Uphill Ride: Ather Energy's IPO Debut Confronts Deepening Losses, Market Share Battles

As Ather Energy today kicks off its initial public offering, the electric vehicle maker is set to deal with numerous headwinds that lie bare in its face. The company has pegged the issue price in the range of Rs 304-Rs 321 and investors can apply for a minimum of 46 shares and its multiples thereafter. The issue will close for bidding on April 30. On Day 1, Ather's IPO was subscribed 0.16x overall. Non-Institutional Investors (NIIs) booked 0.16x of the available shares. Retail Individual Investors (RIIs) showed stronger interest with a subscription rate of 0.63x.

At the upper price band of Rs 321, the stock is expected to be valued at a price-to-book ratio of 4.4 times, Value Research had said. The price-to-earnings ratio of Ather can't be calculated since it is “loss-making”.

According to media reports, shares of the company are available at a Rs 3 premium in the grey market today. In a time, when many newly listed company have slumped to trade at a price lower than their listing price, Ather Energy might be looking to brace for a similar impact. Its rival, Ola Electric shares closed 35.6% below its listing price on the NSE on Monday.

The two wheeler EV maker has incurred losses and net cash outflows continuously since its incorporation in 2013. It might continue to incur operating losses as it continues to invest, the company had said in its red herring prospectus filed with the SEBI. It might also not get any expected returns from such investments in the future, it further added. The company plans to use Rs 9.3bn of the net proceeds as capex for setting up a factory in Maharashtra and another Rs 7.5bn for research and development.

Ather Energy financials

Forget about getting profitable, this company's losses have been continuously increasing since FY22. Its loss before tax was Rs 3.44bn in FY22, which zoomed to Rs 10.60bn in FY24. On the other hand, its net cash position has been in a sloppy terrain since FY22, when it recorded a net cash outflow of Rs 2.28bn. Its net cash outflow rose to Rs 8.71bn in FY23, but contracted to Rs 2.68bn in FY24.

However, the company’s revenue has registered growth in its revenue between FY22-FY24. It rose over four times in the period, though FY24 revenue was recorded lower than the FY23 revenue. The future of the company’s growth depends on its ability to increase its market share. Ather cited CRISIL report saying, its market share had risen to 11.5% at FY24-end from 10.6% in FY23.

Ather Energy vs Ola Electric

According to FADA data too, the company has able to continuously increase its market share in the two wheeler space, though at a slower pace, from 0.15% in FY22 to 0.69% FY25. Its rival Ola Electric Mobility, currently has a market share of 1.8% in the two wheeler space, up from 0.1% in FY22.  

While Ather cited limited operating history as a reason for its historical performance being non-indicative of future financials, Ola Electric was incorporated four years after Ather, but booked a net cash inflow of Rs 1,081 crore at the end of the six months ended September. However, it was not the first time for Ola Electric to have had a net cash inflow, its net cash was also positive for the year ended March 2023 and March 2022, according to its IPO papers.

In the electric two wheeler space, where Ather has managed to expand its market share by only 350 basis points, Ola Electric’s market share has risen 29.4 percentage points. Apart from Ola Electric, Ather also trails Bajaj Auto and TVS Motors.

Also, Ather’s products are priced on a slightly higher range due to its smart hi-tech features. Its starting price is Rs 1.1 lakh, higher than Rs 80,000 for Ola Electric. Also, the sale of Ather Energy is highly concentrated in the southern region, which accounts for 68% of the total sales, exposing the company to state-specific risks.

While the company is on a sloppy terrain as far as market share is concerned, it is not very comfortably placed in raw materials as well. It outsources almost all the components except battery packs, and it imported 28% of its total raw materials consumed, and all those from China. In a global situation, where countries including India are looking for China+1 strategy, being completely and overly dependent on China is like a ticking bomb.

Liabilities and Cases

The Bengaluru-based company is also facing 35 tax proceedings and one criminal case against it involving an aggregate amount of Rs 1.16bn. Also, there are nine criminal, two regulatory, and 74 tax proceedings against the promoters of Ather, which involves an aggregate amount of Rs 101.44bn.

Further, as of December 31, Ather’s total borrowings zoomed almost five times to Rs 11.22bn from an year ago. The company intends to use Rs 400mn of the net proceeds from IPO for repaying some of its borrowings. 

Brokerage firms' take

Where the company’s own financials are laden with problems, brokerage houses have pressed the wounds harder by advising the investors to have a cautious approach on the IPO. SBI Securities has recommended to ‘avoid’ Ather Energy’s IPO due to the intensifying competition in the electric two-wheeler industry.

“The company is yet to achieve profitability at the EBITDA and PAT level” at a time when Honda is also coming up with an electric scooter under the popular ‘Activa’ brand, SBI Securities said in a report.

According to a Business Today report, Bernstein had advised being cautious while investing in electric two-wheeler start-ups as now original equipment manufacturers are also catching up in the India’s electric two-wheeler space, which was once dominated by start-ups.

“We do not consider any unlisted startup a safe investment, although a select few are demonstrating credible models and showing promise in carving out a niche."