Insight On Bookmyshow.com’s Revenue and Biz Model

This is something i read on www.watblog.com and was really impressed.
Thought this would be an interesting read for all.

Bookmyshow is growing at a 40% CAGR

Per month stats

• 7.5 million page views
• 1.5 million unique visitors
• 2 lakh transactions
• 6.5 lakh tickets sold

Avg transaction per person is about 3.4 tickets.

Now lets analyze the above numbers given the fact that bookmyshow can book to 200 multiplexes with about 800 screens across India.

Even if we take the average ticket amount to be 150 rupees (remember its a multiplex). Then the rough monthly transaction value if you calculate it comes up to about 10 crore or so a month (6.5 lakh x 150 per ticket).

But they obviously isn’t their revenues as most of it goes to the theatre owner. But bookmyshow charges a convenience charge of 15 rupees per ticket which is their revenue so in effect they make about 1 crore a month in gross revenue.

Now besides for the people expenses the other direct expense to this is the transaction fee charged by payment gateways which comes up to about 3 rupees. Hence one can say that their net revenue would be about 75 lakhs a month. That's about 9 crores a year.

Bookmyshow is one of the successes of e-commerce in India (besides for the obvious irctc). Even though the numbers are low they have gained huge market share as an aggregator and also because of the fact that they had pre-existing relationships with theatre owners due to their ERP solutions for movie tickets as Bigtree entertainment.

All in all this does suggest that there is immense scope in e-commerce provided you have the right business model and execution strategy in place.

How to check your financial health: II

Liquidity ratio

By now, you ought to be convinced about the importance of liquidity, that is, ready cash availability. It forms an integral part of your asset allocation. You might argue that you already have an emergency fund to meet any liquidity needs that might arise but the million-dollar question is whether it just ends with maintaining an emergency fund?

Every individual is different, so is her/his requirement. Just as Jayant Punjabi (as we read in the first part) faced the problem of immediate cash, a similar problem was faced by Nilesh Pujaria, a 32-year-old businessman, but on a much larger magnitude.

He incurred heavy losses in one of his business ventures and had to borrow a huge amount (Rs 20 lakh to be precise) from moneylenders. Business or no business loan has to be paid back. He had huge amounts of assets but all his investments were in the form of real estate.

Although property is regarded as one of the best form of investments the problem arises when one tries to sell this property. When you need to convert the property to cash, it sure is a very difficult proposition. The proverb 'do not put all your eggs in one basket' is apt here.

To repay the moneylenders Nilesh had to borrow additional amounts of money and then borrow more to repay this newly acquired loan. This led Nilesh to get sucked into a vicious loop of debt.

At this point you won't be wrong if you are wondering what's new about the liquidity ratio when I have already talked about emergency fund or contingency planning in the first part.

Agreed, emergency fund is a very handy tool, especially since it is built taking into consideration all the mandatory expenses. But what if the magnitude of the calamity is much larger such as the one faced by Nilesh? We have to be prepared for all sorts of calamities big or small.

Here is where the importance of liquidity in the portfolio comes into picture.

But the question here is how are you going to do this? Don't worry. You won't need to set up one more fund. All you need to do is check the liquidity of your portfolio, that is, how quickly can you convert your assets into cash form.

How liquid are you?

Liquidity ratio = Liquid assets / Net worth

Where liquid assets comprises of:

• Savings account
• Bank fixed deposit
• Liquid funds
• Cash in hand
• Equities (shares)
• All open-ended mutual funds

And any other type of assets, which can be liquidated within three to four working days!

The top four assets are also termed as cash or near-cash assets as you must have used them to form the emergency or contingency fund. You might argue that equities and all open-ended funds can also be termed in cash or near-cash assets but these investments are your assets, which you will only use in case of extreme emergency.

They are investments you have kept aside to achieve your future goals (like for your child's education or marriage) and not to liquidate before you achieve these goals or unless there is absolutely no other source of arranging the money when emergencies arise.

Net worth would include your total assets less total liabilities. It shows what you are worth after paying off all your liabilities.

Total assets would include:

• Cash or near cash assets
• All your invested assets, that is, all your mutual funds, provident funds, properties, chit funds, shares, bonds, and any other invested assets
• Your house
• Jewellery
• Car/ scooter
• Any other assets which an individual will have

Total liabilities would include:

• Short term liabilities like your credit cards payments
• Long term liabilities like home loan, car loan, and any other loan taken from a bank or a private money lender

Assuming your liquid assets total up to Rs 5 lakh and your net worth is Rs One crore then your liquidity ratio would be equal to 500,000 / 100,00,000 = 5 per cent. That is 5 per cent of your portfolio comprises of assets which could be sold off and converted into cash at short notice.

But is it good?

No. The ideal ratio is 15 per cent. In Nilesh's case it would be Rs 15 lakh (that is 15 per cent of Rs One crore). However, this amount would still fall short of meeting his requirement of Rs 20 lakh.

