Ola's cab business is failing

Bhavish Aggarwal’s troubles aren’t ending. The electric

scooter fiasco has kept people so occupied over the past
six months that the rapid decline in the cab business has
gone almost unnoticed. But here’s the thing about bad
news: it always comes out.

So when Moneycontrol reported in March that ANI

Technologies—the parent company of Ola, which was
previously seen making its debut on the public markets
this year—is planning to raise a new round of funding at a
lower valuation of $5 billion, it didn’t surprise people who
have been tracking the company for the last few years.

Ola was last valued at $7.3 billion in December 2021,

when it raised $139 million in its Series J round, widely
seen as the startup’s pre-IPO round. Before that, it raised
$500 million from private equity firm Warburg Pincus and
the Singapore government’s fund Temasek Holdings in
July in a secondary sale of shares, giving early investors a
partial exit. In December, the company also raised $500
million through a term loan B from institutional investors.

This is not the first time the company has done a so-
called down round. Five years ago, the company raised
$330 million at a 30% discounted valuation at the time.
But a down round now—Aggarwal told Reuters in
December that Ola will go public in the first half of 2022
—puts a big question mark on the company’s IPO
dreams. It also signifies a sharp reversal in the fortunes of
a company that once represented India’s startup
ambitions.

“Ola needs an urgent infusion of capital to solve its

problems. The $500 million [loan] it raised last year is
sitting outside India. Worse, Ola has to pay millions of
dollars in interest on these funds,” says a person in the
know, asking not to be named. “I hear that there are no
takers even at a lower valuation.”
It gets worse. Over the last few weeks, several key
executives have left the company. On 5 May,
Moneycontrol reported that Ola’s vehicle commerce CEO
Arun Sirdeshmukh and its chief of group strategy Amit
Anchal have quit.

Ola refuted the news of Anchal quitting but confirmed

that Sirdeshmukh was moving on and that group CFO
Arun Kumar G.R. would now have an expanded role,
managing day-to-day operations.

“There was a lot of pressure on Sirdeshmukh. The

scooters are so faulty that the cab network was fixing
them, which overwhelmed the system and must have led
to a showdown,” says the person quoted above. “But can
you imagine the finance head of a company running
business, finance and auditing, all at the same time?
What does it say about corporate governance at Ola?”

He goes on. “As things stand today, Anshul Khandelwal,

Ola’s chief marketing officer, is running the show in the
mobility business. What does it tell you about the
company’s lack of leadership? Or the lack of interest of
its founder?”

Three days later, The Economic Times reported that

Dinesh Radhakrishnan, who handled critical engineering
functions across both Ola Electric and Ola, had also quit.

It is important to point out here that ANI Technologies,

which calls itself a tech company, has been running
without a chief technology officer for nearly two years
now. After Ankit Bhati, Aggarwal’s batchmate from IIT
Bombay and Ola’s co-founder, distanced himself from
daily operations in 2019, Riddlr co-founder Brijraj Vaghani
took over the engineering and product verticals as CTO
of the mobility business, but he too left a little over a year
later.

For two years, the company ran on bravado, fuelled by

hopes of an IPO. Larger structural problems—attrition,
mismanagement and engineering challenges—were all
sidelined by the grand vision of a blockbuster public
listing. Only Aggarwal could have pulled it off. After all, he
hyped his electric vehicle business and turned it into a
unicorn, or a startup valued at or over $1 billion, without
even having a product.

But the market is a great leveller. Even the mightiest

aren’t immune to market forces. Ola’s IPO hopes have
come crashing down in the last few months as tech
stocks worldwide have taken a beating and Ola,
desperate to raise money, has had to slash its valuation in
the private market to attract investors. Even that seems
to have failed to generate any interest.

Add to that the issues around the existing business—

supply-side problems, overpriced cabs, high
cancellations, general lag and crashes, phantom
bookings, the list goes on—and Ola’s cab business
seems ripe for a disruption itself.
There is no way to sugarcoat this: the cab business, at
the core of ANI Technologies and contributing nearly
90% of the company’s revenue from operations, which
itself declined 64% to Rs 983 crore in 2020-21, is on the
verge of a collapse.

How did we get here?

Ola didn’t respond to an email with a detailed set of

questions sent on 11 May.

Supply woes
The cab business has been on autopilot for a while, and
the wheels are finally coming off. This couldn’t have
come at a worse time. The pandemic has wiped out
business in the last couple of years. The two big shared
mobility companies—Ola and Uber—have cut back on
incentives to improve their margins, which has left their
so-called driver-partners struggling to make ends meet.
Faced with medical emergencies, the high cost of living in
big cities and declining incomes, the majority of this
workforce has moved back to traditional sources of
livelihood. Most have returned to their native places and
agriculture. Many of them have become daily wage
earners.

