BW Communities

Road To Profitability

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[BUSINESS STRATEGY: MSRTC rented out a portion of the bus stand at Parel, Mumbai, to private retailers (Pic by Satheesh Nair) It is difficult to miss the queue of state transport buses parked behind the Sixth Sense mall in the suburbs of Parel in Mumbai. This newly constructed mall stands tall where the Maharashtra State Road Transport Corporation (MSRTC) building once was. Now Maharshtra’s bus service has moved to the backyard, and the main mall building, where shop space has been leased out by MSRTC, has become a shoppers’ hub. Renting out to private retailers is the new business strategy that has helped pull some state road transport corporations (SRTCs) out of the red. “We started making money after how many years, I don’t remember. Leasing a part of our land for commercial development and planning profitable routes was a strategy to become profitable,” says Om Prakash Gupta, managing director of MSRTC. Despite a debt burden, FY08 is the second financial year in succession that MSRTC has reported profits; its profits have jumped to Rs 158 crore in FY08 from Rs 23 crore in FY07. The Karnataka Story But the ride to profitability was a bumpy one for some SRTCs. Karnataka is a case in point. Both Bangalore Metropolitan Transport Corporation (BMTC) and Karnataka State Road Transport Corporation (KSRTC) are in the black but that did not happen overnight. “It has taken over seven years of planning to turn both KSRTC and BMTC profitable,” says Upendra Tripaty, principal secretary of transport in Karnataka. BMTC, which has been pocketing Rs 40 lakh as rental income per month during 2008, even has cumulative profits of Rs 600 crore. Leasing out properties to commercial establishments, however, was not enough. Since staff cost forms 70 per cent of a government corporation’s cost, the BMTC trimmed its workforce through various voluntary retirement schemes offered over seven years. Related Stories Three To TangoThe Rush BeginsThe Economics Of A Highway Cruise Special services for women such as routes linked to shopping malls have also worked. BMTC’s premium fleet of Volvo buses added to destination profitability. These fancy buses connect every area in Bangalore — including the suburbs — to the airport at Rs 150 for a distance of up to 60 km. However, challenges remain for BMTC. “Every time we rationalise a route, there is another that is not profitable. Combine this with strikes by labour unions, and we are never far from making losses,” says Tripaty. He says public transport corporations should be run like a corporate to stay afloat. KSRTC has also identified real estate as its new cash cow. It gets Rs 10 lakh as rental income per month from Kishore Biyani’s Big Bazaar and plans to lease out land to four more retailers around Bangalore. But the corporation is also tapping other moneybags. “SRTCs also do a lot of work for MNCs (multinational corporations) and are using such special services to make money,” says Y.G. Ramachandran, analyst at Frost & Sullivan, a market research firm. However, reduction of diesel cost and maintenance of tyres are still areas of concern. Though KSRTC reported a net profit of around Rs 40 crore for the previous financial year, its debt burden has translated into accumulated losses of Rs 125 crore. “To cut costs, we have introduced buses where the driver performs the role of the conductor too, and we have outsourced all maintenance work to third parties.” {mospagebreak} ROOM FOR GROWTH: The Delhi Transport Corporation is working with Tata Motors to develop viable transport solutions for the city (Pic by Amit Verma) The two transport corporations in Karnataka are not just on a turnaround mission, they are generating good business for auto majors as well. “With STs in turnaround mode, this enables us to cater to their need for more buses to service new transport corridors in cities,” says Vinod Dasari, chief operating officer of Ashok Leyland in Chennai. BMTC plans to spend more than Rs 200 crore to modernise its fleet, and KSRTC, Rs 228 crore. The Laggards Mumbai’s pride, the BrihanMumbai Electric Supply and Transport Undertaking (BEST), has accumulated losses worth Rs 300 crore. And it is time for the corporation — that runs one of the oldest bus services in the country — to learn from its peers. BEST has already begun modernising its bus stops in south Mumbai and has been studying the prospect of leasing its main depots for retail establishments. “I shut down many routes on Sunday where the passenger load was very low. I have saved Rs 8-9 crore in maintenance alone, and this only over the past six months,” says Uttamrao Khobragade, managing director of BEST. Route rationalisation, and cutting labour costs, has helped the corporation bring down its operating expenditure to Rs 1,166 crore in FY08 from Rs 1,253 crore incurred in FY07. But Mumbai is stuck with a fleet of 3,400 buses while the city needs at least 5,000. The same is the case with the state-run Pallavan Transport Corporation (PTC) in Chennai. “Rising fuel costs and no fare revision by the state government has made it difficult for the corporation to cope with losses,” says Ram Subramanian, managing director of PTC. Subramanian declined to comment on the extent of PTC’s losses. Silver Lining Although the Delhi Transport Corporation (DTC) is making losses amounting to Rs 280 crore, it is working with Tata Motors on transport solutions for the city. “With the Commonwealth Games around the corner, the DTC has a separate bus corridor to ease traffic,” says P.M. Telang, executive director of Tata Motors (commercial vehicles) in Mumbai. With STCs looking to modernise, rationalising routes was the first step towards profitability, he says. The next big thing for SRTCs could be the state governments’ initiative to increase rural connectivity to cities. The rural connectivity programme under Jawaharlal Nehru National Urban Renewal Mission has made progress in a few states such as Madhya Pradesh, Rajasthan, Gujarat, Andhra Pradesh and West Bengal. “The rural-urban connectivity has kept the route permit growth at a relatively higher level for SRTCs,” says Anand Baliga, head of marketing at Eicher Motors (buses) in Delhi. He says this was pushed by SRTCs to increase load factors in high-density routes, and will eventually lead to profitability. This could well be the accelerator needed by transport corporations in states such as Tamil Nadu, Uttar Pradesh and Andhra Pradesh to speed up revenue growth, and catch up with their counterparts in Karnataka and Maharashtra. With inputs from Vatsala Kamat vishal 'dot' krishna 'at' abp 'dot' in (Businessworld Issue 14-20 Oct 2008)  