OLA CABS

PRE & POST IPO

Group-7
Abhishek Pal (B19002)
Akshay (B19004)
Chinmay Mundhra (B19012)
Nikita Gulgule (B19031)
Snehal Tiwari (B19055)
TABLE OF CONTENTS
Introduction.......................................................3
1. BUSINESS LINES.....................................4
2. OLA’S FOOD VENTURE...........................5
3. ola’s international business.......................6
4. competitors................................................7
5. issues & challenges...................................9
6. Assumptions in Valuation........................10

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INTRODUCTION

Ola Cabs is an Indian transport network (TNC) company offering services including peer-to-
peer ridesharing, ride hailing, taxi and food delivery.
The company is based in Bengaluru, Karnataka, India, and was established by ANI Technologi
es Pvt.
Ola Cabs turned into founded on 3 December 2010 as an online cab aggregator in Mumbai
and is now based totally in Bangalore. As of 2019, the employer has increased to a network of
extra than 1,500,000 drivers across 250 cities. In November 2014, Ola various to comprise car
rickshaws on a tribulation basis in Bengaluru. After the trial phase, Ola Auto elevated to other
towns like Delhi, Pune, Chennai and Hyderabad starting in December 2014.
In March 2015, Ola Cabs obtained Bengaluru primarily based taxi carrier TaxiForSure for
about ₹1,394 crore (US$2 hundred million). June 2015 onwards, Ola users gained access to
TFS cabs through the Ola cellular utility. Later inside the yr in November, Ola similarly
obtained Geotagg, a experience-planning packages corporation, for an undisclosed sum.
In a move to make bigger past cab aggregation, Ola received struggling foodtech employer
Foodpanda with a watch on leveraging the growing food shipping segment business in
December 2017. In April 2018, Ola made its 2d acquisition with Ridlr (formerly Traffline), a
public delivery ticketing app. Later in August 2018, Ola financed Series A funding of the
scooter hire startup Vogo, and once more in December, invested any other $one hundred
million.
The Karnataka nation delivery branch suspended Ola's operating license for six months for
violation of licence situations and violation of Karnataka On-Demand Transportation
Technology Aggregator Rules, 2016. This turned into resulting from Ola strolling bike taxi
offerings even though it simplest had license for four wheeler taxi operations. The organisation
termed the order unlucky and became searching at operating with driving companions to
preserve functioning. They additionally claimed to be in touch with government to sort things
out.

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1. BUSINESS LINES

Let’s have a look at the revenue lines of Ola

 Percentage Commission from Trips being served through its platform (Trip Based
Commissions)
 Money Wallet in Ola app
 Ola Cafe (Food Delivery)
 Ola Store (Hyperlocal Grocery Delivery)
 In-Cab Advertisements
 Fleet Leasing (To Drivers)
Trip Based Commissions
The trip fare charged to the customers is a combination of
1. Travel Time (In Minutes): Ola charges every Minute of Travel Time. It follows the basic
charging method of (Specific Fee * Number of Minutes)
2. Distance Cost: Ola charges Per km of Travel after a minimum specified distance has
been covered. This distance cost is also a function of the type of Taxicab being used for
servicing the client.
3. Waiting Time: Ola charges the clients for the hold-up time due to customer-specific
reasons and for the hold-up time due to traffic.
4. Service Tax on the aggregate trip charge: Ola first deducts its customer service tax
charge, then its commission percentage, then applicable income tax on the net amount
and deposits the rest of the amount to the driver’s bank account in 3-7 business days.
Let’s take a look at an example to better understand their commission model
Assumptions:
1. Travel Cost per Minute – 3 (Travel time – 45 minutes)
2. Travel Cost per Km – 10 (Total distance – 15 kms, First 5@100)
3. Service Tax – 15%
Hence,
Total Fare = 100 + 3*45 (Assumption 1) + 10*10 (Assumption 2) = 335
Service tax on total fare = 15% of 335 = 50
Total Customer Bill = ₹385
Ola’s Commission = 20% of 335 = ₹67
Driver’s Payment = 385 – 50 – 67 = 268 less 10% TDS (As per Income Tax Act) = ₹241