“The situation is terrible,” says a second person in the

know, who also asked not to be named. “There are no
cars in the system. The pandemic wiped off nearly 30%
of the cars from the system. Some were taken away by
banks. Some driver-owners never returned.”

The situation on the ground is even worse. Tanveer

Pasha, president of the Ola and Uber drivers’ association
in Bengaluru, says there are only 30,000 cabs on the road
currently in the city, compared with over 100,000 cabs
before the pandemic.

The cab-hailing business went through a boom between

2013-14 and 2017-18. Tens of thousands of cars were
added to the system as the companies lured drivers with
attractive incentives. Thousands of people left behind
their livelihoods—some even left stable jobs—to drive
with Ola and Uber. Then things changed.

“Initially, if they charged Rs 100 for a ride, they used to

keep Rs 20 and we used to get the rest,” says a driver-
partner who has been driving with both Ola and Uber for
over five years, requesting not to be named. “Just before
COVID-19, they almost discontinued all the incentives.
During the pandemic, there was no income and no
support from the companies.”

Today, he says, Ola charges up to 30% commission. “We

don’t understand their calculation. Uber charges almost
the same but their calculation is straightforward. Ola’s is
very difficult to understand and somehow we always
make lesser money on Ola than Uber,” he adds.

Sure, Ola has been able to better its margins, but it has
come at the cost of the drivers. Then fuel prices began to
rise. After paying for fuel, car loan instalments and
commissions, there is little left for the driver.

“They are now discovering that delivery has more

opportunity and pays better,” says the first person quoted
above. “There is more demand. From Amazon to Zepto,
everyone needs delivery people. So no one is buying cars
anymore.”

The on-road life of a car attached to a cab service is

generally about five years. Extend it by one year on
account of the pandemic. So all vehicles added around
the boom years of 2014-15 are on their way out. And
there are no signs of addition to the fleet.

“Every day, cars are going out of the system without

being replaced,” says the first person. “As a result, cab
rides on Ola are becoming extremely expensive. For a 3
km ride in south Mumbai, one has to pay a minimum of Rs
150, which goes up to Rs 500 in peak hours. It is mad.”

It has reached such a level that after a flood of

complaints about cancellations and surge pricing, the
government on 10 May pulled up cab aggregators and
asked them to solve consumer complaints or face penal
action.

The Motor Vehicle Aggregators Guidelines, 2020 define

taxi fares in states, cap surge pricing at 1.5x the base fare
and mandate that 80% of the applicable fare be paid to
the driver. They also have clear guidelines for
cancellations. But the lack of oversight from the
authorities has let the companies have a free run.

“Truth be told, and as much as the prices hurt me, this is

what is saving the driver today. Once this gets regulated,
there would be more mayhem,” says the first person.

What the company needs is a concerted effort to sort out

these problems. There needs to be clear communication
to drivers and consumers. Then small fixes. Like allowing
the driver to withdraw the money he has earned when he
wants. Uber did it way back, even with its comparatively
slower machinery. Then why is Ola so far back? It brings
us back to the issue of attrition.

“There are no people. Every engineer who made or knew

about the system is out. And there is no documentation
of the processes,” says the first person. “It is so bad that
till about six months ago, people were told not to touch
the mobility code because if it were to break, there was
nobody who could fix it.”

Generally, when you hire people in top positions in a

company, it takes them 8-12 months to understand the
culture, find their feet and get a handle on operations.
Only then can they start contributing in a meaningful way.
At Ola, a year is a long time. Most people leave within a
year. Dozens of senior executives across verticals have
left the company in the last three years. Again, it is so
well known that it is considered almost normal in Ola’s
context. Till you understand the magnitude of the
problem.

“Bhavish’s employee ID is 1. Ankit Bhati is employee

number 2. Right now, the employee ID is running in the
series of 50,000. And how many people are there with
Ola today? Around 1,500,” says the first person. “In just
about a decade, nearly 50,000 people have left the
company.”
And whoever is left in the engineering team is busy fixing
problems with the electric scooter, which are getting
worse by the day. In yet another example of how unsafe
the scooter is—we have documented the customer
experience of the scooters as well as the fire incident in
detail—one user took to LinkedIn to explain how a
software bug led to an accident in which his 65-year old
father suffered multiple injuries to his head and hand. It
has come to a point where the company has run out of
PR spin, feel-good narratives or ambitious plans, and
even arrogance, to counter public outrage over such
incidents. On 10 May, Reuters quoted Aggarwal as saying
during a private event that there might be “more fires in
electric scooters in the future, but such incidents are very
rare”.

