India Value Fund looking for a buyer for Meru Cabs; valuing Meru at INR 850 crores

TaxiIndia value Fund Advisors(IVFA), the Private Equity owner of Meru Cabs is looking to exit its eight years old investment in the company, reports Economic Times. IVFA has given the mandate to Investment bank JP Morgan to look for the potential buyers for the company, which could include other private equity funds and and international radio taxi companies.

Accoording to the news report, IVFA initially invested INR 50 crore in Meru Cabs with a commitment to invest another INR 160 crore most of which has already been invested. The article also states that IVFA holds 75 percent of share in Meru. The rest is probably held by founder Neeraj Gupta, current management and employees. Meru is expected to fetch a valuation of INR 800-850 crore, or 3-4 times its annual revenues, claims the report.

Meru’s closest competitors include Easy Cabs, Mega Cabs and Tab Cabs Then there are also local players in each market such as Quick Cabs in Delhi and FastTrack in Chennai. According to industry experts these competitors have also been in the market trying to raise funds with a valuation ranging from INR 50 crores to INR 250 crores – which is much lower than the expected valuation of Meru.

The premium valuation may be attributed to Meru’s #1 position in the market and a fleet of 5,000 cabs. However, even at INR 6 lakh per car, a 5,000 cabs fleet can be created with Rs. 300 crores. Meru’s fleet is perhaps 4-5 years and may already be completely depreciated. So it appears the  Meru brand itself is being valued at INR 500-700 crores at least.

Meru is also facing competition from several new players who operate on an aggregator model as opposed to Meru’s owner-operator model. These include Ola Cabs, Taxi For Sure, Saavari and TaxiPixi among others. Based on their last funding rounds, current valuation of Ola Cabs and Taxi For Sure is perhaps in the INR 100 – INR 200 crore range. Saavari and TaxiPixi which have raised much smaller rounds than Ola and Taxi For Sure might be valued at INR 50-100 crores.

Besides PE funds and international taxi operators, Meru cabs might also be of interest to Indian travel portals such as Make My Trip, Goibibo, ClearTrip, Just Dial etc. All of these portals have tried, or are still trying, to offer taxi bookings but haven’t been successful. Make My Trip was offering taxi bookings on its website but stopped it about 4 months back. However, these online portals might be put-off by the operational challenge relating to a fleet operator such as Meru.  In Jan 2013, Meru drivers in Mumbai started a strike against the Meru management, where the company lost significant amount of money. The company also terminated the services of 10 of its drivers for influencing and threatening other drivers. Meru has faced similar driver agitation in other cities in the past as well.

The overall taxi market in India has seen a lot of activity in the last 2-3 years that has even attracted foreign players such as Uber. Uber has already expanded to the top 5 metros including Chennai where Ola and Taxi For Sure are also present. Meru still does not operate in Chennai.

But despite the huge demand and high growth rates, the market is still highly unorganized and clustered state, with a majority of services being limited to metro cities market. Hence the taxi market in India is expected to continue to see more action in the coming months.

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