Ola’s House Of Unicorns
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Dear reader,?
Bhavish Aggarwal is in the thick of it. From Ola to Ola Electric and now Krutrim — the much-celebrated founder is now on the verge of taking his first startup public,Ola Electric.
After the public offering and a listing later this week, Ola Electric will also become the first auto sector company to list on the exchanges in two decades. While Aggarwal will take perhaps a few moments or a day or two to bask in the IPO limelight, his focus is likely to shift very soon from Ola Electric to Ola, Krutrim and the company’s new verticals.?
While the attention is unsurprisingly on Ola Electric currently, this past week we turned the spotlight on other potential growth areas for Ola.?
Despite the optimism around these verticals, there are still quite a lot of questions around Ola’s ride-hailing business and whether Krutrim can indeed take on AI tech giants . So let’s take a closer look at Bhavish Aggarwal’s house of unicorns.?
What About The Original Ola??
It’s hard to talk about Ola without talking about the original Ola. These days, EVs and AI are the buzzwords, but when Ola started out in 2010-11, ride-hailing was the in-thing.?
In that sense, Aggarwal has always had a penchant for sectors that were grabbing the headlines. Before we go into EVs and AI, let’s see how Ola capitalised on the ride-hailing opportunity, but seemingly has remained stagnant over many years.?
The delightful experience of early adopters created a magical aura around ride hailing, and particularly Uber, which launched in 2009, and Ola wanted to bring the same experience to India. The first three to five years saw Ola acquire users by the millions fuelled by funding from Tiger Global, Sequoia (now Peak XV) and SoftBank. Ola was a darling of the Indian VC ecosystem, but the challenges in ride-hailing are still largely the same, more than a decade later.?
Ola has raised more than $5 Bn in the past 12 years, one of the most heavily funded companies in the ecosystem.?
The startup competed with Uber on price in the early days, but once discounts disappeared and driver incentives shrank, the complaints have continued to rise. The overall ride-hailing experience has continued to slide over the years, and only recently has competition once again forced Ola to review key aspects of the ride-hailing operations.?
The New Rides In Town
The likes of newly-crowned unicorn Rapido, BluSmart, InDrive, Namma Yatri and others have accumulated capital and looked to usurp Uber and Ola.?
Let’s take Rapido as an example. The startup found a go-to-market route through bike taxis, where it claims to have more than 60% of the market. In the last year, Rapido has also entered cab hailing and expanded auto rickshaw ride too. The company entered the unicorn club earlier this week with a $120 Mn round , which sets it up to scale up in the months to come.?
And Rapido is growing quite rapidly. Ahead of FY24, it claimed to be on track to reach INR 600 Cr in revenue against INR 450 Cr in FY23. Ola’s ride-hailing business brought in INR 1,987 Cr as revenue in FY23, while Uber India recorded INR 679 Cr as income from ride-hailing.
One could say that Rapido has grown faster.?
Ola’s ride-hailing revenue in FY23 is around FY20 levels (March 2020) when it earned INR 2,096.1 Cr. The pandemic years are largely to blame for this. Rapido on the other hand, only suffered a minor dent in revenue during the pandemic years, thanks to its relatively low revenue base. Rapido has seen 10X growth between FY20 and FY23 (INR 42 Cr to INR 450 Cr), as Ola went through a slump.?
To fight the revenue problem, Ola launched the Prime Plus tier for drivers and riders. But as we argued last year, it’s not the greatest of propositions for either side of the Ola business.?
After halving its losses to INR 772 Cr in FY23, Ola parent ANI Technologies would be hoping to cut this further. Firstly, it laid off 10% of its workforce or close to 200 employees in late April 2024, and added new revenue streams through ONDC and food delivery.?
It also cut tech costs by moving away from Microsoft Azure and Google Maps. The latter, Aggarwal claimed, would result in savings of INR 100 Cr per year. While the migration from Azure and Google Maps has been framed as global giants vs homegrown tech debate, it makes most sense from a cost-saving point of view.?
But ride-hailing as a proposition is also changing. Electric vehicles will soon become the norm if state and the central governments keep up with their green mobility targets. Ola has been slow to get on the green mobility curve.?
The hope in the long term is that Ola’s potential electric car business will feed the supply chain for EV-hailing. But the electric car plans are being put on hold for now, and Ola is largely looking at EV two-wheelers on the ride-hailing side.?
As we argued in March this year, Ola’s green mobility journey has been stop-start. Aggarwal has to balance costs of running the ride-hailing business with the investments needed to move towards EVs in the next few years. Even if Ola turns profitable by FY25 (if we assume generously), can profits be sustained through this transition???
