Deal focus: Chalo thinks beyond the bus stop

Octopus, the electronic payments ecosystem conceived by several major Hong Kong transit companies to underpin the city’s transportation system, has extended its tentacles into in-store and online payment, mobile wallets, credit cards, and consumer rewards programmes. Mohit Dubey, co-founder and CEO of India-based Chalo, aspires to do much the same with his bus-tracking and ticketing app.

The crux of the opportunity lies in the structural difference between the two markets: Hong Kong is relatively small and well-served by public transport; India is a sprawling nation where only 8% of households own a car, ride-hailing and taxi penetration is about 7%, and the USD 25bn spent each year on bus journeys goes to a sea of small-scale private operators that don’t prioritise customer service.

Chalo has begun to help passengers make sense of this ecosystem, tracking 15,000 buses nationwide – so people know when they will arrive and how crowded they will be – and handling mobile ticketing services for 8,000 of those. Nearly 6m tickets are sold every day, generating USD 250m in value on an annualised basis, and Chalo gets its share from bus operators in fees per bus or commissions on tickets.

The goal is to be tracking 100,000 buses in four years with two-thirds of passengers using the Chalo app. Dubey estimates 2.5bn people will be transacting on the app each month, and he is keen to leverage this scale by offering more services.

“You can offer them a last-mile ride, a premium ride, a cup of tea – Octopus works in restaurants, so why can’t the Chalo app be used in more than just buses?” he said.

“There is a fintech company hiding inside this mobility company. A bunch of unicorns in this country have cards that are used 3-4 times a month. Chalo has issued more than 1m cards and they are used 15-30 times a month – and that’s without any discounts or promotions. Octopus was adopted by default, it’s fundamental to travelling in a city. And it’s the same for Chalo.”

Pandemic resilience

Dubey launched Chalo in 2013, having previously founded CarWale, a car trading platform. Chalo emerged as a mobility platform within CarWale and has now raised around USD 120m as an independent entity. Most recently, Avataar Venture Partners led a USD 45m round at a valuation of USD 400m-USD 450m – described by Dubey as a premium to the previous USD 40m round from October 2021.

There were re-ups from Lightrock India, WaterBridge Ventures, and Amit Singhal, a former head of search at Google who now runs seed investor Smart Start Fund. Stride Ventures and Trifecta Capital provided an additional USD 12m in venture debt.

“I looked at doing a round in 2022 but abandoned that plan because the market wasn’t so good. I spoke to 10-15 funds and didn’t make much progress because they were unwilling to touch mobility – so many have been burned in the space. But the category I serve is COVID-proof,” Dubey added.

“People who travel by bus can’t do a Zoom call; they must get to factories, offices, and shops. Buses came back very quickly, and people realised Chalo was well-positioned. I spoke to four funds this time around and two were interested. Since the start of the year, city-level EBITDA has gone up 3x.”

Chalo was established on the premise that monetisation of the user base would come with scale. However, it soon became apparent that B2B would generate the more immediate windfall. If the earning potential of each bus is USD 200, most were running at 50% utilisation, and then one-fifth of the USD 100 they did bring in was being pilfered by the crew.

Chalo offered visibility to operators – enabling them to align routes more closely to demand, increasing utilisation – and eliminated pilfering by making ticketing digital. It also created unified ticketing systems that work across multiple bus fleets. Operators noticed they were recouping USD 100 in lost revenue and providing a better service, so they were amenable to giving Chalo a share of the upside.

“At bus depots in Mumbai there are sacks of coins that haven’t been counted; people can just steal them. Chalo recognised this problem – and the fact that bus operators don’t have ERP [enterprise resource planning] systems, they don’t know how buses are performing, and they don’t know how to manage driver salaries – and provided a solution,” said Mohan Kumar, a managing partner at Avataar.

“They are already in 50 cities in India, they could take 10% of a USD 20bn market. Globally, it’s probably a USD 60bn market. There are 50-60 cities around the world where Chalo could be effective.”

Of scope and scale

Expansion within India is on a city-by-city basis. Most operators have between two and five buses each; Chalo invites the 50 most influential to a demonstration event, and then deploys a pilot project. The 8,000 buses covered by the company’s ticketing services are controlled by about 2,500 operators. The challenge is hiring people with the skillsets to roll out services in smaller cities.

Chalo began scoping out Bangkok and Manila last year and launched local services three months ago. These markets are more organised than India – operators have 20-50 buses apiece – and the company now serves about 300 vehicles across the two locations. Dubey is looking to expand in Southeast Asia, the Middle East, and Latin America. He notes that Lima in Peru has similar characteristics to Indian cities.

“In theory, they can go anywhere. It’s like Uber, it’s all software. You sign up the bus operators, take them into the cloud, and build an app for consumers. Buses are covered in QR codes, so customer acquisition costs are basically zero. If you pay huge amounts in customer acquisition, the model breaks,” said Kumar.

Positive city-level EBITDA applies only to Chalo’s core business. It remains loss-making at the corporate level because of investment in new initiatives. For example, fleet ownership in Mumbai is reasonably centralised – it doesn’t obey the national-level norm of 70% of buses being under private ownership – and so Chalo’s penetration is high. This has enabled the company to pursue vertical expansion.

An airport shuttle route has been introduced that offers a premium service exclusively to Chalo users. Last year, the company acquired two-wheeler rental business Vogo and it has won a contract to deploy 10,000 electric bikes at bus stops in Mumbai. Another government contract will see Chalo roll out 3,000 premium electric buses in the city, with the first 200 to debut within three months.

“This will require more capital but not in the core business. We will own about 50 of those 200 buses; the rest will be leased to us. The owners could be bus operators or other investors,” said Dubey. “Plenty of people want to invest in electric vehicles – there could even be a separate asset pool for the buses. You could get USD 400m-USD 600m a year for 3,000 buses in Mumbai with a 20% EBITDA margin.”

His hypothetical model for the bus industry is much like telecom, where service businesses and tower assets are held separately. Chalo will build on its service offering, emphasising B2C as well as B2B. Dubey envisages Chalo cards that are accepted across different transport options, monthly passes, and digital wallets – and, ultimately, a broader consumer portfolio.

“Chalo owns the consumer – we have pricing, travel plans, all the data,” he said. “Operators are too small to think about the customer experience. They’ve never had the mindshare, resources, technology or financial resources to think in that way.”

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• Topics
• South Asia
• Consumer
• Financials
• Technology
• Expansion
• India
• Avataar Venture Partners
• Waterbridge Ventures
• Transportation
• Financial Services
• TMT
• Trifecta
• Stride Ventures