Ola May Now Take One More Year To Turn Profitable
Ola will now be able to become a profitable company only by financial year 2019-20
Homegrown ride-hailing firm Ola expects to turn profitable a year later than expected as it battles Uber Technologies to maintain its market dominance in India.
ANI Technologies Pvt. Ltd., which owns Ola, will now turn in its first profit by financial year 2019-20 with a bottom line of Rs 746 crore, according to a valuation report the company filed with the Ministry of Corporate Affairs. The report by advisory firm Gretex Corporate Services comes a little over a year after Ola’s fair valuation adviser Jain Ambavat & Associates had said that the ride hailing company will turn profitable in the ongoing financial year 2018-19, with a net profit of Rs 1,170 crore.
When contacted by BloombergQuint, an Ola spokesperson declined to comment.
Ola has lost a fourth of the $3 billion it has raised from investors since inception as it takes on Uber — both are now backed by Japan’s SoftBank Group. Last year it raised $1.1 billion from investors including Chinese internet giant Tencent and SoftBank—the second largest fundraise by an Indian startup. The round, according to Gretex Corporate’s report, valued Ola just under $4 billion.
Financials
The cab aggregator’s consolidated loss widened to Rs 4,897.9 crore (about $750 million) as of March 2017 from Rs 3,147.9 crore a year before, according to its filings with the Registrar of Companies. The losses were much higher than the Rs 2,988 crore projected by Jain Ambavat last year.
- The same report estimated the loss in 12 months through March this year at Rs 845 crore—Ola is yet to release its numbers for 2017-18.
- According to the latest Gretex’s report based on Ola’s financial projections, the company would report a net operating loss of Rs 1,235 crore in the ongoing financial year 2018-19.
San Francisco-based Uber is ratcheting up its spending in India as it looks to catch up with Ola. The Indian startup, founded in 2011 by Bhavish Aggarwal and Ankit Bhati, ventured into new fronts to stay ahead. In the last eight months, it bought delivery service Foodpanda’s Indian operations, took its ride-hailing service to Australia, and acquired Mumbai-based public transport ticketing app Ridlr.
“All these new ventures will need more and more investments,” Satish Meena, forecast analyst at New Delhi-based Forrester Research, told BloombergQuint over the phone.
Expenses
Ola tried to reduce expenses in the last two years. It cut discounts to consumers almost completely and has also aggressively pushed its subscription services such as Ola Select and Share Pass to get money upfront.
Driver incentives have dropped to less than 20 percent of the gross booking value from about 60 percent at the end of 2016, according to a report by management consultancy Redseer. Its financials for the year ended March 2017 showed that it curtailed variable costs such as advertising and promotion expenses to Rs 285 crore from Rs 438 crore in the previous year.
But the overall spend remains high. Between March 2015 and 2017, it spent nearly $1.5 billion. So, according to Meena, profitability won’t be easy to come by for the company in two years.
They have already reduced discounts, cut down incentives. While this will have an impact, and will bring down the losses to some extent, there isn’t enough space left to reduce it further. Managing its expenses is a challenge.Satish Meena, Forecast Analyst, Forrester Research
The gap between Ola’s revenue and losses is also huge, he said, adding that it is difficult to focus on profitability when you are in a battle with player like Uber. “Growth will take a hit.”