Pledge, Sell, Pledge Again: Bhavish Agarwal & Ola Electric’s Dilemma

Bhavish Aggarwal, founder of Ola Electric, has found himself in a challenging position as he attempts to keep his company afloat without relinquishing control. Over the past two years, Aggarwal has had to make tough decisions regarding Ola Electric's financial stability.

In November 2024, Aggarwal pledged 17.3% of his Ola Electric shares to raise debt for Krutrim Data Centre, an AI infrastructure company he founded in 2023. This was done to repay a ₹260 crore loan secured earlier, thereby releasing the encumbered shares and ensuring the company operated without any pledge overhang. However, just ten months later, Aggarwal has announced another pledge of 4.32% of his shares against NCDs issued by Krutrim Data Centre.

The stakes are high for Aggarwal, who holds around 26.2% of Ola Electric's shareholding. By pledging his shares, he can secure the necessary debt to fund his upcoming rights issue, without selling any of his shares and retaining control of the company. However, the repeated nature of these pledges has raised concerns about the company's stability. Critics argue that frequent pledges may signal stress for the promoter or the group entities, which could negatively impact investor confidence.

Ola Electric's recent financial performance has been underwhelming, with revenue dropping by 45% in Q1 FY27 compared to a year earlier. Despite this, the company has not yet reached its target market share of 15-20% for 2026. Additionally, Ola Electric's gigafactory has not yet achieved its 6 GWh target, which further strains its bottom line. The company reported a revenue of ₹455 crore and a net loss of ₹336 crore, with negative free cash flow of approximately ₹351 crore.

To address these challenges, Ola Electric plans to raise ₹1,000 crore through a rights issue, which will be approved by the board on 28 September. The funds will be used to repay borrowings and fund organic growth. The rights issue is exclusively available to existing shareholders, and Aggarwal's stake will remain intact if he decides to participate in the rights issue.

However, Aggarwal's pledge of shares to Krutrim Data Centre has potential downsides. If Krutrim struggles to repay the NCDs, the pledged shares could be sold by lenders, which could negatively impact Ola Electric's stock price. This raises concerns about the potential overhang of the pledge, as public investors will closely monitor Krutrim's ability to repay the debt.

While Aggarwal's decision to pledge shares instead of selling them allows him to maintain control over Ola Electric, it also exposes the company to additional risks. Investors will be watching closely to see if Krutrim Data Centre can successfully repay the debt, as the pledged shares could be sold by lenders if the debt goes bad.