[What The Financials] Ola’s Path To Profitability, IPO Blocked By Losses In Food, Vehicle Leasing

The Indian startup ecosystem is home to over 30 unicorns today and only a few of them have made it to the IPO stage, crossing the hurdle of turning cash-burn businesses into profitable units. Hence, when an Indian unicorn startup starts to get serious about a public listing, the company’s profitability comes under the scanner.

Bengaluru-headquartered Ola has been talking about going public for a while and this year, it has taken several steps towards the same. For instance, the company has set up a ARK Ola Pre IPO Fund, which appears to be a special purpose vehicle, set up to support Ola’s IPO plans.

Further, the company was expected to churn out profits for the financial year ending March 31, 2019 as in its February 2017 valuation report, Ola was projected to report a profit of about INR 1,170 Cr in FY19, with a free cash flow of INR 698 Cr.

However, this hasn’t been the case. According to the company filings with the Ministry of Corporate Affairs, Ola’s parent ANI Technologies posted a loss of INR 2592.93 Cr on a consolidated level. On a positive note, this is an improvement of 8% from the loss of INR 2842.26 Cr in FY18.

On a standalone basis for its Indian business, the company has cut down losses by nearly 56% down to INR 1160.27 Cr in FY19 from INR 2676.7 Cr in FY18.

However, sources close to Ola told Inc42 that the company is optimistic about cutting down losses further and aims to go public in the next 18-24 months. For this, the company is looking to lay off around 7-8% of its 4500+ employees, the source told us. Further, many more employees will be transitioned to other parts of Ola’s empire — Ola Electric, Ola Foods, Ola Financial Services etc, the source added.

Understanding Ola’s Sources Of Revenue

In simple terms, Ola earns revenue through its core mobility business. The company has been profitable on every ride since July 2018. Hence, a look at its revenue breakdown clearly shows a dependency on the mobility business.

In terms of standalone revenue, Ola earned INR 2155.21 Cr in FY19, a 15.8% Y-o-Y increase from INR 1860.61 Cr in FY18. Notably, the company’s operational income makes up 87.4% of its total income for FY19.

Examining the consolidated level of revenues, it is to be noted that in FY19, Ola earned INR 2783.6 Cr, as against INR 2222.62 Cr in FY18, 25.24% Y-o-Y increase. A deeper look at the company’s revenues shows that it earned INR 58.57 Cr in FY19 from data charges and INR 27.21 Cr from subscription charges.

Further, narrowing it down to segments i.e. transportation, food, wallet, leasing and others, the company has improved here, however, none of them are profitable on the larger level.

For instance, in FY19, the company earned primary revenue of INR 1911.4 Cr from transportation, however, the loss from the segment was INR 1623.68 Cr. Similarly, in the food business, the company’s revenue increased to INR 81.3 Cr but this translated into a loss of INR 709.28 Cr for the year.

In terms of plans to grow revenues, Ola believes that income is steadily increasing, the source added. Ola is positive about the growth potential of bike hailing, which, the source said, has scaled fast to 200 cities even though ticket size is small.

We were also told that Ola is looking to build a strategic supply of vehicles with Ola Fleet, growing internationally as well. Ola is seeing international ticket size nearly 5-7X of the Indian business, the source added.

Identifying Major Expenses For Ola

On a larger level, the company’s expenses are across employee benefits, advertising and operational cost for the vehicles. Narrowing it down on a standalone basis, the company spent INR 495.69 Cr on employee benefits for FY19, as against INR 413.83 Cr in FY18.

Ola spent INR 382.25 Cr on advertising and promotional expenses, nearly double of INR 153.8 Cr in FY18. Another major expense was on information technology, which came to INR 239.16 Cr in FY19, from INR 226.97 Cr in FY18.

On a consolidated level, the company spent the largest on employee benefits — INR 574.67 Cr in FY19 from INR 755.51 Cr in FY18. The substantial decrease can be attributed to the multiple rounds of layoffs in the year.

Interestingly, the company also narrowed down its advertising and promotional expenses to INR 406.2 Cr in FY19 from INR 469.02 Cr in FY18.

Our source said that the company’s expenses going forward will mostly be towards other businesses and not mobility i.e. its core business. Ola is also looking to invest heavily towards technology such as artificial intelligence, machine learning models for automation and for its new business verticals, the source added.