Nikita Garia, MINT

Bangalore, 17 September 2014

Cab booking service TaxForSure, which recently raised $35 million in funding, has cut rates sharply, joining a fare battle with rivals Olacabs and Uber to grab a bigger share of a rapidly growing market.

Although TaxiForSure had earlier said it would resist price cuts, the company, controlled by Serendipity Infolabs Pvt. Ltd, announced a 25% price cut for booking through its app; a week earlier, it cut prices by half for rides booked between 10am and 4pm via its app.

TaxiForSure was under pressure to cut prices, as rivals OlaCabs and Uber have seen a significant jump in demand after they slashed prices over the past two months.

“We are running the discount to promote booking through the app while our usual prices remain the same. We don’t plan to change our price model,” said Aprameya Radhakrishna, co-founder of TaxiForSure. The company plans to run these discounts “for at least more than a month.”

Radhakrishna said the company was giving discounts to encourage users to book rides through its app and that the price cuts were not influenced by competitors.

“If the booking comes through our call centre, on an average we have to incur a cost of Rs.30 per transaction, considering into account the rental costs and salaries of the staff. So giving the customer discount for using the app or our website in the short term will eventually be good for us as we would be spending less on our call centre later,” said Radhakrishna, adding that at present it receives 50% of bookings through call centres, 35% through the app and the rest from its website.

“The move will help us get more transactions done by employing the same number of people in the call centre.”

This week Uber, which raised a mammoth $1.2 billion in June from the likes of Google Inc., Goldman Sachs and others, slashed the price of its higher-end service UberBLACK by 25% in New Delhi. In August the company cut prices on all its rides by 25% in Bangalore. The San Francisco-based mobile app is also offering discounts of 50% on airport rides in Bangalore. Olacabs, which received Rs.250 crore from investors in July, reduced fares by 25% last month.

Olacabs and Uber say they have seen a spike in demand since they announced price cuts over the past two months. “There has been a significant rise in demand after the price cuts,” said Anand Subramanian, director of corporate communications at Olacabs, adding that the “earnings of drivers has gone up by upto 40% as the drivers are now doing more trips.”

Uber, too, has seen a jump in demand after it cut prices by 25% on all its rides in Bangalore, the largest market for cab companies.

Both Olacabs and Uber say that they have reduced prices because they are squeezing out more rides from each driver and also adding hundreds of new cars.

While Olacabs has announced permanent fare changes, Uber like TaxiForSure is running promotional offers.

“There is no time line on how long we will continue with the reduced price offers. We are continuously analysing data on driver earnings and customer demand, both of which have gone up after the price cuts. So we may either hold on to these prices or may further reduce them,” said Bhavik Rathod, general manager at Uber in Bangalore.

Raghunandan G., co-founder at TaxiForSure, had told Mint in an earlier interview that discounts put pressure on the earnings of companies. “When we ran a discount last time, we had to pay the extra money to the drivers from our pocket. The other players are losing money on each ride because of these price cuts. If they continue with these low prices, how will they earn money?” he had said.

Analysts cautioned that cutting prices and losing money at the cost of gaining share wouldn’t work over the long term.

“These businesses have raised money in the recent past, but they need to balance out their operating costs. A loss making, market share gaining strategy can be managed for a short while but it won’t work in the long term.” said Devangshu Dutta, chief executive at Third Eyesight, a consultancy.

(Published in MINT.)

Reghu Balakrishnan, Business Standard

Mumbai, 11 September 2014

Indian private equity (PE) investors are gearing up to participate in the e-commerce growth story. In recent past, back-end logistic players have been on radar of PE players. India’s e-commerce market, which is expected to reach $20 billion by 2020, has seen the presence of five-six large organised specialised logistics players.

Devangshu Dutta, CEO of Third Eyesight, a retail consultancy, said: "While building a retail and consumer brand carries a potentially high reward, they are also high risk as shown by the attrition among e-commerce companies. On the other hand, no matter which specific front-end companies survive, back-end services and vendors will be needed by most of them."

Logistics services company Delhivery has raised Rs 212 crore led by Multiples Alternate Asset Management in series C fund-raising, with the participation of existing investor Nexus Venture Partners.

Another Delhi-based e-commerce logistics solutions provider, Ecom Express, raised Rs 100 crore ($16.5 million) from Peepul Capital earlier this week.

Srini Vudayagiri, investment director at Peepul Capital Advisors, said: "Any business, which is part of the e-commerce space, will also see a significant momentum in future. Logistics, which contributes 9-10 per cent of the overall e-commerce market, will have a huge potential when e-commerce will touch $20 billion in a few years."

According to him, specialised e-commerce logistics providers have an upper hand over the other normal business-to-business logistics players, because collection of cash (in case of cash-on-delivery), returned items and delivery need special attention compared with general logistics.

According to a recent report by Accel Partners, online shopping of physical goods will increase from $2 billion in 2013 to $8.5 billion 2016, while online shoppers will double to 40 million in 2016 from 20 million in 2013.

To tap the fast-growing market, logistics players are all set to grow rapidly with the latest round of PE funding. T A Krishnan, co-founder and CEO of Ecom Express, said, "From handling five million packages in FY14, we plan to grow to 20 million packages by FY15." The company will increase the number of employees from 3,000 to 10,000 in the next five years. It will also expand into 500 cities over the next two years from 100 cities at the moment.

Recently, Delhi-based Holisol Logistics, a provider of back-end logistics services to e-commerce companies, received $1.5 million in venture funding. Holisol’s customers include Fab Furnish, FreeCultr, Jabong and OfficeYes, Pepperfry and Urban Ladder.

"One of the factors in favour of back-end companies is modest valuation multiples compared to emerging retail or e-commerce companies, and a back-end vendor with a reasonably diversified customer portfolio is a lower risk investment over the mid-to-long term," Dutta added.

However, competition will get tough for specialised players as major logistics players such as DTDC Courier, Gati (Gati Connect), Blue Dart and Aramex are already in the e-commerce business with their new divisions. Last year, DTDC Courier & Cargo set up DotZot, a separate unit for providing logistics support to online retail service providers. Similarly, eKart, the in-house logistics arm of Flipkart, had also extended its services to other sellers.

(Published in Business Standard.)