Moody’s affiliated credit rating agency ICRA has downgraded Ola Electric Technologies Pvt Ltd and its subsidiary Ola Cell Technologies on the concerns of continued cash burn for a “longer-than-expected” period and profitability. Reviewing the company’s long and short-term debt of ₹1,887 crore given by lenders like Bank of Baroda, Indian Bank, Axis Bank, the agency has downgraded its creditworthiness from A/A1 to BBB+. Icra noted that even though Ola leads with a market share of 30% in the e-2-wheeler, its competitors like Bajaj Auto, TVS Motor Company (TVS) have strengthened their market share together to nearly 40% in FY25, from around 7% in FY22.

Even as the company faces challenges such as claims regarding service backlog issues, alleged lack of compliance requirements at showrooms, and slow volume growth, "Operating leverage benefits have been slow to come by and thereby losses have been running higher than earlier estimated. The company reported a net loss of around ₹1,600 crore in FY2024, which—as per ICRA’s estimates—is expected to increase to around ₹1,900-2,000 crore in FY2025. Profitability pressures, however, are expected to ease in FY2026 and thereafter,” Icra noted.

Listing the challenges that the company could face while raising more credit in the future, Icra noted that even though the company saw a healthy volume growth over 2-year period of FY22- FY24, its growth has moderated (3.44 lakh units in FY2025 over 3.26 lakh units in FY2024) in FY25 due to increased competition and reduction in Government subsidies under FAME. Further, the company’s operating margins have also been in the negative as margins for 9M FY25 stood at -26.7% compared to -22.7% for FY2024. As the company depends on imports for critical components, any supply-chain disruptions could also impact its operations. Another notable headwind is also the sizeable capex plans of the over medium term for setting up battery cell manufacturing capabilities.

Even as Icra sees the current liquidity position of the company adequate, with unencumbered cash and bank balances of around ₹3,109.8 crore as on March 31, 2025 (at a consolidated level) and a part of this earmarked for capex, and research and development, “The available cash balances coupled with debt drawdown for OCT are expected to be sufficient to meet the funding requirements in the near term. ICRA expects the company to continue to raise further funds over the medium term, to be used primarily for capacity expansion, new product development and geographic diversification, etc,” the note said. Icra also sees the government’s push and support for electric vehicles and Ola’s leadership position in market share along with its plan for backward integration like setting up of its battery manufacturing facilities as some of its strengths.

Separately, the rating agency also reviewed loans worth ₹1,910 crore of Ola Cell Technologies Pvt Ltd (OCT), a fully owned subsidiary and downgraded it from A3 to BBB-(Negative) given the closely linked financial implications of its parent having a spillover effect. “The downgrade in the long-term rating along with continuation of the Negative outlook factors in the weakening of the credit profile of the parent entity due to weakening in performance of OEML’s automotive unit, led by increased competitive intensity and a longer than expected road to profitability,” Icra noted.

As Ola has invested nearly ₹1,200 crore as of September 2024 for its 1.4 GWh lithium-ion cell manufacturing capacity in Krishnagiri, Tamil Nadu and capacity expansion for another 5 GWh is underway. “The company’s capex plans towards building capacity are expected to be funded through a mix of debt and equity; the group had also raised funds in the IPO to aid a ramp up in the capacity to 6.4 GWh. The parent entity, OEML, has provided a corporate guarantee for the project debt,” the credit rating agency said in its note dated May 1.

While Icra expects liquidity to remain adequate with the listed parent providing funding support, Ola Cell Technologies has nearly an undrawn term loan of ₹1,000 crore as of March 2025. “While the company has significant capex plans of ₹1,800 crore over FY2025-FY2026, the same is expected to be funded through a mix of equity from OEML and debt. Moreover, its repayment obligations are not expected to commence before Q1 FY2027. OEML is likely to extend timely and adequate financial support to OCT, as and when required,” Icra noted.