IPO Market Reawakens After Two-Month Gap — Is This Offer Worth It?

The company stands as a pioneer in India’s electric two-wheeler (E2W) market and is a dedicated pure-play EV player.

About the Issue:  

Ather Energy Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. See the issue details below.

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Capital expenditure to be incurred by the company for establishment of an E2W factory in Maharashtra, India

2. Repayment/ pre-payment, in full or part, of certain borrowings availed by the company

3. Investment in research and development

4. Expenditure towards marketing initiatives

5. General corporate purposes

Promoter holding 

Tarun Sanjay Mehta, Swapnil Babanlal Jain, and Hero MotoCorp Ltd are the promoters of the company. The promoters and promoter group currently holds a pre-issue shareholding stake of 52.67 per cent in the company.

Company profile  

The company stands as a pioneer in India’s electric two-wheeler (E2W) market and is a dedicated pure-play EV player. It offers a comprehensive ecosystem that includes E2Ws along with software, charging infrastructure, and smart accessories—all of which are conceptualised and designed in-house in India.

While battery packs are manufactured internally and components such as portable chargers and motors are designed and produced by its suppliers, the company has developed several key E2W components in-house. These include motor controllers, transmissions, vehicle control units, dashboards, DC-DC converters, harnesses, and chassis—all of which are then outsourced for manufacturing to strategic supplier partners.

The company assembles its electric two-wheelers and manufactures battery packs using lithium-ion cells sourced from global suppliers at its production facilities near Hosur, Tamil Nadu. It is also currently developing the first phase of its new Factory 3.0 in Chhatrapati Sambhaji Nagar, Maharashtra, which will significantly expand its total installed production capacity to 1.42 million E2Ws upon completion of the second phase.

Operating on an asset-light distribution model, the company leverages third-party retail partners to manage its network of experience centres and service centres across India. It also reaches international markets through authorised distributors in Nepal and Sri Lanka. As of December 31, 2024, the company had established 265 experience centres and 233 service centres across India, along with five experience centres and four service centres in Nepal, and ten experience centres and one service centre in Sri Lanka.

Financials 

The company has demonstrated a notable year-on-year growth in revenue, with the exception of FY24, which witnessed a marginal decline. Based on its performance during the first nine months of FY25, and assuming the current pace continues, it is likely to register around 20 per cent revenue growth over FY24.

Despite this encouraging topline trend, the company continues to struggle on the profitability front. Ather's electric scooters are among the most expensive offerings in India's two-wheeler EV segment, and the premium pricing is largely driven by elevated production costs, which have directly impacted margins.

Moreover, although Ather was one of the early movers in the e-scooter space, its sales continue to trail behind those of more prominent competitors. This heightened competition has compelled the company to channel significant resources into marketing initiatives and product development in a bid to preserve and expand its market share.

In addition, Ather faces considerable financial strain, with total borrowings standing at Rs 1,122 crore as of December 31, 2024, resulting in substantial finance costs that further weigh on the bottom line.

Valuation & Returns 

*RoE: Based on FY24 data

The issue is priced with a P/BV ratio of 80.25 times, calculated using its Net Asset Value (NAV) of Rs 4 as of December 31, 2024. At the upper price cap, it is priced at a P/BV ratio of around 90 times, considering its post-IPO NAV.

Considering the company’s annualized FY25 earnings and fully diluted equity capital, the price-to-earnings (P/E) ratio remains negative, reflecting the losses reported in the first nine months of FY25. Even based on FY24 earnings, the P/E ratio continues to be negative, indicating that the offer is aggressively priced, especially when viewed alongside its current price-to-book (P/B) valuation.

With several other listed stocks available at far more attractive valuations and offering notable returns, this issue fails to stand out, diminishing its investment appeal.

Outlook

India retained its position as the largest motorised two-wheeler (2W) market globally in CY23, with total domestic sales reaching 18.4 million units in FY24. Supported by key growth drivers such as increasing urbanisation, favourable demographics like a high youth population, improved access to credit, and an expanding electric two-wheeler (E2W) ecosystem, the sector is well-positioned for sustained momentum ahead.

Ather Energy Ltd stands as a pioneering force in this segment and holds significant potential for growth in the coming years, provided it can improve its bottom-line performance. However, an analysis of current financials suggests that the offer is aggressively priced with little to offer in terms of investor returns. The company also faces formidable challenges, including intense competition, pressure on margins, the need for substantial capital expenditure to scale operations, and an already high debt burden.

A similar case is that of Ola Electric, which despite a rising topline, continues to post losses and has seen its stock price decline over 40 per cent year-to-date — reflecting the market’s pessimism. In the present uncertain and volatile environment, robust subscription and strong listing gains appear unlikely. The IPO’s grey market premium (GMP) has declined sharply in recent days and now hovers around just 2 per cent, reflecting tepid investor sentiment.

Therefore, we recommend that only investors with surplus funds and a high-risk appetite consider subscribing to this offer — and even then, with a cautious and moderate approach.