To match rivals, Meru looks to raise $100 mn for expansion, acquisitions

New Delhi: Meru, the oldest cab services provider in India, is actively looking to acquire small and medium sized competitors as it scales up in a highly competitive market. Remember, Ola has just successfully closed a fresh round of funding by raising close to Rs 2000 crore from global investors. It has already acquired TaxiForSure and the combine is the largest cab services provider in India as of now. To match this aggression by rivals, Meru is negotiating to raise $100 million for expansion. But the amount may double in case the “right” acquisition target comes before it. And no, Meru is not in talks with Jack Ma’s Alibaba for raising any funds.

Speaking to Firstpost, CEO Meru Cabs Siddharth Pahwa said “the $100 million we are trying to raise now is for the current business plan. But if there is a good opportunity for acquisition, another $100 can be raised”. He said there have been no talks with Alibaba for any fund raising as of now.

Pahwa said even if a medium sized taxi operator is ready to sell out, “we would be happy to evaluate this deal. We are already in discussions with 4-5 operators for acquisitions or partnerships”.

The need for rapid cash infusion is probably greater now than ever before for companies offering cab services in India. The TaxiforSure promoters sold off their company to Ola 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 earlier investment by Japan’s SoftBank.

In this backdrop, Meru raised $50 million from existing investors just last month. 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.

Dismissing concerns of market consolidation actually being bad for consumers, Pahwa said discounting to consumers will only increase in the near future. “I believe customers will benefit from the consolidation happening in the market as discounting by service providers will continue. They will have to spend in getting new suppliers into the system and in getting new customers”.

He claimed Meru gets three lakh new customers every month but the company is eyeing half a million (five lakh) new customers a month within the next six months. And that Meru will become profitable in the next 18 months as begins to deliver net profits; it has been generating net cash for the last 36 months.

Speaking to us earlier, Pahwa had 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 1600-1700 revenue per day for drivers and then it had to pay them Rs 600-700 extra to retain their services.

Pahwa had earlier said he was 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.