The Indian startup ecosystem is witnessing a harsh reality as companies race towards initial public offerings (IPOs).
With a sharp focus on improving profitability, many startups are resorting to layoffs, leaving employees and stakeholders with a sense of unease. In a recent development, Ola Electric, gearing up for its IPO this year, is reportedly laying off 400-500 employees across various verticals. Founder Bhavesh Aggarwal has been steadfast in driving cost-saving initiatives across all fronts.
However, the exact magnitude of these layoffs remains uncertain as the leadership team of Ola Electric is still in the process of determining the extent of the downsizing across different verticals, according to ET’s sources.
It’s also noteworthy that Bengaluru-based Ola is exploring the possibility of hiring new employees at a relatively lower cost. This strategic move reflects the company’s ongoing efforts to strike a balance between financial optimization and workforce management amidst its preparations for the IPO.
Interestingly, this isn’t the first time Ola is streamlining operations by firing employees. In April of this year, Ola Cabs parted ways with its chief executive officer, Hemant Bakshi, just four months into his tenure. Merely two weeks later, chief financial officer Kartik Gupta also resigned as part of the company’s ongoing restructuring efforts. This restructuring process also included cutting approximately 180 additional jobs.
“The focus across the group is to get to profitability as both units – cabs and electric vehicles – are in various stages of going public. That’s the mandate from Bhavish Aggarwal,” a source revealed to ET.
In fiscal 2023, Ola Electric reported a net loss of Rs 1,472 crore against operating revenue of Rs 2,631 crore. Moving into the first quarter of fiscal 2024, the EV company incurred a net loss of Rs 267 crore on operating revenue of Rs 1,243 crore. On the other hand, ANI Technologies, which operates the ride-hailing business, reported a loss of Rs 1,082 crore in FY23.
IPO Bound Indians Startups Layoffs
Ola, however, is not alone in its quest for profitability ahead of its IPO. Several other prominent startups, including Swiggy, Cult.fit, Oyo, Udaan, and many others have laid off their employees as they navigate the challenging terrain of scaling operations while minimising losses.
In January 2024, Swiggy announced a 6% workforce reduction, affecting approximately 400 employees across various departments, such as technology, call centre, and corporate roles.
Similarly, Cult.fit fired around 150 employees in January this year. The fitness company is working towards an IPO in the next 12–18 months.
Additionally, B2B e-commerce unicorn Udaan, which is planning to go public by 2025, terminated 150 employees in December 2023, which accounted for about 10% of its total workforce. The company has indicated intentions to sack more people in the coming months.
According to Dazeinfo sources, over a dozen other Indian startups are reevaluating their payroll in a bid to reduce headcounts and achieve profitability. This would result in more layoff announcements within 1-3 months.
Financial Realities of Indian Startups Going Public
The prevalent trend of layoffs among Indian startups preparing for their initial public offerings (IPOs) is indeed concerning. A recent report by the Financial Express (FE) highlights that more than half of the Indian startups gearing up for IPOs this year are still struggling with losses. Among the 12 companies that have filed their draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi), eight are struggling to achieve profitability, collectively incurring losses totalling Rs 8,000 crore. This group includes unicorns like FirstCry, MobiKwik, and Ola Electric. Notably, Swiggy and Ola Electric are the primary contributors to this cumulative loss.
Although profitability is not a mandatory requirement for IPOs, the National Stock Exchange (NSE) mandates that companies demonstrate operating profit or earnings before interest, depreciation, and tax for at least two of the three preceding financial years.
Investors are more inclined to invest in companies with a clear path towards sustainable growth and profitability, indicating a robust business model and the potential for long-term returns. This confidence in a company’s prospects for profitability can improve its valuation, leading to better share pricing during the IPO and potentially attracting more capital from investors.
However, the widespread layoffs in Indian startups can be attributed to various factors, including aggressive hiring during the COVID-19 pandemic, the integration of AI technologies in organizational operations, and poor management practices. Additionally, some of the biggest startups, such as Swiggy, have seen a decline in their valuations due to a reduction in fundraising activities in India. This has prompted them to fire more high-paying employees and transition towards hiring interns and fresh graduates.
As the IPO rush in Indian startups has triggered mass layoffs, reskilling has become crucial now. All eyes on Ola IPO, and many more!!!
