Improving BEST: Revenue Generation of Mumbai’s public transporter –Part2
Raising revenues and operating a profitable service is the biggest challenge before BrihanMumbai Electric Supply & Transport (BEST), Mumbai's bus operator, today. The public transporter needs to do this by deploying multiple strategies to improve revenue through ticketing and non-ticketing options. Let us examine some possibilities in this article; but before we do that let us analyse the current revenues of BEST.
 
Short analysis
BEST counts revenues from four different sources - Passenger receipts, bus hires, grants from the municipal corporation and other receipts. BEST generates additional revenue from advertising, real estate rentals and other activities. Grants account for little more than 10% of passenger receipts. Other receipts are two-thirds of the grants in 2014-15. 
 
BEST administrative report, available for FY2012-13, states that BEST earns about Rs3.5 crore per day through passenger receipts. The annual per passenger revenue is Rs9, which seems to be too low. As per ticketing spread in 2012-13, tickets sold, up to Rs5 (up to 2kms) are 25% of total, up to Rs7 (up to 3kms) is 46%, up to 10 (up to 5kms) is 72% and up to Rs12 (up to 7kms) is 83%. The comparable Auto rickshaw fares would amount to Rs24 (up to 2kms), Rs36 (up to 3kms), Rs60 (up to 5kms) and Rs85 (up to 7kms). And Taxi fares will be Rs29, Rs44, Rs74 and Rs103, respectively. Clearly, the bus fares are under-priced. 
 
To understand the revenue side better, BEST needs to focus on profits or yields at various level - e.g. Per-bus yield, per-passenger yield, and per-route yield. These numbers should be monitored daily and reported with every financial year statements. 
 
Improving passenger receipts
Passenger receipts are a function of how convenient BEST is as transport alternative. With proper route planning, easier payment system, passenger receipts should improve. Inefficient ticketing is one of the reason for low annual per passenger revenue. It causes ticketless travel and revenue leakage. One option to improve this is to make print-ticket prices in multiples of Rs10. However, if you use electronic card, then it can be in denominations of Rs5. Ticketing can be improved by contact less smart cards at entry and exit. If someone forgets to tap at the exit, fixed fee will get deducted say Rs200 - for trunk routes and Rs30 for feeder routes. We can also have a Rs30 per day pass on all feeder routes.  
 
Advertising
BEST advertising comes from bus hoardings, in bus TV adverts, bus-stop advertising and advertising on other real estate owned by BEST. Unfortunately, BEST does not give further details. It is pertinent to note that substantial amount of advertising for both transportation and electric supply division goes through Rakesh Advertising. This entity controls advertising on streetlights, bus shelter adverts, and bus side panels. In & Out agency controls the hoardings, while Special advertising rights on air-conditioned Volvo buses are with Asian Concierge. This entire setup needs to be investigated for poor performance. A fleet of 3,500 buses (three outside panels, and two TVs inside), 35 hoarding sites, 25 bus depots, 47 Bus stations, 116 bus chowkies, 3,236 sheltered bus stops and 3,172 pole-bus stops cannot provide decent amount of advertising revenues? A case in point is that most of the large advertisers do not seem to advertise on BEST buses. BEST awarded the contract for bus advertising to Rakesh Advertising for Rs72 crore for three years. In contrast, a classified advertisement in local newspaper costs Rs1,000 (minimum) per day and it reaches less number of people than any BEST bus. 
 
Real Estate rentals
Apart from advertising, BEST also owns and leases commercial complexes in various places. The proper accounting of these commercial ventures between transportation and electric supply department is necessary. At least 27 bus-depots can serve as tremendous source of revenue generation. Currently, BEST plans to develop some of these locations. BEST needs to develop proper commuter amenities (including convenience stores, grocery stores, and food courts in these premises). Intelligent development of these spaces can ensure the rents from these buildings can contribute substantially while commuters get additional benefit. BEST can also develop office complexes on the higher floors.
 
Summary
The annual passenger receipts are Rs30 lakh per bus at BEST level. This is grossly inadequate. There is lot of potential for BEST to improve both its passenger receipts as well as other income. Serious efforts in this regard may add substantial gains quickly to the income side.
 
Note: Data for this article comes from BEST Administrative Report for FY2012-13.
 
