India Business and Finance, August 1st

Electric Scooters, China confusion and vulture appreciation. What happened in India over the past week

What an electric scooter public offering says about India

In the largest public offering of the year, Ola Electric will sell in excess of $730m worth of shares, valuing the company at $4bn. The price is down significantly from what was discussed last December when an initial draft of the prospectus was filed and down from the $5.4bn valuation during September, its last funding round with venture capital money. The decline reflects the broader trend in India’s startup world, which took off in 2021-23 and has since been notable for disappointing announcements. Ola’s founder, Bhavish Aggarwal, said the lower price was to “make sure we price it attractively for the entire community of India” which sounds democratic but actually means he needed to find a new group willing to put up money. The offering price will leave the most recent venture investors with significant losses but those who got in at the very beginning will still have made large returns.

The offering raises several different issues, the first about the ability of an aggressive startup to squeeze itself into a highly competitive business that may be undergoing profound change (from petrol to electric power), the second how India’s capital markets have changed in just a year. To answer the latter question first, the Indian stock market has been hot and open to new offerings at the same time as the foreign investors who dominated the private venture market have pulled back after being badly burned. The Ola share sale is unfolding at the same time as an insolvency battle is unfolding over Byju’s, an edtech firm that in 2022 was valued at $22bn at what in retrospect was the peak of the market. An Ola sister company, a once highly touted ride hailing app, has suspended its own public offering while sacking staff and closing foreign operations to cut costs.

Of the money Ola is raising, $77m will be extracted by current owners, including the largest chunk, $34m, but its founder and boss, Bhavish Aggarwal. But the real importance of the offering is that the company needs capital at a time when the private market has shut. In the fiscal year concluding at the end of March, Ola lost $573 on each of the 330,000 electric scooters it sold. Borrowing has risen 45% to $285m. It intends to spend $191m on r&d and another $147 on its manufacturing facilities to enable battery production. At the very least, the offering shows the fortuitous flexibility of Indian capitalism, at least in the case of this particular electric scooter company.

As for the company itself - it turns out that the market is quirkier than might be imagined. The formidable electrical vehicle competition in cars coming from China is limited because of Chinese regulations, either for safety or to protect its car industry, limit speeds on electric scooters to something like 25 kph. Indian anarchy is not so fussy. Scooters are routinely stacked with boxes and entire families who zip through gridlock traffic at remarkable speeds. Ola’s scooters top out at 120 kph, a crazy number given the country’s poor roads but it isn’t entirely unusual to see a tiny blue or orange Ola zipping past a lumbering Mercedes. Though initially plagued with mechanical problems that were heavily documented on You Tube, they have extensively filmed during the current monsoon, partially submerged, ploughing through India’s flooded roads.

To Ola’s credit, it recognized a promising niche and it moved quickly - and thus is emblematic of an appealingly entrepreneurial new India. It has a market share of 35% which, presumably, can be sustained by a combination of innovation and ( because of the continued outside funding) losses on each sale until economies of scale kick in at some point in the not too distant future. On the flip side, it now faces competition from some of India’s most adept companies, notably TVS and Bajaj, with far better resources, superb engineering and excellent reputations for reliability, along with several other upstarts. The optimistic case is that the Indian market is so large – on the order of 20m or so two wheeled vehicles are produced a year – that there is room for entry at a moment of technological change. The pessimistic case is that Mr Aggarwal’s decision to be a seller (albeit of just a sliver of his holdings) in the current offering is a message about what a truly informed person might do.

India’s confused approach to China

The annual Economic Survey released by the Indian government on July 22^nd argued that it was in India’s interest to have stronger ties with China, the underlying premise being that Chinese investment, manufacturing expertise and links to global supply chains could accelerate India’s own development. This is a particularly sensitive subject because the two countries are involved in a sometimes hot but usually cold war along their mutual border, because China is already India’s largest trade partner almost entirely because of Chinese exports to India and because India considers China a threat to be a ruthless commercial competitor. A consequence of Indian suspicion is that Chinese investment undergoes an especially rigorous review and the usual Indian barriers to outside business seem to be even more strictly imposed. The Economic Survey was taken by some as an indication that the views of the Indian government had changed, and restrictions softened. Absolutely not, responded the country’s key commerce and Industry minister, Piyush Goyal, in comments before the Confederation of Indian Industry, a key trade group, on July 30th. Mr Goyal has in the past made supportive comments about the virtues of unequivocal free trade of the sort that would be familiar in a classically liberal western university class (assuming any still exist) but when it comes to China, the internal struggle within much of the Indian government is to create an entirely new paradigm for China that captures benefits without corrosive accompanying economic consequences.  

Is the Ambani/Reliance brand faltering?

While the Ambani brand was the source of unending attention because of the world’s costliest wedding, the Ambani retail business seems to be losing momentum. In the most recent quarter it opened 331 stores, the lowest number in years, and it closed 249. The Ambani family, through Reliance, has clobbered competitors in businesses with heavy regulatory/government involvement, notably telecom and refining. In retail, though operating under provisions that are more favourable than available for foreign firms, Reliance faces a vast array of domestic competition that is easy to underestimate. The overstuffed, modestly furnished stalls run by hawkers seem to draw the kind of wildly excited crowds that are absent in Reliance malls. The potential customers for its most expensive offerings – the things that would not be sold from a street stand - may prefer to shop overseas, where, because of heavy Indian tariffs, prices are lower.

Trade wars

Only America, which began 64 anti-dumping investigations, had more than India, which began 45. These battles presumably will only increase as countries try to replicate, or to protect themselves from, a Chinese mercantilist approach to economic growth.

Justice delayed

Mohandas Gandhi and Jawaharlal Nehru, two of the founding figures of modern India, were both lawyers trained overseas. They would not be welcome in the country today. The Advocates Act of 1961 began the construction of legal impediments for foreign lawyers in India. It was followed by a supreme court decision in 2021 blocking them entirely, and then a parliamentary decision allowing them limited rights to practice resulting in 2024 – effectively no change. Numerous enabling rules have not been adopted. It has been argued that India’s clogged legal system benefits local lawyers who can string a case out for years. The same self-interest would explain the impediments to outsiders.

The virtue of vultures

Reflecting its ongoing focus on the non-human participants in Indian life, a story in The Times of India links the decline in vultures to excess human deaths. In the absence, festering carcasses have led to an increasing number of rats and feral dogs, which in turn has led to more rabies and other serious diseases.

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