasingly capture the retail demand from this market," said Vij.
Ola Cabs, growing 30 per cent month-on-month, plans to launch services in two or three more cities this year. Aggarwal said the company would build on the existing technology for payments and services.
Meru, too, plans to expand to two or three cities this year, apart from increasing its fleet. It also plans to offer services abroad in the next few years.
With this objective, companies such as Meru Cabs, Ola Cabs and Carzonrent came about. Meru, according to its managing director, Neeraj Gupta, entered the market in 2000 to cater to the BPO sector; it entered the radio taxi business in 2006. Ola Cabs started operations in December 2010. Bhavish Aggarwal, co-founder and chief executive, said unlike others, the company doesn't own most of the cabs. "We are more of a technology company and a technology platform for this ecosystem to thrive." Carzonrent began operations in 2000, seeking to offer a safe and reliable medium of travel. Executive Director Sakshi Vij said the company was launched to give a structure to the unorganised Indian personal ground-transport industry and help it get due recognition.
Those in the segment say there is a demand-supply gap in this segment in India. Though intra-city travel accounts for the bulk of the business, companies say demand for short, inter-city trips, especially in areas such as Mumbai and Delhi, is increasing. (HOW THE CAB FIRMS STACK UP)
Business model
These companies follow the pay-per-use model. For corporate clients, contracts are usually signed on an annual basis and payments received monthly and annually. Investors say while the the mass market is where the volumes are, corporate clients are beneficial, as far as revenue is concerned. While corporate clients are only 10-15 per cent of total clients, they contribute 30-40 per cent of the total revenues. Maintenance of cars forms the bulk of costs for these firms at 40-45 per cent, followed by technology at 35 per cent; the rest are personnel expenses. For luxury cars, the share of maintenance in costs could rise up to half. As cars are monitored round the clock by companies, apart from call-centres, traffic and in-car devices installed in the cars also have to be regularly updated and replaced.
The fuel cost, which taken separately accounts for almost 40 per cent of total costs, is recovered from customers. Since cars have to be replaced every eight-10 years, there are additional costs involved. Experts say entering into multiple partnerships with automobile companies would help. "While this is an attractive proposition for car-rental companies, some auto companies might not be comfortable associating with them. After all, owning such luxury cars is a status symbol for several people and these auto firms would not be ready to devolve their brand perception," said a brand consultant.
Sakshi Vij of Carzonrent says the company has focused on being a personal ground-transport provider for all levels of uses. "Our model is more collaborative with suppliers of services and allows us to engage with drivers and, sometimes, owners of cars as our business partners," she said. Carzonrent has a slew of offerings - car rentals, radio taxis (under the Easycabs brand), international car rentals and self-drive options. It also has offerings such as in-car entertainment, an instant payment system, mobile-charging units and Wi-Fi, along with a limousine segment. To VIPs and other high-end customers, it provides sports-utility vehicles and armoured vehicles.
A Carzonrent investor says the key aspect is to diversify and offer solutions across segments. "If a company is known to be only a radio taxi operator, it could shut off a potential customer base. Carzonrent has offerings from radio taxis to luxury cars and self-drive, which would suit the needs of users across income groups," said the investor.
Ola Cabs, which has a fleet of 5,500 cabs, has partnered owners of vehicles for using their cars. It works with drivers/owners on a commission basis. As it doesn't own the cars, it is able to cut maintenance and servicing costs.
Apart from the regular business, Meru Cabs also earns by selling ad space on its cars. The company has a separate division to help advertisers reach consumers across cities, through Meru Cabs. The Meru Cabs website says cabvertising (as the company puts it) rates stand at Rs 2,500 (product sampling), Rs 5,000 (seat covers), Rs 15,000 (door panels) and Rs 1.5 lakh (bill rolls). An angel investor involved with a cab rental company said while there was an opportunity in this area, companies needed to devise other models of revenue generation. "In-house entertainment through installing TV screens for long-distance travel and renting out ad-space in vehicles are of utmost need if companies want a steady flow of income," he said.
The USP
The technology and services provided, companies say, are the differentiating factors between peers. Meru, for instance, has GPS- and GPRS-based tracking systems, monitored at the company's control room that is functional 24x7. All cars are also equipped with speed alarms.
Mobile applications are also becoming essential. Ola Cabs has a mobile application to book a cab; it also has wallet-like payment service for customers, through which fares are deducted automatically after a journey. It also has a traffic-prediction system.
Market and investors
Sunil Gupta, chief executive of luxury car rental firm Avis India, saidthe Indian car-rental market is growing at a healthy rate of 15 per cent and is large enough to accommodate more players.
With its growth and potential, this segment hasn't escaped the attention of investors. In May 2011, Ola Cabs recorded a fund-raising round from angel investors such as Anupam Mittal, Kunal Behl and Rohit Bansal of Snapdeal. Last year, it saw a series-A round of funding from Tiger Global.
In January 2011, BTS India Private Equity Fund acquired a minority sake in Carzonrent for Rs 36 crore. "As radio taxi and cars-on-rent businesses are in a nascent stage, we expect 30-40 per cent growth annually," BTS had said while signing the deal. Carzonrent has attracted three investors - Sidbi, Sequoia and West Bridge/BTS Advisors.
India Value Fund Advisors is a steady investor in Meru Cabs. Justifying the investment, an India Value official said this segment offered immense opportunity and was marked by the lack of good and reliable service.
"The average investment period is usually five to eight years. If it is an organised player, the profits could be very high," said an industry source. Another said for most investors, the exit route was either an initial public offering (IPO) or a strategic sale. "While we are seeing a steady flow of revenue, the future looks uncertain, with several players entering the market. Therefore, exits could become painful, as none of the rental companies in India are immediately ready to bring out an IPO," said a private equity investor.
Growth
Companies in this segment aim to expand fleet sizes and extend services across the country. Carzonrent operates at a revenue run rate of Rs 350 crore and annual growth of 30 per cent. It plans to invest Rs 1,400 crore to expand business and add 23,000 cars by 2017. "For this year, our goal is to strengthen our position in the retail market. The car rental market in India is worth about Rs 6,000 crore. Currently, only 10-15 per cent of this is accounted by organised players. Our aim is to increasingly capture the retail demand from this market," said Vij.
Ola Cabs, growing 30 per cent month-on-month, plans to launch services in two or three more cities this year. Aggarwal said the company would build on the existing technology for payments and services.
Meru, too, plans to expand to two or three cities this year, apart from increasing its fleet. It also plans to offer services abroad in the next few years.
| EXPERT TAKE Earlier, the options were limited but with the emergence of Meru Cabs, the first to change the way people travel, things changed. The acceptance of Meru's offerings opened up the industry and saw many new players joining the league. The segment also benefited from the emergence of technology and its adoption by all entrants; now, one can not only make bookings over the phone but even online or through mobile applications. Though car rental companies are running on thin margins, primarily due to investments in technology, training of drivers and promoting their services, things would change with business optimisation. The positive trend and growth opportunity attracted decent investments to this segment, not only angel investors but also established venture capital funds. Overall, the car rental market is underserved and offers a lot of scope for growth. Currently, companies such as Meru, Ola, Savari, Carzonrent, Avis, Tabcab and Bookmycab are catering to metro cities alone; these have the opportunity to serve a much bigger market outside metros, as tourism in India is growing and travellers would be happy to use these services in other areas as well. The car rental market would keep growing and witnessing investments, as it is underserved. However, the companies in this segment need to optimise operations to have a better Ebida (earnings before interest, depreciation and amortisation). Anil Joshi, President, Mumbai Angels |