Ather Energy IPO likely to be launched in first half of 2025; Key details

Ather to use the proceeds from issue to set up a new factory near Aurangabad.

The initial public offer (IPO) of electric two-wheeler manufacturer Ather Energy is likely to be launched in the first half of 2025. The company has filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) to raise funds through a public issue.

“The IPO is expected to launch in the first half of 2025,” said an investment banker familiar with the matter on the condition of anonymity.

The IPO will consist of a fresh equity issuance worth Rs 3,100 crore and an offer for sale (OFS) of 2.2 crore equity shares by promoters and investors, as per the DRHP.

Key Highlights of the IPO:

Offer for Sale (OFS) and Purpose: The IPO includes an OFS of up to 2.2 crore shares by investors and promoters. Promoters Tarun Sanjay Mehta and Swapnil Babanlal Jain will offload 1 million equity shares. The IPO will also provide an exit opportunity for early investors, including Caladium Investment Pte Ltd, Internet Fund III Pte Ltd, IITM Incubation Cell, IITMS Rural Technology and Business Incubator, National Investment and Infrastructure Fund II, and 3State Ventures Pte Ltd.

Use of Proceeds: Proceeds from the OFS will be distributed among the selling shareholders, while the fresh issue will be used for capital expenditure (Rs 927.2 crore for establishing an electric two-wheeler (E2W) factory in Maharashtra), debt repayment (Rs 378.2 crore for the repayment or pre-payment of certain borrowings), R&D investment (Rs 750 crore over five years for research and development), marketing (Rs 300 crore for marketing initiatives), and the balance for general corporate purposes.

Capital expenditure and debt repayment will be completed by 2026, while the R&D investment will be phased over five years.

Factory Expansion: According to CRISIL, E2W penetration in India is projected to rise from 5.1 percent in FY24 to 35-40 percent by FY31. To meet this demand, Ather plans to build a new facility at Aurangabad Industrial City (AURIC), Maharashtra, referred to as “Factory 3.0”.
“At Factory 3.0, we plan to vertically integrate additional automation technologies and manufacturing lines for selected manufacturing processes such as transmission assembly, painting, and electronics assembly, that we currently outsource to third-party OEM manufacturers, in order to achieve greater cost efficiencies in our production process, enhance our control over the quality of our products, increase flexibility in introducing and managing variants and mitigate supply chain risk," stated Ather Energy in the DRHP.

R&D Investments: In FY24, Ather’s R&D expenditure was Rs 236.5 crore, up from Rs 191.6 crore in FY23 and Rs 101 crore in FY22. These investments constituted 13 percent, 11 percent, and 25 percent of revenues, respectively. Ather designs 80 percent of its E2W components in-house, including the chassis, battery management systems, motor controllers, and charging infrastructure.

In the DRHP, the company said, “We have made significant investments in R&D in the past and will continue to undertake such efforts to improve our hardware and software infrastructure across the charging infrastructure and accessories, upgrade our existing product portfolio and design and develop new E2W products”.

Financial Performance: Ather Energy’s consolidated revenue for FY24 stood at Rs 1,753 crore, a 1.7 percent YoY decline. The company’s net loss widened to Rs 1,059 crore in FY24, from Rs 864.5 crore in FY23. However, the company’s cash position improved, with cash and cash equivalents rising to Rs 506 crore at the end of FY24, up from Rs 368 crore in FY23.

Decelerating/ Slowing Customer Growth rate: As of March 31, 2024, Ather had 114,000 customers, up from 85,000 in FY23 and 23,000 in FY22. Customer growth slowed to 34 percent in FY24, compared to 270 percent in FY23 and 360 percent in FY22.

Competition: Ather, backed by Hero MotoCorp, competes with Ola Electric and TVS Motors. As of August 2024, Ather holds a 12 percent market share in the electric two-wheeler segment, with Ola leading at 40 percent and TVS Motors at 30 percent.

Key Risks as Highlighted in the DRHP:

1. Future growth is dependent on the demand for and adoption of electric two-wheelers.
2. Business could be adversely affected if Ather fails to attract new customers. "While our customer base grew over the past three fiscal years, we cannot guarantee that such a trend will continue in the future," the DRHP notes.
3. Their electric two-wheelers, software, charging infrastructure, accessories, or components may be defective or fall short of industry standards, impacting customer satisfaction.
4. Retail prices of electric two-wheelers may rise if government incentives are reduced or eliminated, potentially dampening demand and affecting the company’s business prospects.
5. Any disruption in the availability or pricing of lithium-ion cells could severely impact Ather’s operations.

Lead Managers: Axis Capital, HSBC Securities and Capital Markets (India), JM Financial, and Nomura Financial Advisory & Securities (India) Pvt Ltd are the book-running lead managers for the issue. Link Intime India Pvt Ltd is the registrar.

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