Why Did ICRA Downgrade Ola Electric's Debt Rating?

New Delhi, May 4 (NationPress) The ratings agency ICRA Limited has reduced the debt rating of Ola Electric Mobility Limited’s automotive division due to sluggish sales and a challenging pathway to profitability.

The agency revised the ratings of four debt instruments of Ola Electric Technologies Private Limited from 'A' to 'BBB+' and kept a negative outlook, attributing this decision to the company's lagging sales growth in the electric two-wheeler segment.

ICRA noted that Ola Electric has faced challenges in boosting its electric two-wheeler sales, resulting in increased cash burn and delaying the company's profitability timeline.

This situation implies that the company may need to seek additional funding within the next 12 to 24 months as its current cash reserves are rapidly diminishing.

In April, Ola Electric's monthly sales reached their lowest point since its public listing in August of the previous year.

Sales plummeted by 42 percent year-on-year to a mere 19,709 units. During the same timeframe, the company’s market share also drastically fell by 31 percentage points, now standing at 21 percent.

This decline starkly contrasts with the performance of rivals like Bajaj Auto, TVS Motor Co., and Ather Energy, which saw their electric two-wheeler sales surge by 151 percent, 152 percent, and 31 percent, respectively.

ICRA emphasized the growing competition in the electric two-wheeler market.

Established brands such as Bajaj Auto and TVS Motor Co. have significantly increased their market shares, now capturing around 40 percent, up from just 7 percent in FY22.

This escalating competition has placed further strain on Ola Electric’s sales. The downturn in sales and shrinking market share is anticipated to adversely affect the company’s earnings.

ICRA predicts a loss of Rs 1,900-2,000 crore for Ola Electric in FY25, a greater loss compared to Rs 1,600 crore in FY24.

Nevertheless, the agency is optimistic that profitability pressures might ease in FY26 and beyond, thanks to new product launches, including a third-generation scooter and a new motorcycle that could enhance revenues.

These upcoming products are designed on a shared platform, which might accelerate both growth and profitability.

Ola Electric is also expanding its sales network, aiming to increase the number of sales touchpoints to 4,000 by March 2025, up from 900 in March 2024.

The company is also enhancing its service infrastructure to resolve previous service issues, which should contribute to improved customer satisfaction.

However, despite these initiatives, Ola Electric is encountering substantial challenges. The company has faced hurdles due to rapid expansion.

Many of its outlets have been operating without appropriate trade certificates, and customer complaints regarding service and product quality continue to surface on social media.

Additionally, the company has postponed the delivery of its Ola Roadster X motorcycle for the second time in two months.

Furthermore, the company is under scrutiny from multiple central ministries and India’s market regulator, adding to the pressure.

ICRA cautions that if sales keep lagging, Ola Electric may have to explore further fundraising options, which could introduce funding risks.

Nonetheless, the agency believes that the company has adequate capacity to secure additional funding if necessary.