Growth Pangs. Could Ola be spreading itself too thin?

Three weeks ago Rajiv Bajaj, the MD of Bajaj Auto created a stir when he said he would bet on BET (Bajaj, Enfield and TVS Motors) the reigning troika in two-wheelers eating OATS (Ola, Ather, Tork, SmartE) for breakfast, taking a swipe at the upstart EV (electric vehicle) players.

Of course, the OATS companies did not let it go lying down. Ola Co-Founder, Bhavish Aggarwal, added a fire emoji and retweeted a handle that said: ‘Lol you are not in the competition. Ola sold ~90k scooters in one window even before a single unit rolled out of factory…’

Jack of all trades?

The 36-year-old IIT Mumbai alumnus, who co-founded Ola with his college friend Ankit Bhati has never shied from taking competition head-on. It is this attitude that has helped Ola attract $4.3 billion in 26 rounds of funding from marquee investors like Temasek Holdings, Warburg Pincus and Softbank, over its 11 years of existence. Yet there is a growing sense that Ola might be doing too many things all at once, leading to stretching of management bandwidth and lack of focus.

From hawking insurance, selling credit cards, delivering groceries, running cloud kitchens, retailing pre-owned cars to now selling electric vehicles, Ola has been dabbling in multiple things. Has Ola and its leadership, in its quest for growth, bitten off more than it can chew?

Take Ola Financial Services. On paper, insurance may seem like a business adjacency for a ride-hailing platform that understands the wear and tear of vehicles. But Ola doesn’t just plan to sell vehicle insurance — it is getting into all types of financial products, including credit cards and personal loans.

Needing focus

How can it compete against players that have laser focus on each segment of the financial services market? As John Mayne, Executive Director of Coverfox.com , a leading online insurance seller says “You have to ask, what is the DNA of the organisation? When you talk about Ola you know it is a cab-hailing company but when you think of Coverfox.com, you know it is an insurance provider.

Ola, or any other companies trying to enter the insurance industry, have to ensure an extreme focus on what kind of insurance product they want to sell, and in which segment.”

Similarly, Animesh Das, Head of Acko Insurance’s Product Strategy says that running an insurance business requires specific subject matter expertise. “Running an insurance business does need market understanding. One important thing is that insurance underwriting itself is very different because, in insurance, the company does not know the upfront manufacturing cost, which is not the case in any other product, where you do a cost-plus margin above that and then sell the product.”

It is just not insurance alone. Take retailing of pre-owned cars. Again, it might look like a natural business extension.

However, the dynamics involved in the business are not so simple. Gajendra Jangid, Co-founder and CMO, Cars24, a leading player in the segment says, “The difference between a sector-focused business like Cars24 versus a business where there are diverse verticals is that of a general physician and a specialised doctor — we have domain expertise on what we have done. This is not one of our businesses, this is our only business and that makes a difference.”

Revenue declines

Even in its core ride-hailing business, which accounts for nearly 90 per cent of its revenue, Ola has been hit hard as revenue for the year ending March 31, 2021, shrunk by more than 60 per cent to ₹884.3 crore due to the pandemic impact.

Competitor Uber too saw a decline in its revenue, but as a percentage, its decline was lower than that of Ola.

Lease rentals from drivers who lease cars from Ola, which is its second-biggest revenue bucket, also saw a 90 per cent plus decline. Compared to ride-hailing and lease rental revenues, Ola’s filings with ROC indicate that contributions from the financial services and food business have been largely negligible. Past filings indicate that the cumulative losses of Ola might be in excess of ₹17,400 crore.

Ola did not offer comments despite a detailed questionnaire being e-mailed to the company.

Currently, in focus is Ola’s EV business which has been spun off as a separate entity. Both Ola and Ola Electric tout themselves as Unicorns based on investments received at a certain valuation. Ola says the ‘Future Factory’ — its e-scooter facility — when fully complete would have 15 per cent of the entire world’s two-wheeler manufacturing capacity.

The company has also claimed that it has received bookings worth ₹1,100 crore for its e-scooters in just two days of opening bookings. While test rides in select cities have been launched, it has already postponed the second booking window and delivery to the first batch of customers is yet to begin. Unlike conventional players, Ola wants to deliver directly to customers by-passing dealers. It isn’t also yet clear how it intends to service its products.

Even before it delivers its first scooter, Aggarwal has been talking of getting into e-motorcycles and even electric cars.

Another important reason for concern has been the recent spate of senior talent leaving the company. Last month Ola's Chief Financial Officer, Swayam Saurabh and COO, Gaurav Porwal quit. A few weeks later Ola's General Counsel Sandeep Chowdhury — who had been with the company for a mere nine months — departed. In the past, too many key executives have left.

Company sources speaking to BusinessLine have indicated that Ola is undergoing ‘internal restructuring.’ However, a senior former Ola official said, “It is the aggressive style of functioning of Bhavish which is the root cause for talent to flee. Unless investors step in and bring in more ‘adult supervision’, things may not improve much.”

Acquisition handling

Ola’s handling of acquisitions too has come in for questioning. It acquired FoodPanda only to shut it down, firing nearly 1,500 employees in the process, though it continues to run a chain of cloud kitchens. While the company could defend these, saying all of them are run as SBU’s with separate teams, the leadership team is yet to make even one business profitable. Ola is looking to go public sometime early next year and wants to raise around $1-2 billion from the IPO valuing the company at around $7 billion.

As a part of the preparation for IPO, the company for the first time reported an operating profit before tax of ₹89.82 crore in FY 2021; in spite of a two-third fall in revenue on a standalone basis. The operating profit was before considering an exceptional expense of ₹1,402.4 crore. In FY21 Ola had total revenue of ₹983.2 crore as compared to the last year’s income of ₹2,660.2 crore.

Shriram Subramanian, MD of InGovern Research Services, a proxy advisory firm, sounds a note of caution saying “Departure of a large number of CXO level personnel just ahead of a planned IPO is never a good signal.”

All of this finally leaves the question, is Ola’s ambitions getting ahead of delivery capabilities?