Decoding Business Model of Meru Cabs


Since a long time, I have been a loyal customer of Meru Cabs whether I am in Dehi, Mumbai or Bangalore. Being a value investor and somebody who strongly practices scuttlebutt, I generally find it hard to resist interacting with the driver. In fact most of these guys turn out to be pretty interesting and knowledgeable. Over these years, I generally found that barring the usual small complaints every employee has, Meru drivers have largely been happy with the company on all crucial parameters like getting consistent bookings, monthly earnings and overall experience.

I was in Mumbai recently when I booked a Meru from Thane to the airport using their android mobile application. (If you haven’t tried the app yet, please have a look. It is amazing as it shows you cabs around you on a map with details of cab driver and you can book instantly and then track the car real-time coming towards you.)

However, I see things changing now. My hour long chat with this driver regarding some strategic moves by Meru shocked me a bit.

Before I highlight the changes Meru has recently introduced, it’s important to understand their existing business model.

How does Meru make money?

  • Started in 2006, Meru pioneered the radio cab industry in India
  • Entire fleet was owned: Bought Esteem in bulk from Maruti (must have got a great deal)
  • Hired drivers and recovered a fixed daily rental of Rs 750 (called as ‘Subscriber Fees’) for round the year; all the 365 days – no holidays, no weekly offs, no festivals, no sick leaves nothing. In a way, drivers become franchise/entrepreneurs.
  • Meru has a call center and online portal to take on pickup and drop orders. These orders are routed using location intelligent software to driver in the proximity of the pick-up location. Meru guarantees some number of orders to its drivers on per day basis; thanks to its first mover advantage and a reliable/powerful backend
  • Meru takes care of the insurance, monthly servicing and replacing tyre etc. (Driver still pays subscriber fees even on service days despite losing work hours)
  • The extra charge in case of accidental insurance which insurance company do not take, Meru and driver has to share 50:50.
  • Drivers takes care of fuel (CNG)
  • Driver gets the ownership of the car after 4 years by paying some lump sum usually 50-90k or extra EMIs along with daily subscriber fees
  • There are various points of collection and bank branches, where driver can deposit daily subscriber fees. Or when some passengers pay by card, it goes directly to the company account.
  • Alternate revenue: The basic revenue channel is instalments from driver. It also has an alternate revenue source like advertising which is done in various ways- Roof-top posters, rare view top strip, side doors, and interior sitting of the cab.

It is actually interesting to understand that this business model is nothing new. Meru just re-did the age old stuff, but at a corporate level. Many cabs and auto riskhaws on the roads are actually owned by someone else who rents out the vehicle to a driver. The driver pays a certain amount as a daily rent. Post all the expenses like rentals, fuel, cops etc – the driver pockets remaining as his day’s earnings. So instead of doing things on a small scale, one-to-one model, Meru stepped in, engaged their partners at a corporate level – the OEMs on one hand, and the airports etc. on the other. The fillers include the GPS, a call center, training & a reliable service.

 Economics for a Driver

  • Average total fare collection a day – Rs 2,000 (133km * Rs 15 per km)
  • Rs 750 goes to Meru and Rs 300 for CNG
  • Pocket Rs 900-1000 a day implying Rs 27k-30k a month, assuming he works without taking a single day off. This seems pretty good for somebody who otherwise used to make about a fixed 7-8 grand a month working as a chauffeur.

Economics for Meru

  • Annual cash flow from each taxi = Rs 750 * 365 Days = Rs 2.73 lacs
  • In four years cumulatively Rs 10.9 lacs (for a car that had cost half of it, but need to adjust for Operational Overheads & Marketing)
  • Over the years, this daily subscriber fee kept on rising and today stands at Rs 1300.
  • So, annually Meru now receives Rs 4.75 lacs from each cab driver.
  • In four years, Rs ~19 lacs for a car that costs may be 30-35% of it.
  • And fares now stand at Rs 20 a kilometer (25% extra during night)

I know, what’s going on in your mind right now. You must be thinking so far it seems to be a good business model and Meru must be making some good money. I thought so too, but on the contrary they have accumulated losses of over Rs 200 Cr. till FY13.

After years of reporting losses and looking at a growing competition, Meru in 2012 finally shifted gears and launched Meru Plus (Rs 23/km), an aggregation model serving multi-point intra-city and inter-city trips.

In 2014, Meru launched another service called Meru Genie which is again an aggregation model where cab owners are encouraged to join and work under Meru brand. The difference here is the cabs are hatch backs like Etios Liva/Indica and fares are comparable to Auto Rikshaws (Rs 12-16/km depending on cities)

They have reportedly broken-even and made a tiny profit in FY14. Today out of the 6,500 Meru cabs, roughly half are owned and half are on aggregation model. Among the largest aggregators are Savaari, Ola Cabs and Taxi-ForSure.