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2. OLA’S FOOD VENTURE

India has emerged as one of the largest food-technology markets globally in recent years. It
could be worth up to $2.5 billion by 2021. Ola wants to tap into this potential market. The ride-
hailing giant acquired FoodPanda, the food delivery startup in late 2017 and has ventured into
the Food Delivery business. But unlike market leaders Swiggy and Zomato, Ola is pivoting
FoodPanda to focus on expanding its own portfolio of private labels.
Ola currently has more than 50 kitchens and Four private labels namely
 Flrt
 The Khichdi Experiment
 Lovemade
 Grandma’s Kitchen
The major reason for this shift is the potential untapped market of private labels and
unsustainable competition with the market leaders Swiggy and Zomato. They currently operate
in Bengaluru, Delhi, Mumbai, Pune and Chennai. This move also comes from the fact that
focusing on in-house brands helps companies achieve higher profit margins as restaurant
aggregators have to divide the 40% margins with their restaurant partners.
Ola presently is reportedly in talks with delivery players such as Dunzo and Zomato to relist its
cloud kitchen brands.

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3. OLA’S INTERNATIONAL BUSINESS

Ola has infused $60 Million into international operations over the last 15 months with more
than $6 Million in the month of March itself. Currently, Ola Singapore controls the operations in
Australia, New Zealand, Sri Lanka, Bangladesh, and even the US. Recently, it has also
ventured into UK market, just a day after Uber got its taxi license revoked. Ola’s international
ambition comes after expiration of GOLD alliance (alliance between Grab, Ola, Lyft and Didi).
Australia
In January 2018, Ola ventured into its first overseas market in Australia. They started with a
soft-trail in Perth offering 2 free rides to every new customer who joins using the mobile app
platform. Ola further expanded its operations to Sydney, Melbourne, Canberra, Adelaide and
Gold Coast.
They have been focusing on driver benefits and they are charging commission rates of 15% in
Australia – which are the lowest in the industry. It claims to have over 40,000 drivers across
Australia.
New Zealand

In New Zealand, Ola started its operations in September 2018 where it had a strategic tri-city
launch across Auckland, Wellington and Christchurch. It was strategic in the sense that these
cities constituted more than 50% of the New Zealand’s population. Ola had commission rates if
18% in New Zealand which are again, the lowest in the industry.

UK

Ola initially was hesitant to set up operations in London as the market is highly-saturated and
was dominated by rival Uber. Hence, Ola started its operations just a day after Uber got its taxi
license revoked. Ola starts its services in Bristol which is in South West England. Currently
operates ride-hailing services in five regions that cover several of the U.K.’s bigger cities:
South Wales, the South West, Merseyside, West Midlands and Reading.

o The UK deal is significant because Transport for London (TfL), the city’s transportation
regulator, has over the years proven to be extremely strict and choosy when it comes to
issuing licenses to taxi companies, and subsequently enforcing the operating rules that it
sets for tCommunicate rates clearly to clients and customers. If there are potential
additional fees which will be passed on to clients or customers, define and establish
them up front.

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4. COMPETITORS

Cab services have in the ongoing past filled in like an enormous shelter to society. With applications so
effectively accessible on the cell phones, neighbourhood Travelers in gigantic metropolitan urban
communities, no more need to live helpless before taxicabs or auto-rickshaws. Following is a rundown
of significant taxi benefits in India:
1. Ola Cabs: Ola taxis is an application-based taxi service that however propelled as of late is now a
market head. With countless taxis handling as its franchisees, Travelers get an assortment of taxis to go
in, from share taxis to minis to vehicles. With Ola taxi drivers all around prepared, the Service is known
to be alright for women travellers because of an all-around set up following framework. Payment
strategies are adaptable and the explorer has the decision of paying through card or money. Ola charges
are likewise sensible, they start at a normal of Rs. 100 for the main 4kms and afterward Rs. 2.75 for each
consequent kilometre voyaged.
2. Uber Cabs: Uber is a universal brand making an imprint in 350 countries around the world. Uber
drivers, similar to Ola drivers, are very much kept up and mannered. Be that as it may, Uber being a
global brand is progressively proficient in managing client care and preparing programs. Tolls are
somewhat aggressive. Uber costs likewise have a base of RS.100 with a base admission of Rs. 150.
Payment choices are accessible: money, card or e-wallet.
3. Meru Cabs: Meru Cabs was one of the first and biggest radio worked taxi benefits in India utilizing
in every single significant city. It had increased immense prevalence and faithful demographic because
of its productive and compelling client services. In spite of the fact that Meru Cabs acknowledge
Payment as money just as a card, they started by requesting a taxi by means of telephonic discussion and
still keep on doing as such. Despite the fact that its significant rivals have made taxi travel simpler by
accommodating an application, Meru Cabs haven't yet figured out how to do as such.
4. Simple Cabs: Easy Cabs is a moderately old non-application-based taxi service that started in the
year 2000, and was propelled with a solid client following in every significant city of India. With more
than 6000 vehicles in their armada, Easy Cabs isn't picked by numerous individuals because of its levies
being higher than Ola or Uber.
5. Tab Cab: Tab Cab is assistance that was propelled uniquely in Mumbai where one could book a taxi
via telephone by giving data about getting and drop area, time and address. With sensible costs, Tab Cab
framed a more grounded demographic and steadfast client base by holding hands with neighbourhood
corporate firms to ship representatives from the working environment to home and the other way
around. They were effective in working for such a reason and consequently made a specialty showcase
for their business.

