CHAPTER FIVE COST VOLUME PROFIT ANALYSIS OF DELHI METRO

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.) 2002 4 14 2004 6 14 2005 6 22 2009 8 30 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 2008-2041. 111 P a g e

TABLE 5.2 FARE CHARGED Year Fare Year Fare Year Fare 2008 14.00 2019 27.36 2030 47.27 2009 19.00 2020 27.36 2031 47.27 2010 19.00 2021 32.83 2032 47.27 2011 19.00 2022 32.83 2033 56.72 2012 19.00 2023 32.83 2034 56.72 2013 22.80 2024 32.83 2035 56.72 2014 22.80 2025 39.39 2036 56.72 2015 22.80 2026 39.39 2037 68.06 2016 22.80 2027 39.39 2038 68.06 2017 27.36 2028 39.39 2039 68.06 2018 27.36 2029 47.27 2040 68.06 2041 81.67 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 2008 65.65 2019 93.33 2030 128.18 2009 68.36 2020 96.05 2031 131.86 2010 71.19 2021 98.86 2032 135.71 2011 74.15 2022 101.76 2033 139.67 2012 76.31 2023 104.74 2034 143.75 2013 78.53 2024 107.79 2035 147.95 2014 80.83 2025 110.95 2036 152.26 2015 83.18 2026 114.18 2037 156.72 2016 85.61 2027 117.52 2038 161.29 2017 88.11 2028 120.95 2039 166 2018 90.68 2029 124.48 2040 170.85 2041 175.84 112 P a g e

ANNUAL RIDERSHIP (CRORES) FIGURE 5.1 PROJECTED ANNUAL RIDERSHIP OF DELHI METRO ANNUAL RIDERSHIP OF DELHI METRO 200 180 160 140 120 100 80 60 40 20 0 2005 2010 2015 2020 2025 2030 2035 2040 2045 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 2008 328.25 2020 480.25 2032 678.55 2009 341.80 2021 494.30 2033 698.35 2010 355.95 2022 508.80 2034 718.75 2011 370.75 2023 523.70 2035 739.75 2012 381.55 2024 538.95 2036 761.30 2013 392.65 2025 554.75 2037 783.60 2014 404.15 2026 570.90 2038 806.45 2015 415.90 2027 587.60 2039 830.00 2016 428.05 2028 604.75 2040 854.25 2017 440.55 2029 622.40 2041 879.20 2018 453.40 2030 640.90 2019 466.65 2031 659.30 113 P a g e

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 2008 65.65 14.00 919.10 26.79 28.00 973.89 2009 68.36 19.00 1298.84 29.47 33.60 1361.91 2010 71.19 19.00 1352.61 32.42 40.32 1425.35 2011 74.15 19.00 1408.85 35.66 48.38 1492.89 2012 76.31 19.00 1449.89 39.22 58.06 1547.17 2013 78.53 22.80 1790.48 43.15 69.67 1903.30 2014 80.83 22.80 1842.92 47.46 83.61 1973.99 2015 83.18 22.80 1896.50 52.21 100.33 2049.04 2016 85.61 22.80 1951.91 57.43 120.39 2129.73 2017 88.11 27.36 2410.69 63.17 144.47 2618.33 2018 90.68 27.36 2481.00 69.49 173.37 2723.86 2019 93.33 27.36 2553.51 76.43 208.04 2837.99 2020 96.05 27.36 2627.93 84.08 249.65 2961.66 2021 98.86 32.83 3245.57 92.49 299.58 3637.64 2022 101.76 32.83 3340.78 101.73 359.50 3802.01 2023 104.74 32.83 3438.61 111.91 431.40 3981.92 2024 107.79 32.83 3538.75 123.10 517.68 4179.52 2025 110.95 39.39 4370.32 135.41 621.21 5126.94 2026 114.18 39.39 4497.55 148.95 745.45 5391.95 2027 117.52 39.39 4629.11 163.85 894.54 5687.50 2028 120.95 39.39 4764.22 180.23 1073.45 6017.90 2029 124.48 47.27 5884.17 198.25 1288.14 7370.57 2030 128.18 47.27 6059.07 218.08 1545.77 7822.92 2031 131.86 47.27 6233.02 239.89 1854.93 8327.83 2032 135.71 47.27 6415.01 263.87 2225.91 8904.80 2033 139.67 56.72 7922.08 290.26 2671.09 10883.44 114 P a g e

