Ola looks hard at cost

Ola, the largest cab service aggregator, seems to be addressing some cost parameters in its business model. This follows its recent acquisition of TaxiForSure for $ 200 million (nearly Rs 1,250 crore).

The Bengaluru-based company, an automobile service aggregator across many big cities, has cut the monthly payments to drivers attached with the company by about 40 per cent. Earlier, the company, valued at over $ 1 billion, used to provide Rs 5,000 to every auto driver per month. This has been cut to about Rs 3,000 and will be cut further.

Also, for its cab services, the company has started charging 1.5 times the fare during peak times, a move San Francisco-based Uber had earlier initiated in India. Ola used to charge an additional Rs 50 for its services during peak hours till recently.

An e- mail sent by Business Standard to Ola on these matters remained unanswered.

Cab aggregators have been saying the additional surcharge is to better enhance the customer service and timely delivery of cabs for the journeys being put on order via their respective apps. At the same time, most of them have been shelling out major discounts to corner as much market share as they can.

Now, with the first sign of consolidation in the market as Ola bought TaxiForSure, some cost rationalisation isn’t surprising. While slashing the monthly payouts of auto drivers by Ola is a new move, ‘surge pricing’ is practised widely among hoteliers and airlines, both domestic and international.

Investors have been pumping in serious money into these companies and more is likely to come. In that backdrop, some of these companies have decided to undertake cost control, to get close to profitability.

For instance, during 2013-14, ANI Technologies, which runs Ola, reported a 50 per cent jump in net loss at Rs 34.2 crore, against Rs 22.8 crore in 2012-13, according to filings with the registrar of companies. The latest acquistion of Ola – TaxiForSure – has widened its loss, too. Serendipity Infolabs, holding company for TaxiForSure, reported a loss of Rs 17.1 crore for 2013-14, compared with about profit of Rs 3 crore the previous year.

Another rival, Meru Cab Company, which runs Meru Cabs, reported a maiden profit of Rs 3.6 crore in 2013-14. In 2012-13, it had a loss of Rs 31.1 crore. As of March this year, the accumulated loss was Rs 215 crore.

Vineet Toshniwal, managing director, Equirus Capital, said cab services were a hyper-local model, where building a supply chain takes a lot of time and investment.

There are 19 radio taxi operators in the country, including Mega Cabs, Easy Cabs, Meru Cabs and Tab Cabs, according to the Association of Radio Taxis. These operators run about 25,000 cabs across India.

Radio taxis, as a model, have emerged as the fastest-growing public transport for India in the past year. There are about 600,000 taxis in India, generating a combined annual revenue of about Rs 11,000 crore.