Ola-Uber can go for merger to avoid competition and curb losses

Mumbai: SoftBank backed cab aggregator Ola reported huge losses in the previous fiscal. The cab aggregator reported loss of Rs 1,178 crore and an operating loss of Rs 3,731 crore in the previous fiscal.

The cab aggregator ran up a consolidated loss of over Rs 2,311 crore which makes about Rs 6 crore a day, during FY 2015-16. Ola saw its revenues registering a growth at Rs 758.23 crore during 2015-16 as compared to Rs 103.77 crore in 2014-15.

SoftBank Group Corp, the Japanese conglomerate, which backs Ola, took about a 17.5 per cent stake in Uber in January, 2018 and became the common investor in both firms. To overcome the huge losses by both Ola and Uber, SoftBank suggested the merger of both the companies, however it was denied by Uber in an interview with NDTV.

According to The Information, in 2017, Uber’s operating loss was roughly half of its net revenue. The main reason for losses of the cab aggregators is seemed to be the low fares, investors are happy to see growth in app installations and the increased number of rides, but it is not helping in increasing the revenue over its expenses. The cost of operating such a huge fleet is higher than the revenue.

The Indian market currently, is not suitable for competition of two large cab aggregators. Ola needs to raise its revenue four fold to match its operating expenses, and the only way to do so is by increasing the riding fares, and the fares cannot be raised by any of the firms owing to the neck-to-neck competition, and also it will not be accepted by the customers.

Hence, the merger seems to be the best option to avoid competition in a market like India. A merger would also help to boost the revenue of both the companies.

(With Agency Inputs)