2034 143.75 56.72 8153.50 319.29 3205.31 11678.10 2035 147.95 56.72 8391.72 351.22 3846.38 12589.32 2036 152.26 56.72 8636.19 386.34 4615.65 13638.18 2037 156.72 68.06 10666.36 424.97 5538.78 16630.12 2038 161.29 68.06 10977.40 467.47 6646.54 18091.40 2039 166 68.06 11297.96 514.22 7975.84 19788.02 2040 170.85 68.06 11628.05 565.64 9571.01 21764.70 2041 175.84 81.67 14360.85 622.20 11485.22 26468.27 FIGURE 5.2 SOURCE WISE BREAK UP OF REVENUE OF DELHI METRO SOURCE-WISE BREAKUP OF REVENUE OF DELHI METRO 2000 1800 1600 1400 1200 1000 800 600 400 Traffic Real Estate External 200 0 2010 2011 2012 2013 2014 2015 2016 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 14432 115 P a g e

FIGURE 5.3 BREAK UP OF FIXED COST PHASE-WISE BREAKUP OF FIXED COST 8026 6406 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

TABLE 5.7 CALCULATION OF PROFIT Year Ridership Total Rev O& M Fixed Cost Total Cost E. Profit N. Profit 2008 65.65 973.89 328.25 14432.00 14760.25-13786.36 645.64 2009 68.36 1361.91 341.80 14432.00 14773.80-13411.89 1020.11 2010 71.19 1425.35 355.95 14432.00 14787.95-13362.60 1069.40 2011 74.15 1492.89 370.75 14432.00 14802.75-13309.86 1122.14 2012 76.31 1547.17 381.55 14432.00 14813.55-13266.38 1165.62 2013 78.53 1903.30 392.65 14432.00 14824.65-12921.35 1510.65 2014 80.83 1973.99 404.15 14432.00 14836.15-12862.16 1569.84 2015 83.18 2049.04 415.90 14432.00 14847.90-12798.86 1633.14 2016 85.61 2129.73 428.05 14432.00 14860.05-12730.32 1701.68 2017 88.11 2618.33 440.55 14432.00 14872.55-12254.22 2177.78 2018 90.68 2723.86 453.40 14432.00 14885.40-12161.54 2270.46 2019 93.33 2837.99 466.65 14432.00 14898.65-12060.66 2371.34 2020 96.05 2961.66 480.25 14432.00 14912.25-11950.59 2481.41 2021 98.86 3637.64 494.30 14432.00 14926.30-11288.66 3143.34 2022 101.76 3802.01 508.80 14432.00 14940.80-11138.79 3293.21 2023 104.74 3981.92 523.70 14432.00 14955.70-10973.78 3458.22 2024 107.79 4179.52 538.95 14432.00 14970.95-10791.43 3640.57 2025 110.95 5126.94 554.75 14432.00 14986.75-9859.81 4572.19 2026 114.18 5391.95 570.90 14432.00 15002.90-9610.95 4821.05 2027 117.52 5687.50 587.60 14432.00 15019.60-9332.10 5099.90 2028 120.95 6017.90 604.75 14432.00 15036.75-9018.85 5413.15 2029 124.48 7370.57 622.40 14432.00 15054.40-7683.83 6748.17 2030 128.18 7822.92 640.90 14432.00 15072.90-7249.98 7182.02 2031 131.86 8327.83 659.30 14432.00 15091.30-6763.47 7668.53 2032 135.71 8904.80 678.55 14432.00 15110.55-6205.75 8226.25 2033 139.67 10883.44 698.35 14432.00 15130.35-4246.91 10185.09 2034 143.75 11678.10 718.75 14432.00 15150.75-3472.65 10959.35 2035 147.95 12589.32 739.75 14432.00 15171.75-2582.43 11849.57 2036 152.26 13638.18 761.30 14432.00 15193.30-1555.12 12876.88 2037 156.72 16630.12 783.60 14432.00 15215.60 1414.52 15846.52 2038 161.29 18091.40 806.45 14432.00 15238.45 2852.95 17284.95 2039 166 19788.02 830.00 14432.00 15262.00 4526.02 18958.02 2040 170.85 21764.70 854.25 14432.00 15286.25 6478.45 20910.45 2041 175.84 26468.27 879.20 14432.00 15311.20 11157.07 25589.07 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 2037. 117 P a g e

(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.15204.97 crores. Also, at the Break-even Point Total Revenue = Total Cost = Fixed Cost + O&M Cost 15204.97 = 14432 + O&M Cost O&M Cost = 772.97 Also, according to our assumptions, O&M Cost = 5 * N 772.97 = 5 * N N = 154.59 So, Delhi Metro will have annual ridership of 154.59 crores when it reaches its Break-even Point. FIGURE 5.4 BREAK EVEN POINT OF DELHI METRO 25000 BREAK-EVEN POINT 20000 15000 10000 5000 Total Rev Total Cost 0 2000 2010 2020 2030 2040 2050 YEAR 118 P a g e