Self-Driven Car Rental Industry in India

            Interim Report Submission

Zoomcar

Group 3

Amol Aranake 1711307 | Arush Dixit 1711312 | Rishabh Ohri 1711350 | Aditi Jain 1711380 | Snehal Hora 1711431

Self-Driven Car Rental Industry In India

The size of the self- driven car rental industry in India has been estimated at INR 1.6 billion in 2018 (Car Rental (Destination) in India, 2018). Exhibit 1 shows the growth of the size of this market from FY 2013-18, recording a CAGR of 9% over the period.

This market has been forecasted to grow at a CAGR of 4% from FY 2018-23 (Exhibit 2). The various trends driving the growth of the market are as follows (Car Rental (Destination) in India, 2018):

Millennials driving growth: The average age of India being under 30 years, Indian millennials become an important consumer segment. With higher disposable incomes, weekend getaways are becoming a new trend among millennials (Hindustan Times, 2017). For such short leisure trips, millennials are renting cars than investing in one just for driving between cities as it makes economic sense.  

Online Channel Penetration: As per Exhibit 1, online car rental sales have shown positive growth. This growth can be attributed to the convenience provided by the online channel in terms of ease of booking and cancellation (Car Rental (Destination) in India, 2018). However, as Indian consumers are still not open to the idea of online payments due to reasons such as lack of trust, increased transparency in digital medium and cash-usage habits (Kothari, 2018), the offline channel continues to occupy a higher proportion of sales due to the option of settling payment in cash.  

Preferences shifting to owning to renting: As most of the Indian millennial population is in the early of their careers, they prefer renting over owning because of value for money (Singh, 2017). This is huge opportunity for growth for car rental companies which offer competitive pricing for customers, providing a range of options to choose from.

Service Model

The basic premise on which Zoomcar stands is to help the people avoid the hassles of owning a car. Their business model is based on convenience, mobility and independence. On the forefront, Zoomcar provides its customers with an option to rent cars through an online platform for as long as they want; hours, days, weeks or even months. The customers are served a range of cars: SUV, sedan and luxury cars to choose from and the pickup can be done from a nearby spot. They are also provided with fuel up to a limited extent after which they can get it refilled. In the background, Zoomcar works to ensure customer convenience and safety. All their cars have all-India permits which allows their customers to freely drive between states. They have worked towards developing a robust and user-friendly application which allows easy booking of cars. Recently, Zoomcar also launched an application to transform all its cars into Internet of Things-enabled vehicles. They are now able to track many aspects of in-car data like fuel levels, usage of seat belt etc. Any abnormality on these fronts sets out an alarm and demands a correction from the driver. This has helped to bring down the accident rate.

Recently, Zoomcar has taken up their first step towards switching to a market place model through ZAP Subscribe. It enables the direct interaction of a car owner with a person interested in hiring a car; using the Zoomcar platform. Zoomcar does not incur any specific costs for this transaction thereby helping it gain operational efficiencies. Also, ZAP Subscribe caters to a new set of customers who want to own a car but don’t use it on a daily basis. Such a customer can let out the car for the days he doesn’t intend to use the same. The major benefit of this model for the customer is avoidance of the heavy fixed and variable costs associated with owning a car. For Zoomcar, the major benefit is the first step in switching towards a marketplace model, which is its ultimate goal.

Current Status & Financials

Zoomcar is the leader in the car-rental segment in India, commanding about 70% of the organized market share as of 2017. The major competitors of Zoomcar as of today are MylesCar, Drivezy, Carzonrent and off late, Ola and Uber who are now entering the car-rental segment and pose the biggest threat to Zoomcar. It is important to note that only 30% of the car rental market in India is organized, the rest being largely unorganized. Hence, how the industry will shape up depends significantly on which player manages to organize the unorganized segment.

The revenue of Zoomcar for FY 16-17 was INR 121 Cr., a 35% jump from the previous year. The losses for FY 16-17 also narrowed down to INR 100Cr.

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The above graphs show that Zoomcar is on a tremendous growth trajectory in the last few years. The spike in ‘other expenses’ represents the significant expenditure that the startup is investing in engineering and R&D. Zoomcar turned EBITDA positive in the last fiscal year which is a sign of great financial strength. The major reason for this was the switch to the marketplace model (mainly through ZAP subscribe), that has helped reduce costs and increase operational efficiencies. Zoomcar has also started enjoying scale benefits due to its expansion. It has facilitated more than 1.1mn trips in ~27 cities across India till date with an average ticket size of ~$62.8-$78.6 (Rs. 4,000-Rs. 5,000). It boasts of a fleet of more than 3000 vehicles. However, it follows an asset light model and hence does not have to incur the significant fixed and variable costs associated with owning a vehicle. An important statistic is 60% of Zoomcar customers are repeat customers. Also, it has a metro-city heavy business with 80% of the customers being in metro cities.