Ather Energy’s IPO exposes staggering Rs 1,000 crore loss – is the electric scooter manufacturer in trouble?

Ather Energy, one of India’s leading electric scooter manufacturers, has filed for an Initial Public Offering (IPO) to raise Rs 3,100 crore. While this news has generated excitement among investors, the company’s financial health reveals a troubling picture. In the fiscal year 2023-24 (FY24), Ather Energy reported losses that surged to Rs 1,059.7 crore, up from Rs 864.5 crore in the previous year, even as its revenue from operations remained nearly flat at Rs 1,754 crore. This has raised serious questions about its path to profitability and the sustainability of its ambitious expansion plans.

Ather Energy’s Soaring Losses Amid Stagnant Revenue

Ather Energy’s decision to go public with an IPO comes at a time when its financial performance is under scrutiny. According to the company’s draft red herring prospectus filed with the Securities and Exchange Board of India (SEBI), the funds raised will be used for capital expenditure, including the establishment of a new electric two-wheeler manufacturing facility in Maharashtra. The company also aims to use the proceeds for research and development, debt repayment, and general corporate purposes.

However, the IPO filing has exposed the steep rise in Ather Energy’s losses. The company’s net loss of Rs 1,059.7 crore in FY24 marks a significant 22% increase over the previous year. This comes even as revenue from operations remained largely unchanged, indicating that the company is burning through cash without corresponding growth in sales. Ather Energy’s steep financial losses are a red flag for potential investors, who may question the sustainability of its business model in the highly competitive electric vehicle market.

Funding Strategy: Capital Expenditure and Investor Exit

Ather Energy’s IPO includes a fresh issue of shares worth Rs 3,100 crore and an Offer for Sale (OFS) by existing investors and promoters, including co-founders Tarun Sanjay Mehta and Swapnil Babanlal Jain. Prominent shareholders such as Caladium Investment Pte Ltd, National Investment and Infrastructure Fund II, and 3State Ventures Pte. Ltd are also looking to partially exit their investments. Axis Capital and JM Financial have been appointed as the lead managers for the IPO, while Link Intime India Pvt Ltd will act as the registrar.

The company is planning to allocate a substantial portion of the IPO proceeds to build a new manufacturing plant in Maharashtra. Ather Energy has a facility in Hosur, Tamil Nadu, but is now looking to tap into the rapidly growing electric vehicle market in the Chhatrapati Sambhaji Nagar district of Maharashtra, which boasts a high penetration of electric two-wheelers and a robust automotive supplier base.

Can Ather Energy Justify Its Valuation?

Market analysts have expressed concerns about Ather Energy’s rising losses and whether the company can justify its valuation in the IPO. While the electric vehicle sector is booming in India, the road to profitability is fraught with challenges. Ather Energy needs to show substantial growth in sales and better control over operational expenses. While its expansion plans are promising, the company must demonstrate a clear path to profitability to convince investors.

The competition in the Indian electric vehicle market is intensifying, with Ola Electric, TVS Motors, and Hero Electric all vying for dominance. Ather Energy’s strategy to expand its manufacturing capabilities and continue R&D investments is crucial, but it must be coupled with efforts to increase market penetration and improve margins.

The Road Ahead: Opportunities and Challenges

Ather Energy’s journey from being a start-up to becoming a unicorn in the electric vehicle space was marked by rapid growth and innovation. However, the company now faces the dual challenge of maintaining investor confidence while working towards profitability. The upcoming IPO will be a critical test of Ather Energy’s ability to attract investors and raise the necessary capital to fuel its expansion plans.

While the company’s focus on manufacturing capacity and new product development is commendable, its mounting losses and stagnant revenue raise significant concerns. For Ather Energy to succeed, it must leverage its IPO proceeds effectively to scale operations, optimize costs, and capture a larger market share in the competitive EV sector.