VCs raise investment in auto services

The automobile services segment, from radio taxi services to used cars, is seeing increased interest from venture capital (VC) investors.

In the four-odd weeks since this year began, the sector has already seen two major VC investments, in a radio taxi service firm and a portal that tracks the used car business. The lack of good public transportation and the increased sales in the auto sector are said to be why VC funding has been attracted.

In a recent development, car rental company Carzonrent India Pvt Ltd, which operates under the name Easy Cabs, raised Rs 36 crore (Rs 360 million) last week from BTS India Advisors, a private equity (PE) firm.

Earlier, it had received investments from SIDBI Ventures and Sequoia Capital. Carzonrent offers operating lease, car rental and limousine services, with a fleet of more than 4,000 cars.

Minuses produce potential

K Srinivas, managing partner, BTS Investment Advisors Ltd, said, "Different from the western countries, Indian public transportation is highly fragmented and unorganised. Abroad, there are organised radio taxi services available; in India, it is in a nascent stage and a handful of players are established. As the radio taxi and cars-on-rent businesses are  nascent, we expect about 30-40 per cent growth annually."

According to experts, radio taxi services in India have a potential to grow about 10-fold in the next 10 years.

Rajesh Puri, CEO, Meru Cabs, the leading radio taxi service player in India, said, "As local intra-city commutation is yet to improve, there is huge potential for radio taxis in India. In metros, where parking and fuel costs remain a concern, more people prefer radio taxis, which boosts its growth potential. Also, tier-II cities like Jaipur, Pune and Ahmedabad, which see lack of adequate public transport facilities, are seeing the entry of radio taxi services. Hence, more VC/PEs are keen in this area."

Though this is a high-depreciation industry, returns are expected after three-four years of investments, he added.

India Value Fund Advisors Pvt. Ltd, with $1.4 billion under management, invested an undisclosed amount in V-Link Travel Solutions Pvt Ltd for a majority stake in 2006. V-Link launched Meru Services in 2007 and this is set to add 600 cabs to its fleet in the January-March quarter. Meru is expecting a 50

per cent growth in top line this year. "After we reach 10,000 cabs, we may consider an Initial Public Offer," Puri said.

The radio taxi services segment in India is highly fragmented and the major names are Meru Cabs (5,000 Cabs), Easy Cabs (2,200 cabs) and Mega Cabs (1,000 cabs).

Ambit Pragma, the PE arm of Ambit, invested in Prasanna Bus Links, a Pune-headquartered city bus operator which operates services for the Delhi Metro Rail Corporation and  the cities of Indore, Pune, Ujjain and Jalgaon.

Growth pull

Mayank Rastogi, partner-PE, Ernst and Young, attributes the VC interest to the high growth in domestic consumption, especially in services. He said, "The used car market is growing tremendously in India, where major players like Mahindra and Maruti are established already. The platforms which help the used car business see huge potential as far as the VC fundings are concerned. The increased sale in the four-wheeler segment also drives the services business ahead."

This month, MotorExchange.in has raised a second round of funding of $5 million (Rs 23 crore) from Epiphany Ventures and existing investor Canaan Partners. Launched in December 2009, MotorExchange is in the used vehicles business.

Its promoters are Vinay Sanghi, former CEO of Mahindra First Choice, and Rajan Mehra, venture partner at Clearstone Venture Advisors. Mehra, former country head for eBay in India, had started eBay's b2b auto business in India.

In last November, Axel Springer AG, one of the largest multimedia companies in Europe, took a 52 per cent stake in Automotive Exchange Pvt Ltd, the owner of automotive classified ads portal Carwale.com, marking an exit for early investor Seedfund and Sierra Ventures.

The India Today Group has also acquired 18.3 per cent in Carwale.

In 2008, Carnation Auto, a multi-brand car sales and service network initiative by former Maruti Suzuki managing director Jagdish Khattar, received about Rs 28 crore (Rs 280 million) from IFCI Venture Capital Funds and Rs 80 crore (Rs 800 million) from PremjiInvest, investment arm of Azim Premji.