(Rahul Prakash Deodhar is a lawyer, investor and author with experience spanning manufacturing, consulting, investment banking firms. He has advised a wide range of clients including Fortune 500 companies, public and private sector banks, hedge funds and private equity funds among others. He has developed econometric models for demand forecasting in real estate, metals, airlines, and shipping. He designed MIS and planning and budgeting systems, sales networks, and operations for large corporates. He has worked with Aditya Birla Group, CRISIL and Morgan Stanley. He is author of two books – Subverting Capitalism and Democracy and Understanding Firms. He can be reached at [email protected] or at his website www.rahuldeodhar.com.)
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Shriram-IDFC call off merger plans after differences over structure, valuation
Unable arrive at an acceptable structure and valuation, financial services majors IDFC Group and the Shriram Group have decided to call off their merger proposal to create a financial conglomerate, both announced on Monday.
 
In a regulatory filing in BSE, IDFC said: "This is to inform you that despite best efforts, IDFC Group and Shriram Group have not been able to reach common ground on a mutually acceptable swap ratio for the merger."
 
Accordingly, both parties have agreed to call off discussions on a potential merger and the exclusivity period pursuant to the CES Agreement entered into between the concerned parties stands terminated with immediate effect." 
 
In its filing with BSE, Shriram City Union Finance Ltd said: "Despite best efforts by both Shriram and IDFC, we could not hit a common ground and arrive at a mutually acceptable Structure and Valuation. Further, both Parties have agreed for aborting any further discussions on the Proposed potential combination. Consequently the 'Confidentiality, Exclusivity and Standstill Agreement' entered between both the Groups stands terminated with immediate effect."
 
The two groups on July 8 had announced a possible merger and signed a 90-day CES agreement and later extended for another 90 days.
 
The merger was to create a "financial conglomerate", Shriram and Piramal Group Chairman Ajay Piramal had then said.
 
According to reports, some shareholders of IDFC and Shriram were not agreeable to the valuation of the two groups.
 
The two groups had entered into a confidentiality agreement to evaluate a potential combination certain businesses and subsidiaries/affiliates and associate companies of Shriram group with IDFC Group.
 
The Shriram group, engaged in credit and non-credit (insurance) financial services, has three listed entities - Shriram Asset Management Company Ltd, Shriram City Union Finance Ltd and Shriram Transport Finance Company Ltd - operating in the non-banking finance domain.
 
It also has life insurance joint venture with South Africa's Sanlam and its own general insurance company.
 
As per broad scheme of merger announced between IDFC Group and Shriram Group, the two insurance companies and listed Shriram Transport were to become subsidiaries of IDFC. The other listed entity Shriram City Union Finance was to be absorbed by IDFC Bank.
 
The operating businesses of both the groups would have come under IDFC.
 
For the Shriram Group, Shriram Capital Ltd is the overreaching holding company for the financial services and insurance companies.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.  
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Improving BEST: Making city transportation profitable –Part 1
If Indian urban transport models were considered, the BrihanMumbai Electric Supply & Transport (BEST), Mumbai's bus operator, used to be the best. But today, BEST incurs an operating loss and after-tax loss. The revenues are not enough to cover the operating costs - on every single route. The loss has been widening over the years primarily due to salary increases, fuel cost fluctuations and erratic fare strategy. 
 
Expert solutions aim to imitate strategies from apparent successes like Singapore's Mass Rapid Transit (MRT), Hong Kong's Mass Transit Railway (MTR), London or European cities. Another strategy explored is dedicated lanes or BRTS. Ideas such as congestion pricing, overhead metros, underground metros are floated around as transportation solutions. However, this will not fix Mumbai's transportation woes nor will it make BEST profitable for various reasons. For one, there is no coordination between different modes of transport in Mumbai. Second, the star performing cities are well-planned cities, their transportation systems are coherently designed and translating these learnings to Mumbai may not be easy. Third, despite a lot of innovation none of the public bus systems generate net profits. But a profitable urban bus transport is possible and necessary. So, we need to fix BEST. And as a first step we must understand the realities facing BEST. 
 
What ails BEST?
Firstly, BEST is burdened with diverse and conflicting expectations. We need BEST to be low-cost carrier of masses. At the same time, BEST must help reduce the automobile congestion in Mumbai. It translates into a choice between cheap robustness for former v/s higher priced luxury for later. 
 