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6. TaxiForSure: TFS is a multi-city working taxi service that gives the clients to book either on the web
or by means of the application. Its accommodation has empowered it to shape a specialty client base of
corporate customers. In any case, TFS has just in the ongoing past been taken over by Ola Cabs.
Other taxi Services incorporate StarCityTaxi, Wings Radio Cabs, Mega Cabs, and City Cool Cabs to
give some examples.
The taxi service industry has been extending and has seen enormous development in the previous 6-7
years. Just in the previous 4 years, 2400 crore rupees of investment have been siphoned into different
organizations of this industry.
Be that as it may, in India, the organized sector of the taxi business comprises just a minor chunk of
about 4 or 5% of number of cars working in this sector. The remainder of the taxis are worked by private
armadas of 15 to 20 autos and are separately present just in a couple of urban areas.

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5. ISSUES & CHALLENGES

The key issues and challenges that Ola Cabs face are given below: -
 Drivers frequently tend to misbehave with the commuters and this affects the picture of the
brand as drivers are the substance of the organization.
 Due to expanding motivations being offered, the organization is wearing out its cash reserves
in order to gain market share.
 Top administration of Ola will in general start price wars regularly and with a gigantic
contender like UBER, this technique won't work.
 Drivers are not enthusiastic to work for longer hours as Ola offers lesser commission than
other taxi aggregators.
 Deep pockets of UBER enable them to consume more money than Ola.
 The continuous re-inventing of radio-taxi industry.
 Government Regulations keeps on changing and new regulations are issued frequently.
Government wants cab aggregators to use more electric vehicles.
 Lack of customer loyalty.
 A rising challenge from different organizations in the market and from other unorganized
sectors(autorickshaws/taxis)

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6. ASSUMPTIONS IN VALUATION

7. The Interest rate was assumed to be 14% beyond 2019.

8. Tax Rate
i. Till 2019: 30%
ii. Beyond 2019: 22%
9. CAGR Assumed during various phases of Growth
i. High Growth Period (From 2019-20 to year 2021-22 (3 years)): 30%
ii. Growth Period (From 2022-23 to year 2028-29 (7 years)): 15%
iii. Terminal Growth Period (India GDP growth rate is assumed as terminal
growth rate): 6.50%
10. Depreciation is taken the same as that of UBER’s @3.75%
11. Working capital investment figures are taken as 10% of the revenue which is similar
to the Uber model and a growth rate of 1% is assumed after the initial 5 years.
12. Beta is sourced from MarketWatch and the Beta value for OLA is taken same as that
of rival UBER.
13. The G6 estimates are taken at 4.91%
14. The Risk free return rate is the assumed the same as the 10-year treasury rate
@6.78%
15. The Market return is assumed @11.26% which is derived from the Sensex 7-year
CAGR return rate.
16. The Return on Equity comes out to be 14.40%.
17. The Debt – Equity Ratio is 0.25.
18. Finally, the WACC derived from the above assumptions comes out to be 13.68%.
The Firm Value derived is ₹7149.15 Crores.
The Equity Value of OLA comes out to be ₹5704.70 Crores.

OLA_VALUATION

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