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BikeWo GreenTech

• BikeWo GreenTech is coming out with an initial public offering (IPO) of 38,86,000 equity shares in a price band Rs 59-62 per equity share.
• The issue will open on September 20, 2024 and will close on September 24, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 5.90 times of its face value on the lower side and 6.20 times on the higher side.
• Book running lead manager to the issue is Khandwala Securities.
• Compliance Officer for the issue is Rakshita Agarwal.

Profile of the company

BikeWo GreenTech is an electric two wheeler retailer in India. It commenced its business operations in 2016 and its revenue from operations has been steady since then. The company since its incorporation had been engaged in the business of buying and selling of used four wheelers from authorised dealers of reputed automobile brands (New Car Dealers). As part of its pre-owned vehicle sale business, the company procures used cars from New Car Dealers, who are approached by prospective customers, who wish to sell or exchange their existing vehicles for a new vehicle. Post procuring used cars through such channels, it further displays them for sale at various sites/ park and sell outlets of its designated used car dealers.

The company acts as an intermediate channel between the New Car Dealers and its designated park and sell used car lots, by supplying the used cars for sale and earning a margin during the sale of such cars. It has created a small network which undertakes every element of automobile buying from searching for a vehicle, creating buying requirements, price discovery, booking, certification to purchase and financing and doorstep delivery.

The company’s electric vehicle business focuses on capturing the opportunity arising out of electrification of mobility in India by creating a multi-brand channel for EV two wheelers by offering franchise under its brand in the Tier - I, Tier-II and Tier-III cities. The company’s business model focuses on creating a dealership chain across Tier-II and Tier-III cities for setting up retail spaces which ensures high visibility and easy accessibility to customers.

Proceed is being used for:

• Funding purchase of electric two wheeler vehicles for selling and supplying the same to its new and existing dealers
• Funding capital expenditure proposed to be incurred towards setting up of eleven dealership stores in various states in India
• Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company
• General corporate purposes.

Industry Overview

Torch bearer of EV revolution in India, the Electric 2-wheeler industry accounted for 55% of the total EV sales in FY2022 alone. The overall E2W sales in India during the first half (H1) of FY2023 was about 4.56 lakh units which is more than twice the sales in H1 of FY2022. During the same period, the sales of high-speed (HS) E2W were more than 65% of the overall E2W sales. During H1 FY2023, Maharashtra recorded the highest HS-E2W sales at 53,043 units followed by Karnataka (42,371 units) and Gujarat (32,414 units). India has been witnessing tremendous EV sales growth during the last 3-4 years. E2W segment specifically is considered to be driving this growth now, accounting for 55% of the total EV sales in FY2022, against a share of 32% in FY2021. The sales of HS E2W are now more than the sales of electric three-wheeler (E3W) passenger segment, a trend which has witnessed reversal since FY2022.

The top 10 OEMs, from FY2019 to FY2022, accounted for more than 90% share of the total HSE2W sales. While traditionally, the market has been dominated by the likes of Hero Electric, Okinawa, Ampere, and Ather, the last 1.5 years have witnessed entry of players like Ola (which has become one of the market leaders) and Okaya (which has entered the top 15 club already). Interestingly, Hero Electric and Okinawa are the only two players that have recorded average annual sales of 10,000+ units over the last 4 consecutive FYs (2019 to 2022) and Hero Electric became the only OEM in FY2022 that crossed the 1,00,000 HS-E2W cumulative sales mark for the last 4 years combined. Considering the sales during 18-month period between April 2021 and September 2022, Hero Electric (1,18,893 units), Okinawa (1,00,826 units) and Ampere (67,801 units) are the top three players in the E2W-HS segment. And in H1 FY2023, Okinawa emerged as the leader in the E2WHS segment with sales of 53,550 units. It was followed by Hero Electric (49,484 units) and Ola Electric (48,015 units). Further, the combined sales of the top 10 OEMs in H1 FY2023 have already surpassed their sales in FY2022.

The last one year has witnessed multiple cases of fire incidents involving E2Ws of OEMs such as Ola Electric, Okinawa Autotech, Jitendra EV Tech, PureEV, and Boom EV. This prompted the Indian government to constitute a panel to probe such incidents. As per the probe committee, fault in battery cells and modules was the major cause of almost all E2W fires. In case of Ola Electric, the government-backed investigation team found problems with battery cells as well as the BMS. In case of Okinawa, the government’s team found an issue with the cells and battery modules while with PureEV scooters, defective battery casing was the issue. Furthermore, it was found that many E2W batteries lacked even the basic safety features such as venting mechanisms to release any build-up of pressurised gas or systems to identify and isolate failing or overheating cells. Now, with the government having revised AIS norms in relation to EV battery tests, E2W safety in India is expected to be adequately enhanced in the near-term.

Pros and strengths

EV dealership for major OEMs with a strong focus on high growth segments: The company is an EV retail business in India with dealerships for brands such as Quantum e-scooters, Bounce, GT-Force, etc. It diversified its business operations in 2022 by venturing into marketing and selling of electric vehicles and sold franchise of its brand to ten dealers during the first quarter of FY 2022, for opening and operating its stores in Andhra Pradesh and Telangana. Currently, the company has a dealer-base in Telangana, Andhra Pradesh, Tamil Nadu, Maharashtra and Gujarat markets. It is proposing to create a dealer-base in Rajasthan, Kerala, Karnataka and West Bengal, as well. The company has been honoured with awards and recognitions for its business model, for example, the company was bestowed with an award by Optimalmedia Solutions (Times Group) in recognition of the excellence achieved in electric two wheeler dealership using digital technology.

