This is a post on Radio Taxi business in India. I am using Meru just as an example to understand the economics of business. There are simple back of an envelop calculations and hope someone gives me a better insight on this business. The numbers look too tempting to be real.
I was traveling with Meru yesterday (27th July 2008) and I happened to strike a conversation with the driver. During our conversation, he gave me following stats
- No of Meru taxis on Mumbai roads: 800
- No of taxis by EOY in Mumbai: 1300
- Average occupancy: 100% in peak-hours and 80%+ in non-peak hours
- Peak Hours: 7AM to 10AM and 6PM to 10PM. He said that its impossible to get a Meru Cab in peak hours. This vindicates the business model and demand in the market for these call cabs.
- Average Fare: Rs. 15 per KM. Compare this with regular taxis in Mumbai. A regular taxi is Rs. 13 per KM and a premium of Rs. 2 is not very steep considering the convenience and comfort of a call cab.
With these numbers the business sure makes a lot of sense. Only deterrents I can think of are:
- High fixed cost of acquiring taxis. Not a huge problem. They can take long term loans from banks or PE players. They can also acquire more cabs by using the part-ownership model (where each driver pools in some money to own the taxi and Meru is just a brand name).
- Setup of call center. Obviously each taxi needs to have a GPS device and a two-way radio. There has to be a way to connect the cab with the nearest available free taxi. And since this is a pure service offering, call center is very important.
- Capped Potential: The earnings is directly proportional to number of taxis on the road. The scope of innovating on income stream is really low. At max you can use your taxi as an advertising medium.
- Traffic rules and regulations: Registration with transport authorities in India is a very cumbersome and long process. Although this is a one-time stumbling block, companies would have to divert a lot of attention there initially.
- What else? Am I missing something here?
Business Sense
- I would want to what percentage of bookings is done for immediate travel and what percentage is booked at least 2 hours in advance. If the pre-planned travel is very high, then these companies can better utilize their capacities and go for some kind of planning.
- I would also want to know what percentage of bookings is for large corporates (say institutional). Because moment Meru gets institutional bookings, they can again manage the fleet better and can be assured of certain minimum number of bookings.
Future
- Is their a merit in getting into contracts with airlines, hotels,
coporate parks etc to manage their taxi services? Again its of those
things where you convert huge one time capex for companies into on-demand opex. - What innovations are possible so as to maximize the utilization of fleet and make more money from the same number of taxis? Would a thing like car-pooling work with radio taxis? Say junta going from Andheri to Town everyday can pool a Meru.
- What else? Please send in your suggestions.
From the Meru website, I could get following details
- After Mumbai, Meru is now available in Hyderabad, Bangalore and Delhi. As I said earlier also, the business potential is vindicated by simple calculations.
- India Value Fund has already invested in Meru. Although I am no fortune teller, but I can easily foresee a handsome return on the investment. And I can’t understand why the Penguin effect is absent in this industry. If I had money, I would have loved to get into this business. Obviously at the right time and right price.
Other Radio Taxi Players in India
If anyone can help me connect to someone with Meru or any other radio cab owners/managers, please drop a line. I will keep on updating this post on my wiki at s4ur4bh.pbwiki.com.
Image Credits: Andertho via Flickr
Disclaimer: I am assuming that the occupancy rates given by that driver are correct and the taxi service would have similar occupancy numbers in other cities.
Posted originally on my blog here.
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I recently chatted up a Meru cab driver who picked me up at the new Hyd intl airport.
Here’s what I gathered:
GMR Infrastructure, which owns the airport, has bought around 400 Mahindra Logans directly from the manufacturer.Meru found the drivers for these cabs, and also does the fleet management.The drivers have to pay Rs.600 per day to the company; after 5 years of service, the driver will own the car.
Sounds like a complex arrangement, but it seems to work in Hyderabad.
On driver’s salary
I also had an opportunity to chat one of the Meru drivers, and he said exactly the same thing as told to Ari. But what I could not get was weather this amount is for the entire day or only for a shift. However I believe that the drivers operate on a mixed model, i.e. fixed salary plus incentives, which I guess will take care of the problem of taking a nap anytime.
