Shifting gears: Why bus aggregator Redbus is entering the EV financing space

Mumbai: MakeMyTrip-owned Redbus is expanding its lending business. Traditionally a bus aggregator, Redbus recently began offering working capital loans to bus operators and is now eyeing the electric vehicle (EV) financing space.

“Some conversations are on, but it is something that will take maybe another three to six months for this to become commercially available," Prakash Sangam, CEO, told Mint in an interview.

Founded in 2006, Redbus connects bus operators with travellers through its online platform, providing services like ticket booking, schedule management, and real-time tracking. Travel-tech unicorn MakeMyTrip acquired Redbus as part of the former’s acquisition of Ibibo group in 2016.

Redbus has partnered with non-banking financial institutions (NBFCs) to offer working capital loans to bus operators in the June quarter.

“We are able to provide that information, of course, on the consent of the operator, which gives some confidence to the lending partner," he said.

While the offering is expected to scale up quickly, it may not contribute significantly to the business as the ticket size is smaller, according to Sangam.

“We are lending for working capital loans not for revenues but for the ecosystem development to happen. Capital is a constraint for growth of our supply, so we can make supply grow faster by giving them access to easier and cheaper working capital," he said.

From a lending standpoint, the larger opportunity for the company to grow revenues is in electric vehicles.

“Today, there is no problem getting financing for buses. But the moment the switchover happens to EVs, there is a lack of models in terms of how to lend to EVs, because none of the lenders know the economics behind an EV. They don't know the residual value of an EV. There is a lot of reluctance when it comes to lending to EVs," said Sangam.

Electric vehicles also require much higher capex. Besides, there are a lot of electric vehicles in intra-city travel because they are all subsidy-backed. Redbus views this as an opportunity to grow.

"We feel that naturally the EV segment penetration will be higher in intercity and that the market-making is something that we feel is an opportunity for us to play in," he said.

Size of the opportunity

“There are 35,000 buses today in the Redbus network and the market is expanding at a rate of about 10% every year. Every year about 3,000-3,500 buses are being added and out of the 35,000 buses that we have, less than 300 buses are electric today," Sangam said.

“Even if you were to say 10% of the market is getting electric, you are talking about 3,500 buses and the EV bus system doesn't exist. We think each bus is about a couple of crores. It is a billion-dollar opportunity there just with 10% of the market," he said.

A report by Niti Aayog and Rocky Mountain Institute projected the size of the annual loan market for EVs to reach ₹3.7 trillion in 2030. “The quantum of capital and finance required for India’s EV future is considerable. Between 2020 and 2030, the estimated cumulative capital cost of the country’s EV transition is ₹19.7 trillion across vehicles, charging stations, and batteries," it said.

EV purchases face significant challenges, including high upfront costs, limited financing options, and concerns about battery life and resale value, said Anurag Singh, managing director at Primus Partners, a management consulting firm.

“An industry stalwart like Redbus entering this space through EV lending could provide tailored financial solutions, streamline the lending process, and offer customers better access to affordable electric vehicle options," Singh said

“Ultimately this can help accelerate the adoption of clean energy transport and open up a fresh revenue stream for Redbus in a promising field," he added.

The company, which has over 75% market share in the online bus ticket booking space and about a 35% share in the overall market, is also bullish on tier-2 and tier-3 towns to drive growth.

“Non-metros are already quite large and they are growing fast. Almost about two-thirds of our marketing budgets are spent towards generating demand in these towns," said Sangam.

Globally, it is present in countries, including Singapore, Malaysia, Indonesia, Peru, and Colombia and has recently entered Vietnam and Cambodia.

International contributes to about 11% of the company’s overall revenue and the segment is growing rapidly, according to Sangam. The plan is to bring it to about 25-30% over the next three-four years.

In FY24, Redbus reported a gross merchandise value (GMV) of over $1 billion and revenues of $100-103 million, with a growth rate in the mid-twenties. The company plans to maintain this growth trajectory in FY25.

The two-decade-old company competes with Yatra and Abhibus, among others.