Big but Sick " The Giant Indian Startups"

Some news to start before:

Apple Inc reported its first fall in revenue after 13 years. Google Inc holding company Alphabet's revenue show peak rise making it most valuable company. Face book’s revenue show 60% crosses the estimates stock soar 1% on Wall Street. Linkedin's merger with Microsoft shares trade at 46% higher in a day.

Strategic Management teaches a fundamental basic, that private entity's primary goal is profitability. Usually, when Government prefers to pull out an organization from sickness, the primary turnaround is sought by privatization that organization. The Other fundamental basic is Government works for welfare and losses are unavoidable in government controlled entities.

Private enterprises have sheer desire towards profit maximization and can go any further to maintain their margins and return. This mission is more imperative when organizations go for IPO. The ultimate purpose then adds to be wealth maximization. Profit is not merely difference between revenue and expenditure but it's more than that subtraction. Profit is one way the value is added by handling, deploying, and utilizing all your assets into the business.

An organizations success cannot be related without profit element. Profits are always sweet no matter where they come from.

Startups in India:

A Survey report that Young generation turning out to be entrepreneur admits Steve Jobs to be their source of inspiration followed by Microsoft founder Bill Gates. India is a growing incubator for such people. Everyday a new idea is born and battled to transform it into successful business model.  Two employees working for a company quit their job and go on creating business to stand out to be biggest rival of their own employers. 21 Year old school drop out forms biggest lodging company and story goes on...

But that doesn't make us feel better about them. Though these giant start ups have grown out in its massive sizes achieved a quiet million of valuation, there is a rising concern about Indian Startups. Latest headline was “Ola booked a loss of 795. Crore for year ending March 2016." The startups backed by angel investors though are loss making maintain high liquidity position by going for series of venture funding. Continuous expansion of Business and cut throat competition from rivals has mandated start ups to keep the pricing strategy at minimal. Non cash expenditure and higher cost of capital by including the debt as funding is also a reason for the losses. In case of Ola and Uber depreciation and hire charges come hand in hand. As tough it is to reach breakeven, so much is difficult to survive without profits. But after many years of direction These Start Ups like Flipkart, Snapdeal , Zomata , Ola have not booked a penny of profit. The concept of profitability doesn’t seem to exit for them.

Let's dive into understand..

Flipkart Vs Amazon: 

Amazon's profitability for the last 10 years is shown below: 

Amazon.com spends a lot of money to generate its revenue growth. The company's net profit margin has broken one billion dollars only once in the past nine years, in 2009.At that time, Amazon’s net profit margin was 2.8 percent. By September 2011, that number fell to 0.6 percent. A year later, it was losing $274 million on net sales of $13.8 billion. And in the latest quarter, ended Sept. 30, the massive e-tailer reported a $41 million loss on $17 billion in sales. 

Indian breed of Amazon Flipkart, if it were to manage properly its business model profitabiltiy for Flipkart for next ten years will not only be difficult but also can be a myth. So much of resources and effort put in together to evaporate the capital and incur losses sounds really absurd.   The bigger question to be answered how are these start ups are still raising funds to survive in spite of proliferating losses. Well the answer seems to be related to market, the entity is in. E Commerce in growing at speed of 60% a year. Hence the speculation can be made at some point Flipkart may grow enough to cover up negative cash flows or may cross its break even. 

In hindsight, E commerce doesn't seem to be promising in terms of wealth creation though it’s fruitful in terms of consumer interest. 

Uber Vs Ola: 

As Uber is not a listed company there were no authenticated and reliable information to believe that Uber is profitable but it can also been seen that Uber's financial position sounds better. There have been considerable chances of company achieving its profitability and rumor has it that Uber was also profitable in few parts of United States and India 

Indian Startup resembling Uber named "Ola" just booked a loss of Rs.795 Crore. This start up providing  fleet of vehicles , allows booking on App only plat form like Uber. Ola still has bumpy ride to conquer road and success of being a worthy company. 

Why start ups are not profitable?

