Meru raises $50 mn, scouts for acquisitions as competition heats up in cab services market

The need for rapid cash infusion is probably greater now than ever before for cab service providers in India.

The TaxiforSure promoters sold off their company to Ola last month largely because they could not keep up with the speed with which large amounts of investments are needed in the business - Ola is well funded after the recent investment by Japan’s SoftBank. Now, Meru Cabs, the oldest taxi services company in India, has raised $50 million from existing investors. And even this is not enough. Meru plans to raise another $100 million from a clutch of new investors by next month.

Meru CEO Siddharth Pahwa confirmed to Firstpost that his company has successfully raised $50 million from the current majority stakeholder India Value Fund and the second round of $100 million should get over sometime next month where money is being raised from new investors.

So what is Meru doing differently to survive in the cut-throat, money guzzling taxi services market where competition is rising by the minute?

Pahwa hinted at some impending acquisitions when he said Meru is evaluating a lot of small players in the market with whom it will partner to grow and consolidate its position in the near future. He also pointed out that contrary to popular perception, Meru is present in both the cab aggregators’ market as well as in the taxi market. Companies like the Ola-TFS combine and Uber are pure aggregators.

He also claimed that Meru gives its drivers assured revenue of about Rs 2500 a day, “something competition is unable to do which is why they then have to subsidize drivers. This ultimately leads to more cash burn for them”. He said competitors were able to generate just Rs 1,600-1,700 revenue per day for drivers and then it had to pay them Rs 600-700 extra to retain their services.

Meru declared a net profit of anywhere between Rs 3-4 crore last fiscal and this fiscal too, profits would be roughly the same. Meru said it will have grown from 7 cities till March 2014 to 20 cities by the end of the month. And 60% of its business now comes from the aggregator model versus nil two years back.

Has Meru then perfected the recipe of growth in the cab services market? Speaking to Firstpost earlier, Ola’s Bhavish Aggarwal had pointed towards “complimentary value on both demand and supply front” vis-a-vis TFS acquisition and said that Ola’s fast growth would be further accelerated by this acquisition. Besides, TFS’ presence in the economy segment of the cab services market would help Ola widen its net. Lets look at Uber, which is present in 70 countries worldwide but in only 11 cities in India. Uber’s General Manager (Delhi) Gagan Bhatia had earlier brushed off increased competition from the Ola-TFS combine, saying increased competition not only helps drivers but customers too.

Uber has deep pockets a la Ola. Also, Uber’s smaller footprint in India enables it to concentrate on key cities for now instead of spreading itself too thin. Meru’s Pahwa said he is targeting 10 times the current turnover in 5-6 years with a three-pillared growth model: 50% business from existing top 10 cities, 30% from the Genie (hatchback) service and remaining 20% from new cities in the company’s network. Since Meru claims to be adding a new city to its network each month and 200-300 Genie cabs, it obviously needs all the money it can raise to fund the furious expansion. In the Rs 80,000 crore personal transportation market in India, a mere 5% is in the organised sector.