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Meru in search of profit track

September 28, 2012 11:32 IST

The cab services company is tweaking its business model and services to  come out of the red. Meru Cabs, launched in 2006, has everything going for it: A credible brand, loyal customers and a transparent pricing mechanism and technology. But, the only thing missing is profits. Meru wants to change that now. Says Meru CEO Siddhartha Pawha: FY13 will be focused towards achieving the last target.

Though Pahwa declines to comment, reports suggest Meru made a loss of Rs 45 crore (rs 450 million) on a revenue of  Rs 150 crore in FY 11.

"It's no exception. This is a manpower-driven, capital-intensive industry. We were sure that the first three to four years will be spent on building the brand. Year 2011-12 and FY13 will be about consolidation and making the business profitable. At the end of the day, we want to show to our investors and stakeholders that this business is viable," says Pawha.

In FY12, Meru earned Rs  375 crore in consumer revenue (the money passengers gave to the drivers). Pahwa says Meru is consistently Ebitda positive over the past six months in most of the cities.

So why is profit proving to be elusive? Experts say Meru was the first one to start an inventory-based cab services model. But other than the cost in terms of maintenance, services, administration and payment of EMI, the company's march towards profitability was also hampered by the fares prevalent in some regions.

For instance, Meru's operations in Mumbai have been making losses. One reason is that that the airport, the main catchment area for cabs, is in the middle of the city, which means cabs mostly get short-haul routes. The other, more important reason is the rate. In a city like Mumbai, the fare is Rs  17 per km while in Delhi it's Rs  20 per km.

"Even Chandigarh charges Rs  20 per km. We are talking to the State Transport Authorities. It is important for us as the black and yellow cabs have a dry run of 20-25 per cent. But for us (radio cab services provider), the total dry run is much higher at 35 per cent for radio cabs," says Pawha.

With 5,500 radio taxis in the last five years, Meru is one of the largest cab services firm in India with presence in Mumbai, New Delhi, Bangalore and Hyderabad. This takes it ahead of other players like Easy cab, Mega cab and recent entrants like Ola cabs.

Pahwa says he has a profitability plan in mind. To start with, the company has launched an asset-light model for its Meru Plus services, which is a pay-per-use car rental service that was launched in Mumbai in April this year and in Delhi in July.

"We did market research and figured that people don't just want to hire a cab for point to point travel. We realised that customers want the flexibility while using cab services. Customers also said that they would like to have Meru services for intra-state travel," says Pawha.

"Under this, some of our own drivers have attached their cabs to the Meru brand," he adds.  Meru has 100 cabs each in Delhi and Mumbai under this model. By the end of this fiscal year, Pawha plans to add 400-500 cabs in each of these cities. The model works on a revenue sharing basis. Suppliers keep 80 per cent of the revenue and the balance is shared with Meru.

Meru's radio taxi services own all its cabs and drivers hire the cabs on rent. Meru gets about Rs  1,000-Rs  1,200 per day from each driver, depending upon the city. All such cabs are bought on loan, which consumes about Rs  13,000-Rs  15,000 as monthly EMI.

In the radio cab segment, Pawha adds the company will leverage its technology to better its profitability. Among the first few initiatives that Meru is working on is to improve utilisation so that drivers can earn more. Meru has launched a service called soon-to-be-free under which the moment a driver is closer to the drop destination, he will start getting details of the next business within that area. The intention is to increase the trips of drivers.

As part of its focus on quality of services, Meru plans to reduce the time taken for a customer to get through to the call centre. The waiting time has been brought down from one minute to 20 seconds.

Pawha has support from its investors India Value Fund. Divya Sehgal, director, India Value Fund, says Meru has created a new segment in the Indian cab market. "It takes time for a company in a new segment to turn around," she says.

Going ahead, Meru plans to roll out services in new cities like Pune, Ahmedabad, Jaipur, Chandigarh.

Shivani Shinde, Sounak Mitra in Mumbai/New Delhi