Aggregation model generally works on revenue-sharing, where aggregator typically gets 20-30% cut from the billing amount.

The biggest benefit of an aggregator model is its asset-light nature and scalability potential. However, there are some obvious negatives of the aggregator model too – lower control & inability to offer consistent service quality  to passengers and safety issues highlighted by recent Uber Incident in Delhi (finally Uber has got banned in Delhi and lot of other states). Despite these negatives, Meru’s transition to this model could be justified given–

  • The company hasn’t made any money despite being in operations from last 8 years.
  • India Value Fund Advisors (IVFA) had reportedly invested nearly Rs 200 crore in 2006 for a 75% stake in Meru, as per media reports its believed that the fund is now looking for an exit.
  • Uber in less than 4 years of existence is reported to have annual billings of over a billion dollar and valuations as high as $40bn. Taxi-forsure and other aggregators in India are too showing the economics of aggregator could be better compared to owing the fleet.

By no means it is an easy business. Apart from the high competitive intensity, the fleet operators have to deal with various regulations. For Radio Cabs (Metered Cabs), the fares are regulated. Further, It takes a lot of money and time to get permits. If that was not enough, you also have to deal with driver unions. Meru has experienced many long strikes which not only inconvenienced regular passengers, but resulted in loss of earnings for drivers and business losses for Meru Cabs.

That was about existing business model of Meru and its on-going transition to aggregation model.

Coming back to my recent chit-chat with the Mumbai Cabbie, what shocked me is Meru’s strategy on owned fleet and extremely adverse terms for the drivers.  They recently phased out a big chunk of Logan/Verito and introduced some 1,000 brand new Etios. While doing so they also introduced some major policy changes:

  1. Driver has to pay upfront Rs 70,000-80,000
  2. Driver himself takes care of the maintenance – servicing, tyres etc.
  3. Meru gives a specially made-for-Meru Toyota Etios

These three changes might look small but each affects the business and driver’s life in a big way.

  1. When driver pays down payment of Rs 70-80k and Rs 39,000 (1300*30) a month, he is essentially buying a car on finance where Meru becomes the Cab-financing company. Had he taken an auto loan from any bank, he would be paying 48 EMIs of Rs 14,000 on a 6 lacs car with Rs 80,000 down payment and 13% interest. Right now he is paying 200% extra. What he gets in return is ‘Meru’ tag and a flow of clients. Whether this cost-benefit is justified or not totally depends on how much he makes end of the day.
  2. So far Meru was taking care of the maintenance, so all cars were uniformly maintained and gave a consistent experience to passengers – I never found torn seats or smelly interiors in a Meru. When the onus of maintenance shifts to driver – it will largely depend how each understands the importance of this aspect. Maintenance could be very subjective – you visit a road side garage or a company service centre the costs and service quality vary significantly.
  3. As per the driver, Meru recently got Etios customized from Toyota. Its not unusual for a fleet operator to get rid of the extras and get the lowest price possible. OEMs are likely to agree as such are generally bulk orders. However, it seems this time Meru has gone a bit too far by removing regulars like power window, neck rest, tyre/engine rubber flaps, some essential tool kit & engine parts too. (I know it’s shocking, I couldn’t believe it too)

This cab I took in Mumbai was a 2-month old Etios and had already started troubling driver. On our way to airport it was constantly giving jerks due to interrupted fuel supply; in driver’s words ‘sorry sir car missing maar rahi hai, kal phir service pe bhejni paregi’. The previous day he had to move an NRI passenger to another Meru cab in middle of the journey at 3am as intensity of jerks went up and ended up annoying the passenger. The back seat was already torn as there were no seat covers provided and it was low quality seat compared to what you find in a usual Toyota car.

He named at least 10 more important parts which are there in a regular Etios but nowhere to be found in this ‘customized’ version. (I don’t remember all the names)

Assuming it could be just one-off, I asked him are other drivers facing similar issues? He said everybody who has received this version of Etios has similar complaints.

Sahab we have already paid down payment and looks like we can’t do much about it now. We have still brought this to company’s notice and demanding these important parts like seat covers, engine flaps etc.”

To summarize, this seems like a good move for boosting corporate profits in the short term but is this sustainable? I doubt.

