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Photo Credit: http://photos.ibibo.com/photo/1420483/canon-d-autorickshaw-bangalore-india |
Circa - Summer of 2006. We were on our way back from Inox Adlabs, Wadala after disappointedly watching The Da Vinci Code. A little ahead of the theatre, towards the highway, we crossed what was going to be my first work place after my MBA. That got us to discussing the vagaries of my travel to Credit Analysis & Research (CARE) Ltd, which was oddly located on the Eastern Express highway, a little before Chembur. Mayuri (fondly referred to as MJ), in her usual candid manner, poped out with a suggestion: “Teja, why don’t u consider buying an autorickshaw and leasing it? That way you can travel to and fro work for free, and also earn rentals!!” Laughter burst immediately, but little did any one think of the economics of MJ’s idea.
Back to 2011 – around the first rains of the season. There exists an unusual relation between rains, potholes and autorickshaws in Mumbai. Inadvertently, with each passing rain, the number of potholes in Mumbai increases at an exponential rate, no matter how often they are repaired. Similarly, one wild shower can cause most autorickshaws to breakdown, irrespective of its age. Surprisingly, no manufacturer has paid any attention to this crucial detail – maybe in next meeting I’ll point this out to them.
In case you are wondering if I have changed my mind about the blog title from ‘economics of…’ to ‘distress of…’ - not just yet; hang on. The reason I ramble about these issues that, had it been for them, then I would not have yet completely understood the economics of autorickshaws. So, getting back to the story, somewhere around the ascent of this year’s monsoon, I was stranded on my way home in a broken-down autorickshaw. Out of curiosity (an-analytical-mind, afterall!!), I initiated a conversation with the driver as to why these autorickshaws break down. As the downpour gained momentum, our conversation drifted from the problems to the finances, and revelations happened.
Being an analyst, I simply couldn’t resist the temptation of running the numbers on an excel sheet and calculating the IRR (Read more on IRR here). While my first calculations stunned me, I later realised my folly. Nevertheless, I thought this would be an interesting post, and hence here it is. Lets first start with the assumptions: