Disclosures in the Uber IPO prospectus that the cab-hailing app may never turn profitable must be music to the ears of its rival in India, Ola, which is expected to go public in two years and is all set to turn profitable in a year’s time.

Uber will go public on Friday, considered to be the biggest in the US since 2014, targeting a valuation of between $80 and $90 billion. It will give the company access to huge public funds which could help it increase network in countries like India where it is facing tough competition from Ola.

On a slow track

For Uber, however, turning profitable may remain a distant dream, according to its prospectus. “We have incurred significant losses since inception, including in the United States and other major markets. We expect our operating expenses to increase significantly in the foreseeable future and we may not achieve profitability,” Uber said in its prospectus.

Ola, the ride-hailing company, founded by two Indians is slowly emerging as a major competitor to Uber as it rapidly expands its operations across Australia, New Zealand and the UK.

In an interview to this newspaper last year, Ola’s co-founder and CEO Bhavish Aggarwal had said that the company wants to create value for its shareholders in India and hence the IPO is a logical step in that direction.

Being local helps

He also said that the company was operationally profitable and is expected to post net profit within two years. In an email to his team last year, Aggarwal said that the company was already ENTR (effective net take rate) positive and the aim is to become profitable next year. In India, Uber, analysts believe, has been slower to adapt to conditions in the country and is seen as more upscale than a mass product.

In its prospectus, Uber has also admitted that local competitors such as Ola are well-capitalised and have local operating expertise. When Uber started its service in India in 2013, Ola’s bookings were about 2,500 per day.

Six years later, market estimates put the bookings per day for Ola at 25 lakh compared with Uber’s 11-13 lakh. Ola also scores in terms of having access to 15 lakh driver partners (1 partner equals one vehicle) while Uber, according to various estimates, has between 5 lakh and 6 lakh driver partners on board. Ola operates in 125 cities across India and Uber operates in about 35-40 cities.

Market share

According to Kalagato, a market and competitive intelligence company, Ola has witnessed a rise in market share from 53 per cent in July 2017 to 56.2 per cent in December last year.

Meanwhile, Uber’s market share decreased by about 2.4 per cent to 39.6 per cent during the same period based on app downloads and usage data.

Simply put, Ola is at least two times larger than its American rival on market share in terms of daily rides completed. Uber could not be contacted for details regarding its market share.

Jain Ambavat and Associates, which carried out the valuation of Ola, says the company is expected to post a net profit of ₹1,170 crore for 2018-19 which is expected to grow to over ₹6,000 crore by 2020-21. Uber has also raised various concerns regarding its business in India.

These include the use of cash to pay drivers, which it said could result in several regulatory, operational and safety issues and failure to comply with them could lead to suspension of its operations.

It said countries like India are liable to impose competition law which local competitors could use to their advantage affecting the prospects of Uber there.

Related Topics
comment COMMENT NOW