Would drivers continue to make the usual Rs 750-1000 per day they were making before? Again I have my doubts. Each time car servicing costs about Rs 8,000-10,000 and is to be done every month. Tyres costs Rs 25,000 and need to be replaced at least twice a year. With all these costs now being borne by the driver, they might not be able to make any decent money.

Further, a lot of regular passengers could now be attracted to the new economy service – Meru Genie as fares are 20-30% lower.

In an ecosystem where drivers own the car, Meru is nothing but an aggregator. For most of these drivers it might not be viable anymore to work under this arrangement. In the short term they don’t have any option but to continue as their down payment is blocked now. In the long-term, this arrangement is likely to collapse.

From passenger’s point of view, one might not get consistent experience, he or she is used to, as most of the fleet is no more owned or maintained by Meru directly.

As a customer I am wondering does the very attribute, behind Meru’s being No. 1 choice, fading? With all these me-too moves what are the odds of it differentiating itself and retain brand-loyalty it has enjoyed all these years?

I understand we are talking about an industry that is less than a decade old and hence it is natural for players to keep tinkering with their business models and launching new products. Given the nascency and pace of change in the fleet taxi business, the jury is still out on what the most viable business model for operators is, but the next few years will settle that.

I wish Meru all the best
Your Loyal Customer,
Jatin Khemani

If you wish to share any thoughts, please write in the comments section below.

Disclaimer: Since Meru is not a listed entity, I have relied mostly on my interactions with the cab drivers and on Media articles/Management interviews. The links have been shared below. Images on Business Model, Size of players and industry are picked up from an ET Article. The thread on team-bhp website was an interesting read on what people think about this business model.

Interesting Read:


10 responses to “Decoding Business Model of Meru Cabs”

  1. Bhaskar Avatar

    Very nicely detailed article. I really liked reading it.

  2. west_canal Avatar

    It’s exit time for the Private equity so you need to deliver numbers.

  3. Prakash Sharma Avatar
    Prakash Sharma

    Good article Jatin. Also nice to know u chat with drivers and know the real story.

  4. Siddharth Avatar

    Nice Article !! Isn’t this the scene with most of the so called New-Age Service companies ?? Be it taxi service like Meru, or Online retailers like Flipkart, Snapdeal or Free Messaging services !! All the companies god knows from which accounting principles are valued in million and billions of dollors but in actuals they worth penny . And in the process of becoming the next big thing they are simply killing small businesses where actual money is valued as worth of a company or business or person. The promoters of the company in the process becomes actual billionaires but leave many behind penny less . May be its time for all the countries around the globe to actually wake up else just like dotcom bubble when this bubble will burst , it will affect a much wider public who are directly or indirectly now part of this.

  5. Venkat Avatar

    Hi Jatin
    Good article. I believe “Pink” Taxi and “Luxury” Cabs exclusively to service the women and the rich-class (may be linked via 3-4-5 star hotels), respectively, could become a niche business with some inherent moats. Especially first mover advantage can be huge in these spaces.

  6. Mandeep Singh Avatar
    Mandeep Singh

    This is an beautiful article Jatin, very detailed.. Cover almost what I am looking for.. You able to bring up most amazing and shocking facts…

    The reason I am researching for these types of article is that I am trying to start my transport service and thinking to buy cab and attaching it to meeru or Ola… But long term future market scares me.

    I like your views on driver working under meeru what about individual investors cum driver like me?

    What do you think?

  7. Dhagash Avatar

    Great article, detailed and insightful. Fantastic read.

  8. mahesh krishnan Avatar
    mahesh krishnan

    Hi Jatin

    Enjoyed the professionally analysed article.

    In the past, I too used to chat with MERU drivers and what i picked up was they did NOT get any leave and most often had to work through out the month. Though the MERU management did not pick up this up, the drivers hated the management and I found invariably all the drivers spoke against the management. When someone analyses a car rental company, this is the first RED FLAG. They key resource here for MERU are the drivers. If they can’t keep them happy, they are not in the game.

    I feel for MERU to outsource the servicing to the drivers would be their current biggest flaw along with their inability to keep drivers contended. Any good brand has to have consistency in service ( think McDonalds).

    So if MERU was a listed company, I would stay away ! And as you have smartly done, all you had to do was speak to their main resource- drivers. Well done Jatin!

    cheers, Mahesh Krishnan /Mumbai

  9. Sajeeve Abraham Avatar
    Sajeeve Abraham

    Very good article. I am impressed by your knowledge. Are you an investment analyst or a social worker interested in uplifting the drivers? Cool article. I believe in a deal a person with better bargaining power wins. If quality is not taken care of then the company might eventually loose.

  10. Jagmohan G Avatar

    Excellent information for entrepreneurs…


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