Similarly, BEST is burdened with the responsibility to correct the mistakes of planning and policy. Thus, BEST buses need to be higher off the road to survive the Mumbai water logging but also must have low-floor disabled access. The shortcomings of urban planning in Mumbai result in inadequate roads, dispersed populations, and lack of supporting infrastructure such as bus stops. Similarly, BEST acts as feeder to Mumbai suburban rail network (locals), which form the arterial connections. But at railway stations, the frequency of feeder service and frequency of arterial service is seriously mismatched.  This is because of encroachments near the railway stations. Then, BEST also has to overcome the challenges created by lack of law and order. Burning, pelting BEST buses is a regular occurrence at every riot, demonstration or protest. The enormity of the challenge facing BEST is quite unique and requires strategic ingenuity to overcome and BEST's response, to put it kindly, has been lackadaisical.
 
BEST's attempt to solve the problems
BEST has experimented with fare hikes and fare cuts and in both cases incurred losses. At policy levels, BEST is beset with glaring mistakes and half-hearted attempts at improvement. Both have hurt BEST. For example, BEST has a smart-card ticket system, which very few use. There are TV screens - two per bus in most of the buses. If you examine the response from BEST, it has been poorly thought out in some cases, and poorly executed in others. The result, not surprisingly, is that BEST continues to operate at a loss. 
 
In short, the woes of BEST arise from fundamental factors (e.g. Improper route planning), strategic mistakes, (e.g. Fleet composition, erratic deployment of ideas like smart-card solution), operational inefficiencies (e.g. Maintenance problems, revenue management, fuel cost management etc.), environmental challenges (e.g. road conditions, geography of Mumbai), policy inadequacies (e.g. Lack of coordination between railways, traffic police and BEST),  legacy issues (e.g. Manpower costs and deployment), and importantly, the bane of Indian public services - corruption. 
 
Why can't BEST fix itself?
To put it simply, BEST does not know what is going wrong. BEST does not even have a proper reporting framework in place. The standards of reporting of government and government bodies is suspect. As a principle, any entity that uses public fund and is a monopoly must disclose its performance in greater detail than public companies. When you want to hold tax-payers liable for costs, you better serve them with information. BEST must publish detailed performance parameters. Thus, BEST is ailing but there is no consistent data for diagnosis.
 
Can it turn around?
These factors individually are challenging by themselves, but taken together are a case study in complexity. Fixing it is impossible. Well, ALMOST impossible. There are strategies to fix BEST. We will detail these strategies through a RECoRFS examining Revenues, Expenditures, Coordination issues, Route Planning, Fleet composition and Strategy. The first milestone for any public transportation system is operational profitability. The state and city can finance the capital and interest expenditure initially. If these strategies are implemented, BEST can return to operating profitability in 2-3 years. In 2-3 years thereafter, fully profitability can be achieved. It needs energy and political will, but it can be done. In the next few articles we examine the issues facing BEST and the strategies how to fix BEST.
 
Note: We only focus on transportation side of BEST. BEST also has electricity distribution business which is not within the scope of this article. The analysis of BEST is based on financial and operational data from BEST website. 
 
(Rahul Prakash Deodhar is a lawyer, investor and author with experience spanning manufacturing, consulting, investment banking firms. He has advised a wide range of clients including Fortune 500 companies, public and private sector banks, hedge funds and private equity funds among others. He has developed econometric models for demand forecasting in real estate, metals, airlines, and shipping. He designed MIS and planning and budgeting systems, sales networks, and operations for large corporates. He has worked with Aditya Birla Group, CRISIL and Morgan Stanley. He is author of two books – Subverting Capitalism and Democracy and Understanding Firms. He can be reached at [email protected] or at his website www.rahuldeodhar.com.)
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COMMENTS

Aatush

2 years ago

One area where BEST could improve is by providing the commuter an estimated wait time for the bus. They can always ask Google for a solutions using their Google maps, just like Uber used it all over the world. That would be a very cost effective and quick solution with over burdening the citizens.

S A Narayan

2 years ago

Good appreciation of the issues facing BEST. Looking forward to the remaining articles.

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