Ola, Paytm May Lay Off Employees to Overcome Profitability Hurdle for IPO
The two companies are reportedly kick-starting IPO preparations with laying off employees from their respective companies
With two of India's biggest Unicorns planning to go public in the next two-three years, preparations seem to have started with cost-cutting initiatives
Noida-based Fintech company, Paytm, is set to lay off over 500 employees at the mid and junior levels, Entrackr reported on Friday, while ride-hailing major Ola is reducing its staff by 5-8 per cent or about 350 employees, The Economic Times reported citing multiple people familiar with the matter.
The biggest hurdle for Ola is profitability before going public. According to the ET report, the move to lay off employees is intentioned towards "stepping up its governance and compliance processes".
A major chunk of the employees will reportedly be moved to other verticals of the organisation including Ola Financial Services, Ola Foods and even Ola Electric.
"As a business, we need to exercise sharper focus on metrics like revenue, growth, and profitability. We also need to refresh the way we run our daily operations—processes, people, productivity. Hence, a redesign of our organization and processes is the need of the hour," Harish Abhichandani, Ola Group's chief financial officer told ET.
The Bengaluru-based start-up is also looking to cut down on driver-related expenses including incentives, marketing and promotion-related expenditure, the report said.
In terms of profitability, "It (Ola) is almost there," according to one of Ola's major backers, Orios Venture Partners. The Bengaluru-based company would be able to establish profitability by the end of 2019, Orios' managing partner Rehan Yar Khan told Entrepreneur India earlier.
ET reported that Ola posted a 16 per cent rise in revenue to INR 2,155 crore in 2019.
Ola was founded by Bhavish Aggarwal and Ankit Bhati in 2011.
Paytm is set to lay off over 500 employees at the mid and junior levels, Entrackr reported on Friday, citing four people familiar with the matter.
The potential development comes days after the fintech company raised $1 billion in a round led by US-based asset manager T Rowe Price. News reports also suggest that it plans to raise a further $1 billion soon.
According to Friday's report, the company has been cutting its workforce over the last few days across four verticals—KYC, O2O, retail and transportation. The layoffs were in line with the company's plan to cut costs, the report said.
Even as the likes of Paytm have flourished and helped the growth of the Indian start-up ecosystem in the last few years, growth has not quite translated into profitability, often raising doubts over the sustainability of such companies.
According to a report by The Economic Times, Paytm's parent One97 communications posted a loss of INR 3,956.6 crore in the year ended March 2019, compared with INR 1,490 crore, a year earlier. Revenue rose 2.8 per cent in the same period to INR 3,319 crore.
The recent debacle around WeWork, which had to shelve its initial public offering, has sparked a debate around inflated valuations and how investors need to be more careful in their handling of start-ups.
Entrackr, in its report, said it spoke to at least half a dozen employees at the Noida-based company, who were asked to resign. The people are reportedly being offered two-month salary as severance.
Paytm was founded by Vijay Shekhar Sharma in 2010.