New Delhi, May 4 Ratings agency ICRA Limited has downgraded the debt rating of Ola Electric Mobility Limited's automotive unit due to slower-than-expected sales and a challenging road to profitability.
The agency lowered the rating of four debt instruments of Ola Electric Technologies Private Limited from 'A' to 'BBB+' and maintained a negative outlook, citing the company’s delayed sales growth in electric two-wheelers.
ICRA contended that Ola Electric has struggled to ramp up its electric two-wheeler sales, leading to higher cash burn and pushing back the company's path to profitability.
As a result, the company may need to raise additional funds in the next 12 to 24 months as its existing cash reserves continue to deplete.
In April, Ola Electric's monthly sales hit their lowest level since the company went public in August last year.
Sales dropped by 42 per cent year-on-year (YoY) to just 19,709 units. Over the same period, the company’s market share also fell sharply by 31 percentage points, down to 21 per cent.
This slowdown contrasts with the performance of competitors like Bajaj Auto, TVS Motor Co., and Ather Energy, whose electric two-wheeler sales grew by 151 per cent, 152 per cent, and 31 per cent, respectively, in the same time frame.
ICRA highlighted the intensifying competition in the electric two-wheeler market.
Established players like Bajaj Auto and TVS Motor Co. have significantly increased their market share, capturing around 40 per cent of the market, up from just 7 per cent in FY22.
This growing competition has put further pressure on Ola Electric’s sales. The slower sales and declining market share are expected to impact the company’s earnings.
ICRA forecasts a loss of Rs 1,900-2,000 crore for Ola Electric in FY25, a larger loss compared to Rs 1,600 crore in FY24.
However, the agency believes profitability pressures may ease in FY26 and beyond, with new product launches, such as a third-generation scooter and a new motorcycle, expected to boost revenues.
These new products are based on a common platform, which could accelerate growth and profitability.
Ola Electric is also expanding its sales network, with the number of sales touchpoints expected to grow to 4,000 by March 2025, up from just 900 in March 2024.
The company is also ramping up its service infrastructure to address past service issues, which should help improve customer satisfaction.
However, despite these efforts, the company faces significant challenges. Ola Electric has encountered difficulties with its rapid expansion.
Many of its stores were operating without proper trade certificates, and customer complaints related to service and product quality are still frequently appearing on social media.
Additionally, the company has had to delay the delivery of its Ola Roadster X motorcycle for the second time in two months.
Furthermore, the company is facing scrutiny from multiple central ministries and India’s market regulator, adding to the pressure.
However, ICRA warns that if sales continue to fall short, Ola Electric may be forced to explore further fundraising options, which would introduce funding risks.
Nevertheless, the agency believes that the company has sufficient capacity to raise additional funds, if needed.
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