They all fall down

It wasn’t always like this. By the time Uber realized the
opportunity and sought to enter the Indian market in
2013, Ola was up and running. On the back of a bunch of
hustlers from IIT Bombay, it didn’t just take an early lead
but also stayed way ahead of its larger competitor. Ola
had a huge opportunity and a massive advantage: it
wasn’t just the first mover, but also had the local know-
how. It did well, too, in the initial years. And then Aggarwal
lost patience.

He wanted to grow too fast, too soon and, in trying to do

that, spread himself too thin. Take, for example, the food
business. Here’s from our previous story:

Ola tried its hand at the food business twice. In 2015, it

launched Ola Cafe, which was shut down a year later. In
December 2017, it acquired Delivery Hero’s 95% stake in
Foodpanda for nearly Rs 200 crore in an all-stock deal. It
committed another $200 million (nearly Rs 1,200 crore)
over time in Foodpanda. Foodpanda then bought
Holachef in October 2018. By May 2019, both were
shelved due to heavy losses.

“So many of us told Bhavish not to get into the food

business because it is a very high burn business, but
Bhavish said he was convinced and wanted to show the
middle finger to UberEats,” says a third former executive,
also requesting anonymity. “The hundreds of crores of
rupees that went down the drain due to his whim was not
Bhavish’s money. If I’d burn that kind of money in a public
company, will I still have my job?”

Cut to 2021, and nobody knows what is happening with

Ola’s food vertical anymore. As long as Pranay Jivrajka—
another IIT Bombay graduate and a long-time associate
of Aggarwal—was there, there was a focus on building
brands. After he left in March this year, the business got
stuck. In August, Ola brought in former Café Coffee Day
CEO Vinay Bhopatkar to lead the vertical, which was
renamed Ola Delivery—Ola’s version of Swiggy’s
Instamart. It recently launched grocery deliveries in
Bengaluru and Mumbai.
From ‘Bhavish Aggarwal is choking Ola’ • The Morning
Context

In April, The Economic Times reported that the company

was massively restructuring its quick commerce business
and had fired over 2,000 contract workers.

“Around 150 such stores out of 200 are closed today,”

says the first person. “But they had signed long-term
leases—running up to 6-8 years in some cases—for
these stores. So they are still paying rent for them. If you
consider an average rent of Rs 2 lakh per month for such
stores, that’s Rs 36 crore wiped out of the company’s
books in a year.”

Or take Ola Cars, a platform for buying and selling used

cars, which was launched in October 2021 in 30 cities
with a plan to scale to 100-plus cities by the end of this
year. Like it did in the cabs business, Ola promoted it
aggressively with discounts of up to Rs 10,000 per car. In
November, Aggarwal tweeted that the company had sold
more than 1,000 cars through Ola Cars.
But hype doesn’t always translate into good business—
Ola Electric’s scooters are a stark reminder. The used
cars business was always in trouble. People complained
about tech issues and the overall experience on the
website. Some pointed out that the prices quoted on Ola
Cars were higher than other such platforms selling used
cars. On the other side, the company was burning cash
massively.

On 6 May, The Hindu BusinessLine reported that the

used cars retail business was “shutting down operations
in five locations—Nagpur, Visakhapatnam, Ludhiana,
Patna and Guwahati…”

Then there is the financial services business that was

going nowhere since the departure of CEO Nitin Gupta in
2020. It is yet to be seen how this business shapes up
after Aggarwal acquired Avail Finance from his younger
brother in March.

There is nothing substantial left in the global business to

talk about. Like most of Agagrwal’s businesses, the global
expansion was also hyped a lot but has eventually
become a drag on the overall revenue.
“Bhavish spent hundreds of millions of dollars on these
businesses. To what effect?” asks the second person
cited above. “He threw money at problems, thinking it
could solve them when they needed to pause, think, fine-
tune and overhaul some businesses. And It has come to
haunt Bhavish now.”

As things stand today, none of these businesses are

working. And the cabs business, as is proven globally,
can’t make money on a standalone basis. COVID-19 was
the last straw that broke the camel’s back. Aggarwal, say
people in the know, sensed it and distanced himself from
the business and focused entirely on the EV business.

“Bhavish knows the IPO is unlikely. People are not happy

with growth anymore. They want profits. Look at the
shares of Zomato and Paytm, for example,” says the first
person. “Even Delhivery saw its premium falling 20% in
the private markets just before listing. At Ola, you’re not
even growing because of the supply-side constraints.”

