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Ola, India’s largest ride-hailing start-up, is projected to turn profitable by 2018-19 and rake in $1 billion as profit by 2021, according to an independent agency the company employed to value it. The projections, part of the firm’s valuation report dated March 18, 2017, stated that the firm would achieve a net operating profit after tax of Rs 1,170.49 crore in 2018-19. In the subsequent two years, profits after tax would grow to Rs 3,326.99 crore and Rs 6,423.33 crore, respectively. The report, compiled by Jain Ambavat & Associates in March, was part of Ola’s disclosure to the Registrar of Companies and was made public last week. Ola declined to comment for this story. Based on the company’s earnings projections, the accounting firm set a fair value of Rs 13,520 for each share of Ola. With the total of 17,095,119 shares in the company as of February 28, 2017, the overall valuation of the company amounts to Rs 23,112 crore. At a conversion rate of Rs 66.72 per US dollar (exchange rate as on Feb 28, 2017) the valuation of Ola comes up to $3.46 billion, which is in line with the valuation at which Ola raised $1.1 billion in a funding round led by Tencent and participation from its largest investor Softbank. Globally, it is standard practice to value a company based on future cash flows. Aswath Damodaran, a professor of corporate finance and valuation at the Stern School of Business at New York University, has valued Uber, Ola’s global rival at $ 36 billion based on such calculation. This is half of $ 69 billion valuation that Uber commands making the most valued private company in the world. Japanese investor Softbank, which owns majority stake in Ola, is looking to invest around $ 1 billion in Uber at the $70 billion valuation, while planning to invest significantly more in the secondary market at an estimated valuation of $50 billion. Softbank, the largest investor in Ola, which controls 37-38 per cent stake in the ride hailing company, held back from investing a further $1 billion in the company over a growing discord between it and the founders.
The firm had said it would keep its investment commitment if Ola achieved set performance targets, which in all probability are the same numbers reflected in the company’s valuation certificate.In the fiscal 2015-16, Ola reported a loss of Rs 2,313.6 crore, nearly three times higher than the losses the company posted in the previous 12 months. While the company has not disclosed its profit or losses for fiscal 2017, the valuation certificate estimated that losses in the year would fall to Rs 845 crore. Ola has been cutting costs over the past 18 months, starting with reducing incentives paid to drivers, so it is very possible that losses seen in 2016-17 could be lesser than in the previous year. However, it is to be seen if the company has delivered on its projection of reducing burn by nearly a third compared to the previous fiscal year. While Ola is looking to rope in new investors to fund its growth, Softbank is in talks with Tiger Global to purchase an additional 10-12 per cent stake in Ola, the Business Standard reported on Monday. The Japanese investor is looking to increase its stake to around 50 per cent in Ola ahead of its planned investment in rival Uber’s global operations. Softbank is increasingly looking for a controlling seat in Ola as it plans to execute its strategy to become a dominant force in the ride hailing ecosystem globally. The founders, on the other hand, are fighting back to retain control. Ola has amended its articles of association to disallow investors to sell their stake in the company to each other without the prior approval of the founders.