Ola is expected to have turned its maiden annual profit in the year ended 31 March, the first step towards the goal of an initial public offering (IPO), as local exchanges require companies to be profitable for at least three years before they go public, the two people said on condition of anonymity. Ola has not filed its financials for FY19 with the ministry of corporate affairs (MCA).
An IPO will help many of the ride-hailing company’s investors, including SoftBank, to exit or partially sell their stakes and return funds to their shareholders.
Ola is eyeing a listing on BSE or NSE, said one of the two people. Ola’s newest investor, Seoul-based ARK Impact Asset Management, recently set up a pre-IPO trust fund, according to ANI Technologies’ filings with the MCA last month.
The trust fund will be co-managed by Ola’s small, medium and individual investors, as well as ARK, according to the second person cited earlier. “Ola has nothing to do with ARK. None of the founders’ stake, etc. is going to go into that (the trust fund). The trust fund is just an investment vehicle set up by ARK," said the second person.
The impact asset management fund invested around ₹35.8 crore in ANI Technologies for its ongoing Series J round at a valuation of around $7 billion, show filings.
A valuation report submitted to Ola’s shareholders in February 2017 projected that Ola may report a profit of about ₹1,170 crore in FY19, with a free cash flow of ₹698 crore. It reported a 44% rise in revenue to ₹1,860 crore in the year ended 31 March 2018 from around ₹1,286 crore in the previous year. Losses for FY18 narrowed to ₹2,676 crore from ₹4,816 crore in the previous year.
A spokesperson for Ola did not respond to an email seeking comment on the proposed IPO.
There are frequent differences between foreign investors at the board level, as SoftBank insists that its portfolio companies go public, said the first person.
“Most of the differences on the IPO listing arose between SoftBank, a new incoming Japanese investor, and Mirae Asset Fund, an existing investor… and hence Mirae has got in ARK as a co-investor in the current round... Another investor, Hyundai, also Korea-based, is pushing for an Ola IPO," said the person.
A company typically sets up a private trust fund to avoid diluting majority control of the main holding company, according to three consultants and valuation experts Mint spoke to. “There are specific categories of investors (in the market), who look at pre-IPO investments only. With pre-IPO trust funds, certain investors look at investing mostly at around late-stage rounds, or to participate as an anchor investor in an upcoming IPO in a company. This gives a benefit of a liquid stock (to the IPO) at a valuation that’s pre-decided," said Sharad Moudgal, partner at Khaitan and Co.
Ola’s domestic IPO plans come at a time when arch-rival Uber’s (also a SoftBank investee firm) IPO and stock performance on the NYSE has been tepid. Uber, which saw a private valuation of much as $76 billion before its public offering in May, has a market cap of nearly $49 billion now.
The listing plans of Ola contrast with that of other Indian unicorns such as Flipkart and Oyo that are exploring IPOs on the US bourses, as they allow public offerings of loss-making entities too.
To be sure, listing in India is not easy. Ola faces multiple regulatory roadblocks before it can even file a prospectus. Currently, Ola has two available paths to its proposed public listing—through the Securities and Exchange Board of India-regulated Innovator’s Growth Platform (IGP) meant for SMEs and startups, or a direct listing on BSE or NSE. According to the second person, Ola will look at a direct listing, rather than on the IGP platform. This apart, the capital market regulator’s default rules for direct listing state that promoters, including funders, should contribute at least 20% of the total paid-up capital. Ola’s promoters, however, contribute less than 20% of the paid-up capital.
Talks of a public listing come at a time when Ola co-founders Bhavish Aggarwal and Ankit Bhati made sweeping changes in the promoter shareholding structure to gain tighter control over ANI Technologies. In April, the co-founders increased their ownership in ANI through a rights issue, according to documents sourced from MCA. In total, the promoters, including founders, directly own 11-12% in ANI, according to Tracxn, a data tracker.