On Fuel
They definitely run on CNG as the boot is half occupied by the CNG tank. I could not keep all my bags in the boot while leaving from the airport.
On advertising
Another option that I can think of is having in-Taxi magazines, the way we have in-flight magazines. Though it is often difficult to read while traveling on road, but people do have a habit of glancing through the pages of a magazine if they got their hands on one.
On Ownership
I guess there can be another model of Hire-purchase which the cab company can enter with financing companies.
Regards,
Siddhartha Khemka
@Mayukh
On Ownership – I dont know who owns the cabs but they have two options there. One is that Meru can hire cabs from individuals and pay them on a per KM basis (and hence in some cases even drivers could be owners) and in second scenario Meru might have the ownership of the cab and they could have taken term loan at great prices (or even raised PE/VC money at no additional interest to finance the acquisition of cabs).
On fuel and CNG – Common sense says its CNG. Although I will try to catch hold of another Meru driver and ask him about this.
On Margins – I am not sure but when I spoke to a call enter cab driver abut 6 months back, he said that he makes about Rs. 1.5 per KM. I have no clue about Meru. Interesting observation though.
On Advertising – They already put ads in the cabs. And I agree that its untapped. However as it is with each ad driven business, you need to have enough eyeballs on that medium to attract advertisers and command prices. In a cab, there would only be at max 100 people per day (assuming that one cab carries 2 people at a time, it takes 30 mins per journey, this makes 4 people per hour and 96 people in 24 hours). Effectively the advertiser would pay for exposure to only 3000 eyeballs per month per cab. And coming from advertising background, this is too less an eyeball and too homogeneous a crowd (high ranking executives, airlines travelers etc.) and thus amount should not be very high.
@VikasK
Very interesting analysis indeed. And yes greasing palms is fixed ( :)). We also need to figure out the kind of saving these companies can do because they belong to the same company. IOCL and BPCL have fleet fueling options wherein they give discounts for fueling more than 100 trucks. Am sure Meru would have these kind of arrangements (even if they run on CNG). Further they can use the scale on servicing etc.
And I cant think of more heads. Will post more if I can think of some. But very nice analysis indeed.
@Ari
This might actually be true. In fact most of the autos and taxis plying on roads in India are not owned by the drivers. They are hired on per day basis (and for example, in Mumbai an auto driver has to pay Rs. 250 to the owner per day and all costs including fuel and minor repairs are to be borne by the driver only).
However one potential problem I see in this case is that it will become very difficult for Meru to plan the capacity. What if all drivers suddenly decide that they want to take a nap at 1 PM? I am sure there is a way around this. What I dont know. May be someone else can help?
@Deepak
Why do these companies stay regional? Would you have more info on it? If one company can go national then there is no reason why others cant. Do these companies stay regional because they want to? Would love to hear your opinion on the same.
Regards,
SG
A Meru driver one told me that his obligation towards the company is Rs 750 per day – that is the revenue they want to get from him. And, he decides when to work and when not to work. Take it at face value, but I am not sure that the cabs are owned by Meru. In fact, I don’t think Meru even pays for the fuel, as that would be like giving them a blank cheque. It is much simpler to collect a fixed revenue, according to your desired profit margin, and then give the rest to the driver. Not sure that is the model but at least it is some other input. Next time you take a Meru, chat up the driver…. 🙂
Vikas: excellent comment, and good numbers in there. A note here : there were no taxi licenses in Mumbai so the Meru folks got national permits from Delhi. That’s a lot more expensive but covers a heck of a lot more area.
Meru had a problem with MNS over the death of a driver in an accident. THe service was stopped for a week or so, and a union was proposed. I don’t know much more but anyone going in would have to research this bit too.
Costs are typically 3-4 Rs. per kilometer in fuel, maintenance and idle rates (i.e. opp. cost when car is serviced etc.)
One needs to survey call-taxi services in the U.S. – some have grown very big but most stay regional – and see how the industry grew, and the success rate. While call taxis may eventually be very popular, a single player may not make it as times change. For ex. we can definitely say that commercial aviation is a success in the U.S. but zero players from the 50s (in the US) have survived.