A Brief Word About AI & Krutrim
Ride-hailing might yet prove to be a profitable business in the next couple of years, but Aggarwal will also need to look at Ola Electric and Krutrim from the point of view of profitability.?
It’s too early to look at Krutrim given that it’s only just started rolling out products and solutions, but being a unicorn and the current focal point for new products (cloud and maps), we believe that Krutrim is being seen as the lynchpin by Aggarwal & Co.?
For instance, GPUs for AI cloud computing will come into play for Ola Maps and Ola Cabs in the future. AI-driven calculations will be critical for battery manufacturing and testing. In turn, Ola Maps will be a key part of food delivery and ride-hailing and EVs.?
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If we squint hard enough, we can see this flywheel taking shape, but of course all of this hinges on how well Ola can scale it up and whether it has the endurance that AI will take.?
While Krutrim could launch its language models, chatbots and translation models as standalone products, the real big money is in becoming a provider of AI tools and computing to enterprises. It’s also why Aggarwal is wooing developers with free access to the Krutrim Cloud and Ola Maps products to start with.??
However, profitability is a distant prospect because in many ways, Krutrim is currently in the proof of concept stage, looking to demonstrate that this approach can work and Ola and Ola Electric are the testbeds.?
When it comes to profits, OpenAI is struggling to get there, so is Google and Meta too. The capex needed for scaled-up AI platforms is massive as evidenced by OpenAI. The AI giant is expected to make between $3.5 Bn to $4.5 Bn in revenue in 2024, as per The Information , but it could finish the year with a loss of over $5 Bn, thanks to a staggering $8.5 Bn in operating costs alone.?
OpenAI is likely to raise more funds by next year, so Krutrim’s fundraising spree is just beginning, if anything. In other words, this is going to take a long time, especially if the idea is to feed the appetite of the Indian market, where scaling up revenue will be slower than OpenAI or Google or Meta.?
Ola Electric Tosses The IPO Coin
Of course, if you ask Aggarwal about Ola and Krutrim right now, you may not get a response at all, because all eyes are on Ola Electric. We have a few interesting observations on Ola Electric’s business, which we have captured in the past in our coverage, but more of that will be coming in the next few days.?
While it’s undoubtedly a huge landmark for Ola Electric, the company has lost some of the bullishness from earlier this year when it filed its draft red herring prospectus.?
For one, the valuation in the final prospectus has been slashed to around $4 Bn from $5.4 Bn (over 25% lower) and investors such as Ab Initio Capital, Alpine Opportunity Fund, and Tekne Private Ventures will be selling shares in the IPO at a loss over the acquisition price.
Of course, these investors might well make up for these losses in the long run with their remaining holdings, but the IPO is not going to generate the same kind of returns for all investors.??
In fact, just about 10% of the IPO involves existing shareholders selling their stake, which shows just how early the IPO is for some of these investors. It’s no surprise that many analysts believe the Ola Electric IPO is coming a little too soon, and perhaps is banking on the gap in the auto sector for new-age businesses.
The company continued to post losses at the operating level, along with negative cash flow from operations during FY24. It has also borrowed heavily since March, securing more than INR 3,000 Cr through loans, with just INR 1,700 Cr in cash and bank balances (as of March 2024).?
This level of borrowing indicates that perhaps Ola was not confident of raising enough funding through the public markets at the high valuation that it was touting in January 2024. The company is looking to utilise over 15% of the IPO proceeds on debt repayments for the core Ola Electric Technologies business.?
Ola Electric may indeed raise enough money to plug in whatever funding gaps it has through this IPO, but retaining the faith of investors and shareholders will need a consistent effort towards reducing the debt exposure and profitability.?
Ola Electric seems to be doing the hard work of the IPO before it has cleared all doubts with regards to how it will scale up profitably. This sets it apart from many of the profitable startups that public investors have seen IPO this year, and not in a good way.?
So is Aggarwal jumping the gun with the Ola Electric IPO, the first from his house of unicorns?
30 Startups To Watch: The July 2024 Edition
Every month we pick 30 of the hottest and most innovative startups that are making waves in the startup ecosystem. And our list this month is testament that many of these early-stage startups don’t need bags of funding to live up to their potential.?
In the July 2024 edition, just eight of the 30 startups have raised more than $1 Mn in funding, while a whopping 16 early stage startups raised less than $1 Mn or just about $1 Mn. Plus, a significant portion (20%) of the list remains bootstrapped.?
Sunday Roundup: The D2C Summit, Q1 Results & More
That’s all for this week. We’ll be back next Sunday with another edition of the Weekly Brief.?
Till then,
Nikhil Subramaniam
Equity Research Analyst
3 个月Good Detailing