Strong dealership network: The company has a unique business model through which it markets and sells its products. Its dealer base is divided into three categories namely, state dealers, diamond dealers and platinum dealers. Its business model makes its dealers co-dependent on each other and therefore help it to build an ecosystem where each of such dealers naturally does its pre-determined tasks and also assists its subordinate dealers in arranging for stock and executing sales. In addition to this, its incentive model motivates its dealers to attract and engage further dealers thereby helping it to expand its dealer base. Further, the company also provides benefits and support to its dealers in the form of store building support, stock support, after sales service support, etc.

Robust business processes leveraging digitalization: In order to digitalise its operations, the company has inculcated the ‘Cypero’ in its business operations. With the help of such technical value additions, it is able to (i) streamline sales processes, enhance collaboration, and skyrocket productivity with its dealer sales and workflow management software; (ii) leverage advanced automation and intelligent data analytics to optimize workflows and maximize profitability; (iii) seamlessly integrate sales management, inventory tracking, CRM, and reporting tools within its intuitive platform; and (iii) stay ahead in the competitive market and unlock unparalleled success for the dealership with its game-changing solution. The company’s technological investment has helped it to effectively manage its business operations. 

Risks and concerns  

Maximum revenue comes from limited number of brands: At present, the company derives most of its revenues from the sale of products from limited number of brands, namely Gemopai, Battrie, Quantum, Enigma, etc. The company’s business and results of operations will be materially and adversely affected if it is unable to maintain a continuing relationship with these brands or develop and maintain relationships with other new brands. The loss of a significant brand or a number of significant brands due to any reason will result in sales getting impacted which will have a material adverse effect on its business prospects and results of operations. It cannot assure that it will be able to maintain historic levels of business from such significant brands, or that it will be able to significantly reduce its dependence on such limited number of brands in the future.

Dependent on dealers for significant portion of its revenue: The company’s business model focuses on creating a dealership chain across Tier-II and Tier-III cities for setting up retail spaces which ensures high visibility and easy accessibility to customers. It focuses on deepening its presence in the regions it operates in before venturing into new markets which has led it to establish brand presence in Telangana, Andhra Pradesh, Tamil Nadu, Maharashtra and Gujarat markets. It has entered into formal agreements with its dealers to market and sell EV products procured by it from third party manufacturers on payment of a pre-decided commission, thereby making it highly dependent on them for a significant portion of its revenue. The company cannot assure that the new intermediaries appointed would be reliable and contribute to its revenues in the same manner as its current intermediaries. On the occurrence of any of the events, the company’s business and results of operations could be adversely affected.

Huge working capital requirement: The company’s business requires a significant amount of working capital. In the event, it is unable to source the required amount of working capital for addressing an increased demand of its services, it might not be able to efficiently satisfy the demand of its customers. Even if it is able to source the required amount of funds, it cannot assure that such funds would be sufficient to meet its cost estimates and that any increase in the expenses will not affect the price of its services. Any delay in processing its payments by its customers may increase its working capital requirement. If it decides to raise additional funds through the incurrence of debt, its interest and debt repayment obligations will increase, and could have a significant effect on its profitability and cash flows and it may be subject to additional covenants, which could limit its ability to access cash flows from operations. Continued increases in its working capital requirements may have an adverse effect on its financial condition and results of operations.

Outlook

Bikewo Green Tech is an electric two wheeler retailer in India. The company's brand is in Telangana, Andhra Pradesh, Tamil Nadu, Maharashtra and Gujarat. The company intends to open stores and build its store network in Raipur, Indore, Delhi, Chandigarh, Lucknow, Prayagraj, Patna, Bhubaneshwar, Nagpur, Bangalore and Trivandrum. It is at various stages of negotiations to enter into arrangements for locking such retail property for its future requirements to open stores. On the concern side, the company depends on its dealers for a significant portion of its revenue, and any decrease in revenues or sales from any one of its key intermediaries may adversely affect its business and results of operations. Moreover, a large part of its revenues is dependent on a limited number of brands. The loss of any of its major brands or a decrease in the supply or volume from such brands, will materially and adversely affect its revenues and profitability.

The company is coming out with a maiden IPO of 38,86,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 59-62 per equity share. The aggregate size of the offer is around Rs 22.93 to Rs 24.09 crore based on lower and upper price band respectively. On performance front, total revenue has increased by 21.94% from Rs 2,061.86 lakh in FY23 to Rs 2,514.21 lakh in FY24.The increase in revenue was on account of increase in sale of electrical two-wheeler vehicle and increase in dealership receipts. Moreover, net profit has increased many folds from profit of Rs 9.80 lakh in FY23 to profit of Rs 167.21 lakh in FY24.

The company focuses on deepening its presence in the regions it operates in before venturing into new markets which has led it to establish brand presence in Telangana, Andhra Pradesh, Tamil Nadu, Maharashtra and Gujarat markets. In addition to its defined cluster-focused expansion strategy, its dealership model helps it to build a chain of dealers who are residents of the region in which it operates and therefore are able to penetrate the markets through their market understanding and familiarity with the area and the target customers. This enables the target customers to identify with its brand as well as with its product portfolio and aids its understanding of the market segment and the customer demand preference. This approach also enables it to achieve significant market share and dominance in the markets it operates.