Interview | Govt should lower GST on travel, tourism to help recovery: redBus CEO Prakash Sangam

redBus CEO Prakash Sangam

The government should consider reducing the Goods and Services Tax (GST) on travel and tourism to help the pandemic-hit sector revive, the chief executive officer of online bus ticketing platform redBus, Prakash Sangam, told Moneycontrol in an interview.

He said the industry would struggle to repay loans once the government’s moratorium scheme lapses.

Sangam also said his company’s revenue from ticket bookings fell by about 70 percent in FY21 and is expected to remain much lower in the current fiscal compared with FY19.

Edited excerpts:

What was the impact of COVID-19 on redBus’ booking in 2020 and so far in 2021 when compared to 2019? What are your targets for 2021-22?

In the financial year 2019-20, redBus’ gross merchandise value was $885.74. That number has fallen by around 70 percent in 2020-21 to $278.16, given that the first quarter was completely wiped out.

In 2021-22, the idea will be to get to a situation where we are hitting our pre-COVID numbers, that would be a good target to aim for.

Currently, from a traffic standpoint, we are getting close to about 55 to 60 percent of our traffic back on our platform from across the country, but there are still states like Kerala, and Tamil Nadu, where the situation on the ground is not great.

If India doesn’t have a third wave or a very disruptive third wave, then I feel that we could look at hitting our pre-COVID levels maybe by the end of the calendar year or early part of the Jan-Mar quarter. I feel once we hit our pre-COVID levels in booking and the pandemic is no longer an issue our revenues will grow faster than earlier because the pandemic has accelerated the process of adopting online platforms across India.

What steps can the government take to help revive the bus travel industry in India?

At the moment the cost structures in the industry are very high and I think the government has to help bring the cost structures down. It could consider steps like waiver of tax for a limited period or fuel subsidy for commercial vehicles, as that will significantly help reduce the cost of operations.

While the government has already come out with schemes like the loan moratorium scheme and initiatives like restructuring of past loans, and giving new loans at a lower rate of interest, these have helped the industry in the short term.

But for bus operators to ultimately pay back the loans and pay back the accrued interest for the moratorium period they need to generate some surplus. In order to generate a surplus, the cost of operations have to be lower than the revenue, and unfortunately, that is not the case in India at the moment.

The cost of operations is high because of the fact that fuel rates are at an all-time high and operators also have to ensure that they follow safety protocols during these unprecedented times.

These things are pushing up the cost of operations and occupancy is still not fully back.

Is redBus considering another round of fundraising to recover from the aftermath of COVID-19?

redBus is a part of the MakeMyTrip group and at a group level, we are well-capitalised. We had cash reserves of $200 million when the pandemic struck. Then we also raised another $200 million last year, so we have got close to about $ 400 million of cash on our balance sheets to fund any kind of investments going forward.

Which are the biggest markets for redBus and which ones would grow the most?

Our largest markets are typically in the southern and the western states of India. Our top four markets are Tamil Nadu, Andhra Pradesh and Telangana, Maharashtra and Karnataka.

From a growth standpoint, I think we will start seeing higher growth from the markets where the online penetration is lower, like Madhya Pradesh, Gujarat, Rajasthan and parts of North India.

When it comes to bus travel, I think there's a lot of headspace for growth around the country.

How have you seen demand patterns change in the last year and what is the outlook?

We saw new pockets of demand being created on a medium-term basis and these were states where train travel was very strong, especially in the east of India and the northern part of India.

If you look at these states, especially Bengal, Bihar and Uttar Pradesh, there's a lot more train travel that used to happen in these markets and trains opened up much later in 2020.

We saw a huge demand shift happening from trains to buses.

And then the long-term trends that we've seen changing are to do with the increased digitization. COVID-19 has accelerated digitization and we are getting many more customers from tier-2, tier-3 towns. Currently, more than 60 percent of our business is from small towns. Earlier, it was 50 percent.

Customers are now using our digital platform to book tickets. Earlier, payments through UPI made up about 10-15 percent of our revenues but now it is 45 to 50 percent. We have also seen many road transport corps increase their inventory on online platforms.

In markets like in the Eastern part of India, North India, which were earlier not very well organized, we are seeing a lot more bus operators keen on listing their buses on online platforms.

In the last 13-14 months we have added bus routes to 925 new cities because more bus operators are now looking to list their business online.

How has the redBus adapted to the pandemic and lockdowns?

When the COVID-19 pandemic first broke out and the first lockdown was imposed, it was a total lockdown. The whole idea of the lockdown was to make sure that people don't travel and stay where they are.

At that point business wasn't happening and it was all about how do we manage our costs. As the lockdown was slowly lifted we saw a huge pent up demand. In fact, even during the first phase of lockdown, there were a lot of people who were stranded in various locations. So we would have people trying to book busses on our site but there were no buses operating.

So, at that point in time, we proposed to the government that we will create a portal that would capture the demand for bus travel all over the country, but given that road transport is more decentralized and happens that at various states we could not get headway there.

The other big focus area was how do we enable people to travel in the safest manner. In my opinion bus travel is a far safer mode of travel when compared to air travel and Railways, because buses carry far fewer people. So you're coming in close proximity to a far fewer number of people when it comes to travel as opposed to other modes of public transport.

Another thing that we realise is that customers are looking for flexibility, and are not looking to make travel plans ahead of time.

Is redBus looking considering launching a fleet of electric buses?

While we are not looking to launch a fleet of electric busses but we are very supportive of anyone who launches a fleet of electric buses. redBus will help create a positive ecosystem for the growth of electric mobility when it comes to intercity bus transport and will promote electric buses and will try and drive more demand into these buses.

We are also happy to work with OEMs and financing companies to create an enabling framework to help reduce the cost of accessing electric vehicle stores for bus operators.