As said private entities interest stands profit motive though above all, entities control by its investors is main reason for their financial position.  The hindrance here is concern of investors. After paying off fixed costs and these types of companies tend to meet the investors condition by paying off interests or any other form of consideration. This can be typical for companies with high growth globally. There is large cost on infrastructure, hiring and server storage before you catching up the profits. This period of economic growth is also called diminished growth.

Will these survive?

Unfortunately , the trend is mixed. A survey reveals that nine out of ten start ups fail. Food startups are in serious trouble many of them followed lay off and other had to shut down their operation in wake of saving from further down fall. So the answer depends on rivals ,favorable market conditions and  local  laws.

What is the future?

The Future of Mark led facebook attained its profit in just two years. There after I raised underrated profits, and was able to acquire Instagram and whatsapp.  

There is lesser meaning if an entity is unable to add value to its work. So long our Big Sick startups are private equity controlled profit is no matter of concern. But even if they feel the necessity to be a great and successful like Apple Inc, Google Inc, and facebook at least still the road for them steep and far long to be traveled. Tremendous growth along with economies of scale tradeoffs is still a sour grape.

Hyderabad Metro Rail was it necessary?

Hyderabad city  occupies roughly 650 Sq Kms is well connected with infrastructure. The city has two modes of public transporting system. TSRTC and Multi-Modal Transport System (MMTS), is a suburban rail system in Hyderabad, India. MMTS is a joint partnership of Government of Telangana and the South Central Railway. 

While most of the commuters of Hyderabad city prefer well networked TSRTC buses and the rest of 30% opt for MMTS mode of travel, the two public transporting system together show up to be satisfactory both in terms of the availability and economy. 

Hyderabad Metro Rail: 

Approved by Government of Andhra Pradesh at that time Hyderabad Metro Rail project aims to connect and build metro way of travel fro three dense traffic corridors in the city spanning 72kms. While the Three phase yet to be completed and trails runs being performed on few tracks. Hyderabad Metro Rail promises to provide economic and safe way of travel .

Revenue and Losses of TSRTC:

Upto the Month
	MAR 2016	MAR 2015
i)	Gross Earnings per km. (in Ps)                          3308	3207
ii)	Cost per km. (in Ps)                                          3875	3529
iii)	Profit/Loss(in Rs./Crores)                                - 701.82	-401.42
iv)	Profit /Loss(in Ps)                                             -567	-322

  

State run TSRTC increased passenger charges. Few days back the Cheif Minister of Newly formed Telangana State said He'll be writing to  the Prime Minister of India so save TSRTC from the losses.

The  above snapshot shows the TSRTC made -701 crore of loss for the Financial Year ending 2016. The merged TSTRC previously knows as APSRTC was demerged into TS and APSRTC following the division of the State. 

As it is understandable, that City's requirement for another mode of transport is questionable. The division of State to Telangana and Andhra Pradesh has added to vows and increased the losses to TSRTC. Most of the MMTS stations look deserted except in peak hours. As the Cyberabad another part of modern city which consists of IT Parks and SEZS commutes by the Cabs and fleet of vehicles provided by the company. The timing of HMR (Hyderabad Metro Rail) seems to be unlucky. While the major transport system is still generating losses and yet to be far away from reaching break even , will the HMR result to give profit or be another un-utilized or under utilized system is what to sought be answered ?

Though, the HMR hosts in its web saying survey was done by Delhi Metro and project was initiated still the uncertainty about the viability of Project HMR in city like Hyderabad is not so convincing. Metro was successful in cities of Metropolitan where the distance of travel is comparatively more, where Hyderabad being city of fewer boundary limits and  any of its extreme limits can be connect other within reasonable time.

The cost for HMR is expected to be 14,132 cr of INR of which 10% is borne by Central Government of 90% by L & T. By the foregoing achieving break even in the first five years if all the corridors are completed in time limits does'nt seem to be possible. Even in HMR works out to be profitable or meets its forecast , this impact on already loss making TSRTC and deserted MMTS trains and the way the government will hedge these two things is an interesting thing to see in near future. 

While HMR is to take Hyderabad to next level in terms of infrastructure, the public response and utilization of merto rail is what time will conclude.