What this tells you is higher liquidity ratio comes in handy when you expect to incur huge outgoes like in Nilesh's case. But then the drawback of having a higher liquidity ratio is that a big part of your assets lie idle (cash, car) or remain unproductive (house) earning you no return or only a nominal return.

What does it signify?

At least 15 percent of your portfolio should comprise of liquid assets, that is, you should be able to sell them off at a short notice and convert it into cash! That much liquidity in a portfolio is a must. This is the least you should have in case of an emergency.

By now you must been convinced not only to have an emergency fund but also to have an adequate amount of liquidity in your overall portfolio as determined by the example above.

Hence, liquidity should be an important feature while building your portfolio. Once you have checked the liquidity in the portfolio as shown above we could move ahead with the third part of our series that would explain savings ratio next week.

How to check your financial health: I

The main intention of this series is to explain to you the basics of personal financial ratio and its analyses. This will help you keep a tab on your personal finances. Unlike in company ratio analyses here you do not have to be a financial wizard to understand personal finance ratios.

Now what are personal finance ratios, you would ask.

As the name suggests these ratios deal with your personal wealth, assets or cash in hand. All the more they are extremely easy to understand. Just plain discipline of maintaining a budget and statement of assets (what you earn or have) and liabilities (what you spend or what you owe to others) will help you check your financial health.

Here is a simple guide which will help you to understand these ratios in detail.

Just as financial ratios help you in evaluating a company's financial position, personal financial ratio analyses helps you evaluate your financial position as these ratios help you track changes in your financial health.

Let us take a look as to how these ratios can help you beginning with basic solvency ratio today.

Personal financial ratios

There are six ratios which help you to do the analyses of your finances and determine your financial health. They are:

1. Basic solvency ratio (to be followed by the ratios mentioned below as five separate articles)
2. Liquidity ratio
3. Savings ratio
4. Debt to asset ratio
5. Solvency ratio and
6. Net invested assets to net worth

Basic solvency ratio

This ratio indicates your ability to meet monthly expenses in case of any emergency or catastrophe. It is calculated by dividing the near-term cash you have with your monthly expenses.

Basic solvency ratio = Cash / Monthly expenses (this ratio is not mentioned in percentage)

You can also call it as emergency or contingency planning ratio. This ratio helps you prepare for unforeseen problems.

Take for example, Jayant Punjabi, a 30-year-old businessman whose wife underwent an emergency gall bladder surgery at a leading city hospital last year. Despite the fact that they had adequate mediclaim to take care of exactly such an eventuality, due to some administrative problems on the day of discharge, Jayant was informed that he would have to pay in cash as the bill could not be settled as cashless.

Jayant had a tough time arranging the funds on an emergency basis. He was fortunate to have good friends and relatives who lent him the money. But not everybody have such great friends or relatives to bail them out at such short notice. I am sure no one wants to be in the same shoes as Jayant's.

Hence we have to be prepared for such situation. How? By maintaining an emergency fund!

Let's analyse how much money is enough. Here is where basic solvency ratio comes handy.

Near-term cash

The numerator of the basic solvency ratio formula, cash (near cash), would generally comprise of the following heads:

• Savings account
• Bank fixed deposits
• Liquid funds
• Cash in hand

The above components are liquid assets which come handy at the first possible hint of financial trouble. Liquid funds can be redeemed immediately. Same goes for fixed deposits as they can be broken and liquidated immediately in case of an emergency.

Monthly expenses

Only the mandatory fixed and variable expenses are taken here for simplicity. Any entertainment expenditure should not be taken as these expenses if need can be avoided.

Mandatory fixed expenses include the money you pay for EPF/ PPF contribution, loan EMIs, insurance premium, professional license fees and rent.

Mandatory variable expenses, on the other hand, comprise of food, transportation, clothing/ personal care, medical care, utilities, education expenses and miscellaneous compulsory expenses (the above expenses can vary depending on individuals).

The total of the above divided by 12 (that is 12 months) helps you arrive at the monthly average as your variable expenditure may vary. Assuming that you have cash of Rs 60,000 and average monthly expenses of Rs 25,000 your basic solvency ratio would work out to: 60,000 / 25,000 = 2.4.

But is it good?

Not quiet. An Ideal ratio should come to 3.

What does the number 3 signify?

It means that you must have money equivalent to or at least three months of your mandatory expenses in a contingency or emergency fund.

Why just 3 months? This is because research shows that 3 months time is good enough to come out of any type of financial emergency. As people near their retirement age, they should make sure that this fund is kept up to 6 months of their mandatory expenses. The fund should be divided and kept in the form of cash, fixed deposit, or liquid fund.

This is the first part of the series on personal financial ratios. This is also the building block of a healthy financial situation. Hence first and foremost do analyses of your basic solvency ratio to check your emergency fund (especially in the current economic scenario) and once this is in place, we can move ahead to the next level and next ratio.