At a time when giants like Uber and Ola are grabbing the headlines in the taxi business, New Delhi-based Carzonrent, one of India’s largest car rental companies, is banking on its self-drive business Myles to lead it to the coveted unicorn status in the next few years.
Aimed at gaining at least 25 per cent in the self-drive business to make it the dominant player in the next few years, the already profitable firm is in the process of hiving off Myles to make it a separate entity in order to sell a part of it to a private equity firm, Rajiv Vij, managing director and chief executive officer of Carzonrent told DEALSTREETASIA in an interview.
“We are in the process of separating our Myles division, which is a now a part of Carzonrent, as a separate entity. Once that process is completed, we will induct another private equity investor from whom we will raise $20-30 million,” he said.
“It should take us another 6-8 weeks time to complete the process of creating this as a separate entity. After that it should not take too much time, because there are a number of private equity players, including global funds, that are interested,” Vij added. The funds raised would be used for investment in technology and customer acquisition.
While declining to put a number on the expected valuation of the new entity, Vij said that the during the hiving off period, the company was trying to ramp up the revenues of Myles at a fast pace so that at the stage of final induction of the private equity fund it has to give away “only a small minority stake.”
Vij and his family, who are the promoters and largest stakeholders in Carzonrent, will continue to hold primary ownership of the new entity. Private equity firms WestBridge Capital, BTS India and Shriram Capital Chairman, Arun Duggal, who are all investors in the Carzonrent, will also pick up a stake in the new unit.
“We are right now doing 17,000-18,0000 transactions a month and each transaction is about Rs 2,000-2,500, which adds up to around Rs 4 crore each month,” Vij said. On a consolidated level Carzonrent reported revenues of Rs 325 crore for the financial year ended Mar 31, 2016.
Myles is a self-drive car sharing company in India launched by Carzonrent in November 2013, which now competes with other startups like Revv, Zoomcar and Driven which was recently acquired by DriversKart.
So far, Carzonrent has made an equity investment of $7-8 million in Myles, and Vij said if additional funding was required even after the induction of the private equity fund, it would be made through internal accruals or if required it would tap the market again.
Commenting on the increasing competition in the self drive business, Vij said, “This is bound to happen because the industry is growing at a very high pace, so a lot of the new players will come into that space. What is also likely to happen is that a lot of the international companies will also come into India. In the next 4-5 years in the industry there will be around 200,000 cars which will operate in the self drive business in India.”
Myles also offers franchise programme in 23 cities in the country. It is also mulling the option of two-wheeler rentals, which is a fast growing category especially in the Tier-II and Tier III cities said Vij, adding that no final decision was taken on foraying into this space.
According to a report dated February 17, 2016 by market research firm Ken Research, car rental industry revenues in India are expected to grow at a compound annual growth rate of 24.6% from financial year 2015 to 2019.
Riding on this wave, Carzonrent has set an ambitious target of reaching Rs 5,000 crore (Around $3 billion) revenue in the next five years, which it hopes to achieve on the back of a strong growth in its Myles, self drive business and the consolidation in the B2B space.
“In the car rental space we have continued to grow at a very healthy space in the last few years. And we feel that we now have an opportunity to consolidate this market, because this market has been fragmented particularly the corporate end,” Vij said. However, the consolidation would be through organic means like better technology and product offerings rather than acquisitions.
A majority of Carzonrent revenues comes from its 600-odd corporate clients that account for almost 60 per cent of the earnings. The leaning towards corporate clients keeps it away from competing with the taxi aggregators like Uber and Ola.
“As far as these app-based services are concerned, we don’t see them being able to do corporate business. Because in the corporates the requirements are very different from what these companies follow. In corporates the requirement is complete reliability, high consistency in quality of delivery of service. Corporates also cannot have a situation where their eligibility norms are not being followed and they also cannot accept pricing like surge pricing and peak pricing,” Vij said.
Commenting on the price wars between taxi companies Vij said,”It’s all about building businesses on a sustainable model. You can’t keep building businesses where you require investors to put in fresh investment every few months. I don’t believe in such businesses.”