VCs parking funds in online cab rental cos

Investors hail largely unorganised $6-bn cab market, growing at 25-30% y-o-y

Your neighbourhood cabs have just got the green signal from the country?s leading venture capitalists (VCs). With a business model that is not very capital intensive and has high margins, investors are sensing serious business in the largely unorganised $6-billion domestic cab market, growing at 25-30% year-on-year.

In the last two months VC majors, including Tiger Global Management, Inventus Capital, Helion, Accel Partners and Blume, have parked their funds in tech-startups operating in the online cab rental space. Experts point out that the recent spurt in this segment is fuelled by the sheer opportunity this category offers. According to estimates, 90% of the cab market in India is unorganised, offering tremendous growth prospects.

Last month, Bangalore-based Serendipity Infolabs, which runs the online cab booking site TaxiForSure, attracted an undisclosed amount from Helion, Accel Partners and Blume. In April too the segment saw a slew of funding announcements. Savaari Car Rentals raised R5 crore from Indo-US venture fund Inventus Capital Partners. Mumbai-based Olacabs, which went operational only last year, also managed to convince VC major Tiger Global to invest in the company. Olacabs did not share the funding details, but it is estimated to be about R40 crore.

Among the other deals, online car rental firm Taxiguide raised angel funding of R25 lakh from Anand RP, investment director at Squadron Capital. Bangalore-based start-up YourCabs.com also raised an undisclosed angel funding from Sprism Investment.

VC players point out that currently there are only three to four serious players in the domestic cab service.

?The cab rental space in India offers huge potential for growth. We feel the next frontier for online travel is taxi,? says Helion Advisors director Ritesh Banglani.

In the online travel segment, Helion has earlier invested in companies like MakeMyTrip and redBus. ?We are fully aware of the potential of the business. Internet is the power medium for organising the travel industry,? Banglani added.

However, experts feel that there is a gap between the provider and consumer in terms of technology in the cab services today. Availability of taxis is a huge factor in this business, which the start-ups are trying to address.

Olacabs has come up with a mobile cab transportation app that customers can use to book cabs and monitor their real-time location through a built-in GPS system. The cab driver also uses a basic mobile phone which doubles up as a GPS and customer-referral device.

Olacabs, which currently operates about 2,000 cars in Mumbai and Delhi, is planning to start its services in Bangalore by end of this month. ?We have an aggressive growth plan for the year. Currently we do 500-600 bookings a day across Delhi and Mumbai. By the end of the year, we are looking at 10,000 bookings a day across seven to eight cities,? says Olacabs co-founder and CEO Bhavish Aggarwal. ?Going forward our plan is to add a city a month.?

Similarly, TaxiForSure is also leveraging technology to gain market share. ?We are pure-play aggregator. We don’t have to invest in buying cars. We just need to integrate all the local players in the sector. We currently work with 200-300 local players and are developing our own technology to make it easier for customers to book through GPS, smartphones, android and basic phones,? says TaxiForSure co-founder Aprameya Radhakrishna. TaxiForSure is currently operational in Delhi, Mumbai and Pune and plans to to tie-up with leading operators in the travel business by the end of this year.

With increasing competition from smaller players, one of the largest car rental companies in the country, Carzonrent, has also mapped out aggressive growth plans. It currently operates a fleet of 6,500 cars and is targeting a revenue of Rs 400 crore during the current fiscal. Over the next three years Carzonrent expects to increase its fleet size to 30,000 and is eyeing a revenue of Rs 1,000 crore.

?In the next five years, the total industry is expected to generate Rs 25,000 crore of annual revenue and the organised players will be contributing around 35% of the total revenue,? says Carzonrent CEO Rajiv Vij. Carzonrent operates radio taxi services under the brand Easy Cabs.

To tap into the retail space, Carzonrent last month acquired online car rental service aggregator QCABS. The company did not disclosed the financial details. ?The cab industry in India is very fragmented and is expected to consolidate over the next few years. Venture funds are getting attracted to the consolidation opportunity,? added Vij. Carzonrent is backed by funds including Sidbi Ventures, Sequoia Capital/Westbridge Advisors and BTS Advisors. Till date, the company has raised a total funding of about $20 million.

Investors point out that cab rental as a category is a profitable business model and offers high margins between 15-20%, depending on the scalability. ?Typically to start an operation a company requires anywhere between $1.5-2 million. While during the growth stage the requirement is about $5 million depending on the business,? says Prashanth Prakash, partner at Accel. The margins are pretty good in this space compared to other aggregator business models like hotel bookings, which is very low, adds Prakash.