Ather Energy IPO review (May apply)

•    The company is a pure play EV company selling E2W, batteries and other related products.
•    The company is expanding its capacity with a new unit at Maharashtra.
•    The company posted losses for the reported periods and has a carried forward huge chunk.
•    Based on its financial performance, the issue is at a negative PE.
•    Its borrowings of Rs. 1121+ cr. as of December 31, 2024 is alarming.
•    The company enjoys strong parentage and is the main attraction.
•    It’s a pure long-term story, hence well informed/cash surplus investors may park moderate funds.

PREFACE:
At last, the company promoted by Hero MotoCorp, Tarun Mehta and Swapnil Jain, is going public, but with reduced size of IPO and has scrapped shareholders’ quota that has irked investors at large. If we compare DRHP with RHP, we find that the company has reduced fresh IPO size from Rs. 3100.00 cr. to Rs. 2626.00 cr. and also decreased its OFS size from 22000766 shares to 11051746 shares. Its total borrowing is alarming at 1121+ cr. as of December 31, 2024. It also posted degrowth in its top lines with increased losses for FY24. It has posted losses for the reported periods and it thus at a negative PE.

ABOUT COMPANY:
Ather Energy Ltd. (AEL) is a pioneer in the Indian electric two-wheeler (“E2W”) market, according to the CRISIL Report. It is a pure play EV company that sells E2Ws and the associated product ecosystem, comprised of software, charging infrastructure and smart accessories, all of which are conceptualized and designed by the company in India. Other than battery packs which are manufactured in-house and portable chargers and motors which are designed and manufactured by suppliers, other key E2W components, such as motor controllers, transmissions, vehicle control units, dashboards, DC-DC converters, harnesses, and chassis are designed in-house and outsourced to suppliers for manufacturing. 

It developed all components of the Atherstack software that powers its products in-house. The company sold 107,983 and 109,577 E2Ws in the nine months ended December 31, 2024 and Fiscal Year 2024, respectively. According to the CRISIL Report, it is the third and fourth largest player by volume of E2W sales in Fiscal Year 2024 and the nine months ended December 31, 2024, respectively. It builds products with a focus on quality and user experience. AEL’s products are positioned at a premium price in their respective segments. AEL launched its first product, the Ather 450, in June 2018. With the Ather 450, it introduced connected features through a 3G SIM card, touchscreen dashboard, aluminium chassis and cloud integration for the first time in the E2W industry in India, according to the CRISIL Report. 

It was also the first E2W to offer a top speed of 80 kmph, comparable to internal combustion engine (“ICE”) scooters and had the highest top speed among E2Ws in India in 2018, according to the CRISIL Report. Its current E2W portfolio comprises two product lines – the Ather 450 line, which caters to customers seeking performance scooters, and the Ather Rizta line, which is targeted at customers seeking convenience scooters for their family. Launched in April 2024, the Ather Rizta features a large seat, WhatsApp notifications displayed on the vehicle dashboard, voice commands through Alexa Skills, up to 56 L of storage and introduced traction control to the Indian E2W market, according to the CRISIL Report.

AEL’s E2Ws are complemented by its product ecosystem which comprises charging infrastructure, accessories and the Atherstack, its in-house developed software that powers its products. According to the CRISIL Report, it is the first two-wheeler (“2W”) OEM to establish a 2W fast charging network, the Ather Grid, in India. Its software, the Atherstack, introduced industry-first connected features such as Over-The-Air (“OTA”) updates and ride statistics on the Ather app, according to the CRISIL Report. It had 69 features as of December 31, 2024.

It has a vertically integrated approach to the design of products and key technologies. This integrated approach is applicable to both its hardware and software, and has enabled it to pioneer several EV technological advancements. Through this approach towards design, AEL seeks to establish new standards for performance, efficiency and user experience in the E2W market. Its technological innovations are enabled by in-house design and research and development (“R&D”) capabilities. AEL’s R&D team had 731 on-roll employees, housed at three R&D facilities in Bengaluru, India, as of December 31, 2024. It had 46% of total workforce dedicated to R&D as of December 31, 2024. As of February 28, 2025, globally, it had 303 registered trademarks, 201 registered designs and 45 registered patents, in addition to pending applications for 102 trademarks, 12 designs and 303 patents. 

The company assemble E2Ws and manufacture battery packs using lithium-ion cells sourced from suppliers at its manufacturing facilities located near Hosur, Tamil Nadu, India (the “Hosur Factory”). At the Hosur Factory, it had a total annual installed capacity of 420,000 units for E2Ws and 379,800 units for battery packs as of December 31, 2024. It is in the process of building the first phase of Factory 3.0 in Chhatrapati Sambhajinagar (formerly Aurangabad), Maharashtra, India to expand its total installed production capacity to 1.42 million E2Ws upon completion of phase two. It operates an asset-light distribution model comprising experience centres and service centres operated by its third-party retail partners in India and through authorized distributors in Nepal and Sri Lanka. As of December 31, 2024, it had 265 experience centres and 233 service centres in India, five experience centres and four service centres in Nepal, and ten experience centres and one service centre in Sri Lanka. 

