Business

Ola gets more. Two Billion More.

 

If I were to ask you about value of a company that has never cerebrated profits, has Rs 2,313.66 crore (353 Million USD) in FY16 and has total revenue of only Rs 758 crore (115 Million) – you might think I am talking of a public sector enterprise that deserves to be shut down.

However I am just talking about the new age cab aggregator Ola that has just been funded two billion dollars from Softbank and Tencent.

For large operators – the Transport segment in India has hardly been profitable in any form. The Airlines have repeatedly tanked or never booked profits (With the only exception of Indigo). Indian railways has almost always lost money. The Bus fleet operators have almost always relied on government bailouts (most of them are public sector enterprises) and consolidation ever happened in cabs simply because in the entire sector – efficiencies disappear as the size grows.

For Ola, however, it might be different story. It helps finance cars and gets returns on its own cabs on depreciating asset. The cars themselves are normally owned by drivers who work towards paying the EMI first then worry about their won income.

While this seem like a good model, the reason why a car is called a depreciating asset is because as it grows old, its running cost increases. And if the cab owners are struggling themselves for revenue – as the case now is – the first cut back happens on the vehicle maintenance, and like all the failed transport ventures in the country this one too comes crashing down. The fact that vehicles in India are exposed to extreme weather of almost every kind makes the maintenance ever so costlier.

While having operating costs four times that of revenue speaks no less of an unsustainable model and that there is no way investors should go soft on the results. We really do not want to portray Indian entrepreneurs from the lens of flipkarts and snapdeals only

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