Ather Energy is a good way to play the EV transition opportunity

[Pee Vee]

Ather Energy has been a product-focused company, which has emerged as one of the tech leaders in the electric scooter space. Its products have been on par, if not superior, to products of market leaders like TVS Motor and Bajaj Auto. While the above-mentioned ICE 2W incumbents have the advantage of established dealer networks, strong supplier relationships, and available cash flows, Ather Energy has been able to compete well at a stable No. 4 position with a retail market share of 13.4% in 5MCY25. With an expanding product portfolio, rapidly expanding dealership network, and improving focus on marketing and advertising, we expect the company to outgrow the industry over the medium term and gain market share. We expect unit economics to improve in the medium term, given the improving economies of scale, better operating leverage, shift from NMC to LFP technology, introduction of the more efficient EL platform, and improving mix of merchandise and accessories. The expansion of its product portfolio (to also include more affordable models) and dealership network is the right ingredient for scaling up. We strongly believe that Ather Energy will remain one of the leading players through the EV transition. It provides a good EV pure play opportunity for investors to invest in the Indian EV transition story. We initiate coverage on Ather Energy with a BUY rating, valuing it at 3.5x EV/sales for a TP of Rs.409.

▪ Why invest in Ather Energy? We believe India is still in nascent stages of EV transition. When an industry goes through a once-in-a-hundred-years kind of transition, it augurs well to invest early in what could emerge as one of the strong leaders of the transition. We have seen similar stories playing out globally with other leading EV players. The management’s product-focused approach enables the company to be a tech leader in the e-2W space, thus positioning it well to sustain as one of the leaders in the space in the long term.

▪ Path to profitability: We expect Ather to improve profitability and become EBITDA positive in the medium term with improving unit cost economics and expected market consolidation that could lower competitive intensity. As the EV ecosystem improves in the medium term, we expect localization to improve, further contributing to profitability.

▪ Risks to watch out for: A key medium to long-term risk is the low stake of key promoters, Tarun Mehta and Swapnil Jain, who also took part in the OFS, taking their combined post-IPO stake to around 11%. Considering the promoters initially wanted to start an energy company, one risk could be promoters starting new businesses that may limit their bandwidth for Ather Energy, as has also been the case with tech icons like Elon Musk. Another risk is that of Hero MotoCorp (holds around 30%) acquiring controlling stake, which could lead to management changes. An impending risk over the medium term is increase in GST on EVs from 5% currently to 18% or 28%. A key near-term risk emanates from restrictions and compliance hurdles that China has imposed on the access of rare earth magnets, which are critical for making EVs, and could impact near-term EV production.