It places an emphasis on capital efficiency across value chain and prioritize control over design and technology, while maintaining operational flexibility. As a pure play EV company, its commitment to sustainable business practices is reflected in environmental, social and governance (“ESG”) strategy, which focuses on strong governance, developing technologies that accelerate the transition to EVs, minimizing environmental impact and investing in talent under a focused, single company structure. Its corporate ESG committee, along with its code of ethics policy and policies on matters such as anti-bribery, anti-corruption and fraud prevention, aim to create a culture of responsibility and sustainability.

An expanding E2W portfolio of technology-rich vehicles that are being launched at competitive rates has driven consumer interest in and accelerated the growth of E2Ws in India. E2Ws currently offer advanced technological features such as touch screen displays, Bluetooth and LTE connectivity. Its technological innovations are enabled by in-house design and research and development (“R&D”) capabilities. As of December 31, 2024, it had a total of 3,510 employees, comprising 1,575 on-roll employees (including 29 consultants, trainees and interns) and 1,935 off-roll employees. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo book building route IPO of fresh equity shares issue worth Rs. 2626.00 cr. (approx. 81806854 shares at the upper cap), and an Offer for Sale (OFS) of 11051746 equity shares (worth Rs. 354.76 cr. at the upper cap). The company has announced a price band of Rs. 304 – Rs. 321 per equity shares of Re. 1 each. The overall size of the issue will be approx. 92858600 shares worth Rs. 2980.76 cr. The issue opens for subscription on April 28, 2025, and will close on April 30, 2025. The minimum application to be made is for 46 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 24.93% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 927.20 cr. for new E2W factory in Maharashtra, Rs. 40.00 cr. for repayment/prepayment of certain borrowings, Rs. 750.00 cr. for investment in R & D, Rs. 300.00 cr. for Marketing initiatives expenses, and the rest for general corporate purposes. 

The company has reserved 100000 equity shares for its eligible employees and offering them a discount of Rs. 30 per share. From the balance, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors.

The joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., HSBC Securities and Capital Markets (India) Pvt. Ltd., J M Financial Ltd., and Nomura Financial Advisory and Securities (India) Pvt. Ltd., while MUFG Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued/converted further equity shares in the various price range (based on Re. 1 FV), between October 2014 and March 2025. It has also issued bonus shares in the ratio of 224 for 1 and 260 for 1 in June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 8.31, Rs. 21.09, Rs. 38.58, Rs. 146.01, Rs. 183.71, Rs. 1841.82, and Rs. 204.21 per share. 

Post-IPO, its current paid-up equity capital of Rs. 29.06 cr. will stand enhanced to Rs. 37.25 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 11955.66 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/ -(loss) of Rs. 413.80 cr. / Rs. – (344.10) cr. (FY22), Rs. 1801.80 cr. / Rs. – (864.50) cr. (FY23), and Rs. 1789.10 cr. / Rs. – (1059.70) cr. (FY24). For 9M of FY25 ended on December 31, 2024, it marked a loss of Rs. – (577.90) cr. on a total income of Rs. 1617.40 cr. against loss of Rs. – (766.40) cr. on a total income of Rs. 1253.70 cr. for corresponding previous period. 

For the last three fiscals, the company has posted an average EPS of Rs. – (44.00) and an average RoNW of – (170.00) %. The issue is priced at a P/BV of 80.25 based on its NAV of Rs. 4 as of December 31, 2024, and at a P/BV of 3.57 based on its post-IPO NAV of Rs. 90 per share (at the upper cap). 

If we attribute FY25 annualized negative earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a negative P/E. Based on FY24 negative earnings, the P/E stands negative. Thus, the issue is appearing aggressively priced. Total borrowing of Rs. 1121+ cr. as of December 31, 2024 raise concern.

The company reported PAT margins of – (83) % (FY22), - (48) % (FY23), - (59) % (FY24), - (36) % (9M-FY25) but missing RoCE data for the referred periods.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in August 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Hero MotoCorp, Bajaj Auto, Ola Electric, TVS Motors and Eicher Motors, as their listed peers. They are trading at a P/E of 19.1, 30.4, NA, and 66.8 (as of April 24, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The four BRLMs associated with the offer have handled 65 pubic issues in the past three fiscals, out of which 14 issues closed below the offer price on the listing date.