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Good morning. In today’s edition: What’s behind the myriad of problems with two-wheeler maker Ola Electric; information technology (IT) services companies are bearing the brunt of cost saving by clients; and Byju’s faces yet another setback. 

DECODE THE NEWS

Inside Ola Electric's Policy And Service Nightmare/

Ola Electric, the electric vehicle venture led by Bhavish Aggarwal, finds itself in a rather electrifying dilemma. Not only are its scooters facing public scrutiny and a deluge of customer grievances, but there are even whispers of service centres resorting to bouncers to safeguard their employees. This drama accelerated after Aggarwal's public spat with comedian Kunal Kamra on Twitter, proving that social media feuds can have real-world consequences.

Loopholes in government regulations may have inadvertently fueled Ola Electric's rapid expansion, allowing it to prioritise faster sales over setting up robust after-sales support. Ola scooters (and their successors) which were first introduced on 15 August 2021, followed a direct-to-consumer model where consumers would book the scooters online and have them home-delivered. This model, although easy to replicate in multiple cities, lacked the basic safeguards and ethics that the automobile industry followed, i.e., having detailed after-sales support.

However, the company is now facing a multi-ministry probe and a separate probe by the Central Consumer Protection Authority (CCPA), which could have significant financial implications. The investigation by the CCPA could result in the most drastic outcomes for Ola, according to legal and policy analysts who spoke to The Core. The CCPA can proactively initiate investigations into unfair trade practices and impose penalties ranging from substantial fines to product recalls.

CO:RELATIONS

Technology Defensives

The common takeaway from the investor conference calls of IT services companies this October is that clients in the United States are focused only on cost-saving projects. There is no sign yet from clients that discretionary spending is rising. For Indian IT services firms to do better each year, they need Fortune 500 clients to spend more for growth. Indian technology services companies like Tata Consultancy Services (TCS), Infosys and others work closely with large global banks and financial services firms. TCS clearly stated that the company has not seen large transformational deals in the banking, financial services and insurance (BFSI) sector. LTIMindTree also told investors that it does not see discretionary spending deals in the BFSI segment coming back. Infosys is the only company with a positive outlook on this. They are witnessing a revival in spending for growth and not just cost-saving by clients. 

Amidst the rapid selloff from foreign portfolio investors in India, shares of Infosys are outperforming the Nifty IT and Nifty 50 index. The Nifty IT has outperformed the Nifty 50 in 2024 so far. With the Indian rupee at a record low and gold prices at a record high, investors see IT services stocks like Infosys as a defensive play.

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CORE NUMBER

Rs 22,400 crore 

This is the loss the Indian entertainment industry bore in 2023 thanks to piracy according to The Rob Report by EY and the Internet and Mobile Association of India. The report, according to PTI, also found that a major part of media consumers in the country, 51%, access content through pirated sources. While OTT platforms have thrived in India, the report found that the high cost and hassle of managing multiple subscriptions still deter people from using them.

FROM THE PERIPHERY

—📱 By March 2024, cash still represented 60% of consumer spending, but it's on the decline, driven by the post-Covid shift to digital payments, revealed a study by an economist of India’s central bank, the Reserve Bank of India (RBI). According to The Business Standard, digital payments surged from 14-19% in 2021 to 40-48% in 2024. Unified Payments Interface (UPI), launched during 2016's demonetisation, exploded after the 2020 lockdown, with average transaction sizes dropping from Rs 3,872 in 2017 to Rs 1,525 in 2024 as it became a go-to for small purchases. Cash remains dominant for low-value buys, but UPI now drives person-to-merchant transactions with its value share climbing from 33% to 69% between 2020-21 and 2023-24.

—🍦 The board of directors of Hindustan Unilever Limited (HUL) has decided to spin off its ice cream division. According to The Economic Times, the maker of Kwality Walls, Cornetto and Magnum, believes that the segment needs significant attention and investment for it to reach its full potential. The decision was made by a committee of independent directors. HUL said in the exchange filing that the unique infrastructure and distribution requirements of the ice cream business limit synergies with HUL’s broader operations.

—🧑‍⚖️ In a setback for edtech firm Byju's, the Supreme Court overturned a National Company Law Appellate Tribunal (NCLAT) ruling that had approved a Rs 158 crore settlement between the edtech firm and the Board of Control for Cricket in India (BCCI). The settlement, approved by the NCLAT on July 31st, concerned the non-payment of dues to BCCI. However, the Supreme Court struck down the settlement on October 23rd, citing procedural irregularities in the NCLAT's approval process. The court clarified that any application for withdrawal must be made through the Interim Resolution Professional.

—⛽ India's diesel consumption is expected to increase by 3-4 % for the current financial year (FY25), according to Indian Oil Corporation (IOC) Chairman V Satish Kumar. This uptick follows a slowdown in consumption over the past few months, primarily due to heavy rains. Speaking to reporters on Wednesday, Kumar said that he anticipates a rise in diesel consumption starting in October, coinciding with the end of the rainy season and the commencement of crop harvesting. Despite the weather-related slowdown, diesel demand in India rose by 1% in the first half of FY25, reaching 44.4 million tonnes. The projected increase in diesel consumption comes at a time when India is aggressively pushing for renewable energy sources and aiming to reduce its dependence on fossil fuels. .

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