“So you have no supply, no people, all the other

businesses are as good as shut, your public perception is
gone as are investors. Your valuation is plummeting,” says
the second person quoted above. “If investors want any
return, they need to force things.”

Complicit silence?
What is perplexing is the complete silence of the board,
which, through its silence, is an equal participant in the
decimation of Ola’s valuation. From Ola Electric being
carved out of ANI Technologies, to Aggarwal acquiring
over 92% shareholding, to employees on ANI
Technologies’s payroll being sent over to Ola Electric, to
Aggarwal going overboard in helping his younger brother
set up his business and eventually buying it, the board
has been caught napping. From our previous story:

Arguably, investors shouldn’t have been comfortable with

transactions such as the transfer of Ola Electric to one of
the founders. That major investors don’t seem to mind is
another matter. According to one of the executives, the
board has lost interest. Aggarwal, he says, doesn’t hold
board meetings. The ones he does are mere formalities.
He doesn’t send monthly updates to investors either.

From ‘Ola EVs face battery issues’ • The Morning Context

“If you look at some of the investors’ portfolios, Ola has

been their biggest and only hit for the longest time. They
have Bhavish’s photo on their website,” says the first
person. “Those investors owe a lot of their personal
wealth and professional success to Bhavish and are at his
beck and call. You can’t expect them to hold Bhavish
accountable.”

“SoftBank could, but after their famous fallout with

Bhavish, they don’t care anymore,” the first person points
out. “And since the likes of SoftBank and Matrix are
silent, no one else wants to speak up and pick up a fight
with him.”

That is one aspect. The other aspect is that several early

investors, including VCs, have diluted their stake or
completely sold out when they still could. In July 2021,
when Temasek Holdings and Warburg Pincus bought
shares worth $500 million in a secondary sale, for
example, early investors like Matrix Partners India and
Tiger Global diluted their holdings, while several angel
investors cashed out. The secondary round happened at
a steep discount of 35-50% to the company’s then
valuation of $6.5 billion.

But wait, there is something even more interesting.

SoftBank, Matrix Partners India and several other
investors in ANI Technologies are also early investors in
Ola Electric, which has grown rapidly and reached a
valuation of over $5 billion in three years since it was
spun off from ANI Technologies. It is the same valuation
that ANI is seeking, according to the Moneycontrol
article, after 12 years and millions of dollars in investment.

“The EV company has got a sharp valuation in a shorter

time compared with the cabs business. As a result,
investors like SoftBank and Matrix Partners are still
making money, so they have no reason to wake up and
smell the coffee,” says the first person. “But it is the late
investors like Warburg Pincus who will suffer the most
when things go down, which they will. It is just a matter of
time.”

Ola’s cab business and, by extension, ANI Technologies

are empty shells of their formidable past, in which no
one, not even the founder, has any faith left.

Amid this mayhem at Ola, others have smelt blood. Uber,

for example, said it is planning to hire 500 more tech
employees in India by December, in what the company
said is a testament to its commitment to the country. The
announcement came two days after CEO Dara
Khosrowshahi said the company will scale back hiring,
reduce costs and focus on becoming a leaner business to
address a “seismic shift” in investor sentiment.

“Uber has become aggressive. It was always better in the

cars business. Ola was doing well on the back of
autorickshaws, in which it had a 70% market share,” says
the second person quoted above. “Now Uber has clawed
back 10-15% of the market and Rapido has surprisingly
taken the lead with nearly 50%, leaving Ola far behind.”

But that said, the ubiquitous cab-hailing business,

turbocharged by investors’ dollars and riding on
incentives to drivers and passengers, is dying. The forced
equilibrium is also on shaky ground. You can’t call people
entrepreneurs and expect them to risk their livelihoods on
a daily basis. It is inappropriate, even cruel.

“There is a market for cab-hailing, but it is small. And

people are realizing that to make money on a standalone
cab-hailing business, you have to price it at about Rs 30-
40 per km. That’s when the economics make sense,”
says the first person. “I think cab services like Meru were
about 15 years ahead of time.”

Asset ownership has to be with companies; those that

have the depth in their balance sheet to own a fleet, can
hire quasi-employees and do business with a healthy
average and income. “If you ask me, we are back to 2010,
where people are taking city-specific best cab services
and are willing to pay for it. And the market is ready for
another disruption,” says the second person.

But what about Ola? And Bhavish Aggarwal?

“He has to maintain his bravado, keep reiterating that all

is well, let the business die silently and focus elsewhere,”
says the first person. “It is just a matter of another 18
months.”