Tuesday | May 13 2025 | 12:52:20 PM
Ather Energy, a Bengaluru-based electric two-wheeler manufacturer backed by Hero MotoCorp, is preparing to launch its initial public offering (IPO) on Monday. As the company seeks fresh capital to expand manufacturing, debt repayment and marketing, BW Businessworld analysis of its financials shows that profitability remains heavily dependent on improving margins or scaling volumes.
For the nine months ended 31 December 2024 (9M FY25), Ather posted an adjusted gross margin of 19 per cent and an EBITDA margin of -23 per cent, according to its red herring prospectus (RHP). The company saw a net loss of Rs 578 crore and an EBITDA loss of Rs 370 crore during this period.
Revenue per two-wheeler unit declined to Rs 1,29,001 in 9M FY25, down from Rs 1,48,180 a year earlier. The cost of goods sold (COGS) per vehicle dropped to Rs 1,21,584 from Rs 1,53,889 during the same period. As a result, Ather achieved a gross profit of approximately Rs 7,417 per unit sold.
The company sold approximately 1,08,000 two-wheelers during 9M FY25, up from 74,000 units in 9M FY24. Annualised, this translates to about 1,45,000 vehicles sold in the fiscal year.
Management’s focus on increasing localisation of key components, reducing battery costs and expanding high-margin subscription services could materially change the breakeven dynamics. According to BW Businessworld analysis, if Ather is able to raise its gross margin to 25 per cent, gross profit per scooter would increase to around Rs 32,250. Under this assumption, the company would need to sell approximately 1,15,000 scooters annually to cover EBITDA losses, a target close to its current sales trajectory. However, the company has not provided any specific guidance on path to profitability.
Software Revenue as a Margin Driver
A key component of Ather’s margin improvement strategy involves software sales, which contribute higher margins than hardware. “We actually make money and are selling software as a single pack across the vehicle. That pack is called AtherStack. It is sold as a one-time accessory on top of the vehicle’s price,” Tarun Mehta, Co-founder and CEO at Ather Energy explained to reporters in Bengaluru on Saturday. “In FY24, about 84 per cent of our customers bought the software stack, leading to a healthy contribution to our revenue.”
Despite launching a more affordable mass-market product in FY25, the company has maintained strong software adoption. “In FY25, we were launching Rizta, a more mass-market product. So, we obviously estimated that fewer people might buy the software because it is a more mainstream product, but in just three quarters of FY25 software attached rates are around 86 per cent,” Mehta said.
The software component delivers exceptional margins, added Mehta mentioning that “It’s contributing 600 bps to our revenue, a very high contribution to our gross margin because this is a 53 per cent EBITDA, implying almost 3.5 per cent of the company’s EBITDA is coming by the ability to sell software.”
Strategic Market Expansion Through Product Diversification
Ather intends to raise Rs 2,626 crore through the IPO, comprising a fresh issue and an offer for sale by existing investors, including Caladium Investment, National Investment and Infrastructure Fund II and early backers such as Internet Fund III. Founders Tarun Mehta and Swapnil Jain are also selling a small portion of their stakes.
The company plans to use the fresh issue proceeds to fund capacity expansion at its manufacturing facilities, invest in research and development (R&D) initiatives and repay certain borrowings. Ather also is looking to grow its public charging network, branded as Ather Grid, which could become a competitive advantage in the long term.
Ravneet Phokela, CBO at Ather Energy, identified distribution expansion as “possibly our single biggest growth driver for the business.” The company’s historical focus on premium performance scooters limited its appeal primarily to southern markets so far.
“Launch of Rizta was turning point in our business. So, we started life with Ather 450 series which is about 19 per cent of our entire market, but most of that market is sitting in the south and some parts of east side,” Phokela said.
The introduction of the Rizta model has dramatically changed Ather’s market penetration. “At a national level, we grew a share by almost 50 per cent. We are typically about 9.5 per cent to 10 per cent. Today, we’re getting up to 15 per cent, so a straight 50 per cent bump up on the back of Rizta,” said Phokela.
Regional gains have been even more impressive. “In Gujarat we reached 5 per cent to 45 per cent market share in about five months’ time, in Maharashtra we almost doubled our market share, in Delhi also doubled our market share,” Phokela added.
Future Platform Strategy And Manufacturing Approach
Despite the strategic initiatives underway, the path to profitability remains uncertain. Ather’s dependency on government subsidies such as the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) programme remains a risk. Reductions or delays in subsidy disbursements could adversely impact affordability and margins.
Competition in the electric two-wheeler market has intensified, with players like Ola Electric, TVS Motor and Bajaj Auto aggressively expanding their EV portfolios. Lower-priced models from rivals could challenge Ather’s positioning in the premium segment, where it currently commands a niche.
To address these challenges, Mehta outlined the company’s platform strategy. “Both 450 and Rizta products are built on the same platform. We’re working on a new platform called the EL platform. This platform is designed for a lower cost structure and we expect to be doing more products under this platform. It is under development. And this is something that we believe will drive more volumes and better margins for us,” said the Ather CEO.
Looking beyond scooters, Mehta added that they’ve “also commenced some work on the Zen platform, which is our motorcycle platform, aimed at 125-300cc motorcycles.”
Ather’s reliance on imported battery cells exposes it to global supply chain disruptions and price volatility. While the company has initiated efforts to localise battery pack assembly, Co-founder Swapnil Jain clarified their approach to vertical integration. “Cell manufacturing as an OEM for us definitely does not make sense. Flexibility and capital efficiency has been the key piece for us in deciding everything when it comes to operations, including distribution,” he said.
“The retail prices of the company’s electric two-wheelers are susceptible to a reduction or elimination of government incentives or the ineligibility of its electric two-wheelers for such incentives. The increased retail price could affect customer demand and in turn, adversely impact its business and prospects,” mentioned Kotak Securities in its analysis.
Ather’s financial structure also reflects fixed costs, including R&D expenses and marketing investments, which require crucial operating leverage to absorb. Failure to scale volumes quickly could extend Ather’s loss-making phase beyond initial projections.
For investors considering the IPO, key metrics to monitor post-listing will include gross margin trends, volume growth, cost per vehicle improvements and expansion of software and services revenue streams. Subscription products such as navigation services and OTA (over-the-air) updates, although currently a small revenue contributor, could improve profitability if scaled effectively.
“Considering its current financials, this appears to be a long-term investment story, and therefore, only well-informed investors with surplus funds and a long-term perspective may consider investing moderately,” said Bajaj Broking in its Ather IPO report note.
