CHAPTER FIVE COST VOLUME PROFIT ANALYSIS OF DELHI METRO

Transcription

1 CHAPTER FIVE COST VOLUME PROFIT ANALYSIS OF DELHI METRO Delhi metro as a commercial organization operates with the objective of maximizing the profit. So, it is required to consider the above before proceeding with any financial evaluation of a project. The financial capital cost of DM represents the time stream of investment made by it during its lifetime. The investment expenditures made by the project in one of the years during its life time constitutes the purchase of capital goods, cost of acquisition of land and material inputs for project construction. The operation and maintenance (O&M) cost of the project constitutes the annual expenditure incurred on energy, material inputs for maintenance and payments made to skilled and unskilled labour. The financial benefits from the Metro are the traffic earnings and the revenues from real estate, consultancy and external projects. The analysis has been done on the basis of certain assumptions to calculate traffic earnings, total revenue and O&M cost. Also, annual ridership has been estimated on the basis of RITES report and actual average ridership of Delhi Metro during the years. Fares have been estimated on the basis of the fare charged by the Delhi Metro. TABLE 5.1 FARE SENSTIVITY OF RIDERSHIP ON THE METRO YEAR MINIMUM FARE (Rs.) MAXIMUM FARE (Rs.) So, the fare is calculated as the average of the minimum and maximum fare during the year. Fare price is changed after every period of four years by 20%. The period for the study is from P a g e

2 TABLE 5.2 FARE CHARGED Year Fare Year Fare Year Fare Annual ridership is estimated on the basis of RITES report and actual ridership during the years. In RITES report the annual ridership almost 50% of the actual ridership. So, the estimated ridership is 50% of ridership in RITES report. TABLE 5.3 ANNUAL RIDERSHIP Year Ridership Year Ridership Year Ridership P a g e

3 ANNUAL RIDERSHIP (CRORES) FIGURE 5.1 PROJECTED ANNUAL RIDERSHIP OF DELHI METRO ANNUAL RIDERSHIP OF DELHI METRO YEAR Operation and maintenance cost (O&M) cost is the variable cost which changes or increases with the increase in the units of the product. In this study the units are the annual ridership. So, as the ridership increases the (O&M) cost also increases. Now, as the ridership is increasing the O&M cost is increasing by 5 times of the annual ridership. That is, O&M = 5N Where, N = annual ridership TABLE 5.4 OPERATIONS & MAINTENANCE COST Year O& M Year O& M Year O& M P a g e

4 Total revenue is estimated as revenue from traffic earnings, real estate, external and consultancy projects. Revenue from traffic earnings is the product of the annual ridership and fare charged during the particular year. That is, traffic earnings = Annual ridership * Fare Assumptions: 1. The revenue from rental income is only included in revenue from real estate. The growth rate of real estate is 10% per annum. 2. The growth rate of consultancy and external projects is 20% per annum. TABLE 5.5 TOTAL REVENUE EARNED Year Ridership Fare Traffic Real Estate External Total Rev P a g e

5 FIGURE 5.2 SOURCE WISE BREAK UP OF REVENUE OF DELHI METRO SOURCE-WISE BREAKUP OF REVENUE OF DELHI METRO Traffic Real Estate External Fixed cost is taken as the capital cost (land cost, construction cost, rolling stock, etc.) TABLE 5.6 FIXED COST INCURRED Phases Capital investment (crores) Phase I 6406 Phase II 8026 Total fixed cost P a g e

6 FIGURE 5.3 BREAK UP OF FIXED COST PHASE-WISE BREAKUP OF FIXED COST Phase I Phase II Now, each information regarding the calculation of break-even point is given and estimated. Break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has broken even. Therefore has not made an economic profit or a loss. It helps to provide a dynamic view of the relationships between sales, costs and profits. Total cost = Fixed cost + Variable cost Fixed cost = Capital Cost (Land cost, construction cost, rolling stock, etc.) Variable cost = Operation & Maintenance cost 116 P a g e

7 TABLE 5.7 CALCULATION OF PROFIT Year Ridership Total Rev O& M Fixed Cost Total Cost E. Profit N. Profit Economic Profit: Total revenue Total cost Normal Profit: The yearly profit earned after the adjustment made towards the variable costs. Though Delhi Metro makes the profit every year, it will break-even in the year P a g e

8 (IN CRORES) By linearly extrapolating the data between 2036 and 2037, we find out that at the Break-even Point, total revenue will be Rs crores. Also, at the Break-even Point Total Revenue = Total Cost = Fixed Cost + O&M Cost = O&M Cost O&M Cost = Also, according to our assumptions, O&M Cost = 5 * N = 5 * N N = So, Delhi Metro will have annual ridership of crores when it reaches its Break-even Point. FIGURE 5.4 BREAK EVEN POINT OF DELHI METRO BREAK-EVEN POINT Total Rev Total Cost YEAR 118 P a g e