Ather Energy IPO

Ather Energy’s Venture Debt Backers Set for Major Repayment from IPO

Ather Energy, an electric two-wheeler manufacturer, is gearing up for its initial public offering (IPO) and plans to raise Rs 3,100 crore through fresh issue of shares. This IPO will not only give some investors an exit opportunity but will also provide a significant repayment of Rs 378.2 crore to the company’s venture debt backers. Let’s dive into the details of what’s fueling this repayment and the impact on Ather Energy’s financial outlook.

1. IPO and Repayment of Loans

Ather Energy plans to use a portion of the IPO proceeds, Rs 378.2 crore, to repay loans it had taken from various venture debt funds. These funds include Alteria Capital (Fund I and II), Innoven Capital India Fund, Stride Venture Debt (Fund II and III), and Nuvama Crossover Yield Opportunities Fund.

According to Ather’s draft red herring prospectus (DRHP), as of July 31, these funds held loans worth Rs 439.4 crore, with Innoven Capital having the largest outstanding amount at Rs 177.2 crore, followed by Stride at Rs 150 crore, Alteria at Rs 62.2 crore, and Nuvama at Rs 50 crore. The repayment of Rs 378.2 crore will bring down a significant portion of these outstanding amounts.

Advantages:

Debt Reduction: The repayment of loans will help Ather reduce its financial liabilities, improving its balance sheet.
Improved Investor Confidence: Repaying the venture debt will likely boost investor confidence ahead of the IPO, signaling financial discipline.

Disadvantages:

IPO Proceeds Allocation: A considerable portion of the IPO proceeds will go toward debt repayment, reducing the funds available for other operational needs.

2. Role of Venture Debt Funds

Venture debt funds like those backing Ather provide loans to startups and early-stage companies, allowing them to raise capital without diluting equity. In Ather’s case, the loans were used for capital expenditure, working capital, and other corporate purposes.

The company secured these loans for tenures ranging from 20 to 30 months, with interest rates between 14.5% and 14.85%. This form of financing helps companies like Ather bridge the gap between equity rounds or fund expansion without diluting their ownership stakes.

Advantages:

Equity Preservation: Venture debt allows companies to raise capital without giving up ownership or control, making it a preferred choice for fast-growing startups.
Flexible Capital: The funds can be used for various purposes, such as expansion, capital expenditure, and working capital needs.

Disadvantages:

High-Interest Rates: The interest rates of 14.5% to 14.85% are relatively high, increasing the financial burden on the company.
Repayment Pressure: Venture debt typically requires repayment from liquidity events, such as IPOs, which can create financial strain if the event is delayed.

3. Ather Energy’s Financial Performance

As of July 31, Ather’s total borrowings stood at Rs 671 crore, reflecting a significant financial obligation. In FY24, Ather’s revenue from operations was Rs 1,754 crore, representing a 329% increase from 2022, although it showed a slight 1.5% decline from 2023.

Despite the growth in revenue, the company’s losses have widened. Loss before tax increased by 24.7% in FY24, amounting to Rs 1,060 crore, compared to Rs 865 crore in 2023 and Rs 344 crore in 2022. These losses highlight the company’s need for continued investment and financial support as it expands its operations.

Advantages:

Revenue Growth: Ather’s impressive revenue growth from 2022 indicates strong demand for its products and potential market expansion.
IPO Proceeds for Expansion: Apart from loan repayment, Rs 927.2 crore will be allocated for a new factory in Maharashtra, and Rs 750 crore for research and development, signaling long-term growth prospects.

Disadvantages:

Increasing Losses: Despite revenue growth, rising losses raise concerns about the company’s ability to turn profitable in the near term.
Financial Dependency: The company remains dependent on external funding to fuel its expansion and manage its debt.

4. Allocation of IPO Proceeds

In addition to the Rs 378.2 crore repayment, Ather Energy plans to allocate:

Rs 927.2 crore for setting up a new factory in Maharashtra.
Rs 750 crore for research and development.
Rs 300 crore for marketing initiatives.

These strategic investments are aimed at scaling up production, advancing technology, and enhancing brand visibility, which are crucial for Ather’s growth in the competitive electric vehicle market.

Conclusion

Ather Energy’s IPO marks a significant milestone in its growth journey, offering liquidity to investors and enabling the company to reduce its debt burden. While the repayment of venture debt will strengthen its financial position, the allocation of IPO proceeds towards expansion and innovation highlights Ather’s commitment to long-term growth. However, the company faces challenges such as rising losses and high financial obligations, making it crucial for Ather to continue improving operational efficiency and profitability.

FAQs

Q: What is the main purpose of Ather’s IPO? A: Ather’s IPO aims to raise Rs 3,100 crore, which will be used for loan repayment, setting up a new factory, research and development, and marketing.

Q: How much venture debt is Ather repaying? A: Ather plans to repay Rs 378.2 crore in loans to venture debt funds including Alteria Capital, Innoven Capital, Stride, and Nuvama.

Q: What is venture debt? A: Venture debt is a type of loan provided to startups and early-stage companies, allowing them to raise capital without diluting equity.

Q: How has Ather’s financial performance been? A: Ather’s revenue increased by 329% from 2022 to 2024, but its losses before tax also rose by 24.7% in FY24, reflecting higher operational costs.

Q: What are Ather’s future plans post-IPO? A: Post-IPO, Ather plans to expand its production by building a new factory in Maharashtra, invest in research and development, and increase marketing efforts.