Blogs

The first of the IPO in the world’s largest two-wheeler market for electric vehicles, Ola Electric Mobility Ltd., is a Rs 5500 crores issue comprising 7237 crores shares, alongside the Rs 645.56 crores from the offer-for-sale form existing shareholders, for a total IPO size of Rs 6146 crore (approx. $730 million) to test investor’s interest.

Assuming the IPO price band of Rs 72-76 per share, Ola Electric will be valued at Rs 33,522 crores ($4 billion). This is a significant markdown from the $5.4 billion valuation it received in December 2023 and the $7 billion target set by CEO Bhavish Aggarwal. The IPO of Ola Electric is managed by key managers Axis Capital, BofA Securities, BoB Capital Markets, Citigroup India Global Markets, Goldman Sachs (India) Securities, ICICI Securities, Kotak Mahindra Capital, and SBI Capital Markets.

The issue date is August 2-6th and the listing date is August 9th.

In the Red Herring Prospectus, the loss-making EV start-up Ola Electric stated that it plans to use the proceeds of the IPO to grow the business, invest in innovation, and clear the debt. Ola Electric states that it aims to be significant in both the mass and premium segments of India’s two-wheeler market by making efficient electric motorbikes and scooters. Ola Electric does not demonstrate a path to profitability, though the startup has improved financials.

We believe that Ola Electric will not get into the black until the scale battery manufacturing plant is operational which is expected in early 2025. Currently, every third EV vehicle sold in India is an Ola Electric vehicle and one would say a leap from last year when the company became India’s first automaker in 20 years to IPO.

Issue Details:

• IPO Dates: August 2-6
• Price Band: Rs 72-76 per share
• Issue Size: Rs 6,146 crore
• Lot Size: 195 shares or multiples thereof
• Listing Date: August 9 on BSE and NSE

Use of Proceeds:

• Capital Expenditure: Rs 1,227.64 crore
• Debt Repayment: Rs 800 crore
• R&D Investments: Rs 1,600 crore
• Organic Growth: Rs 350 crore

Business Overview:

Ola Electric is a dedicated electric vehicle manufacturer with vertically integrated technology and manufacturing capabilities for EVs and their components, including battery packs, motors, and chassis, at the Ola Future factory in Krishnagiri, Tamil Nadu. It is the only Indian automaker to have won both production-linked incentive schemes for EVs in India. In nearly four years of operation, the company has made significant strides in the EV market.

Financials

Ola Electric Sales

Key Risk

• Disruptions in the supply chain, whether local or global, can increase product costs and affect delivery timelines.
• Reduction or elimination of EV subsidy schemes may raise the retail price of Ola’s electric scooters, impacting profitability.
• Ola Electric depends on raw materials from China for cell manufacturing; any disruptions, such as government policy changes, could adversely affect this supply chain.
• Cost overruns and changes in government policies may lead to significant delays in completing the remaining phases of the Ola Gigafactory.
• The substantial investment in R&D and technology by Ola Electric does not guarantee the desired returns.

Conclusion:

Ola Electric’s IPO presents a mixed picture. While the substantial fundraising target and significant revenue growth are positive indicators, the ongoing losses, potential risks related to supply chain disruptions, changes in EV subsidies, and uncertainties around the Gigafactory’s completion are critical concerns. Investors should weigh the potential for future growth and innovation against these risks when considering participation in the IPO.