Ola Electric IPO: The Spark to Ignite India's EV Revolution

The domestic markets have witnessed a massive flow of initial public offerings (IPOs) so far in 2024, with nearly 40 main board and 143 SME IPOs this year.

The primary market is experiencing its best first half in 17 years, driven by robust liquidity, supportive valuations, and an optimistic macroeconomic outlook.

In terms of the quantum of funds raised, this year's tally is the second-best ever after 2022 when 16 firms raised Rs 403.1 bn, led by the biggest-ever IPO of state-owned Life Insurance Corporation of India (LIC).

Meanwhile, the upcoming week is poised to offer a plethora of opportunities to investors as many as nearly eight IPOs scheduled to open for subscription.

Among these, the much-anticipated Ola Electric IPO is set to launch on Dalal Street.

Here are the key details of the IPO.

Issue period: 2 August 2024 to 6 August 2024

Type of issue: Book Built Issue

Price band: Rs 72-76 per share

Face value: Rs 10 per equity share

Lot size: 195 shares

Application limit: Maximum thirteen lots for retail investors. Retail investors can make an application for a minimum of Rs 14,820 for one lot (161 shares).

Tentative IPO allotment date: 7 August 2024

Tentative listing date: 9 August 2024

The IPO is a mix of fresh issuance of shares worth Rs 55 bn and an offer-for-sale (OFS) of Rs 6.5 bn.

Markets regulator SEBI gave its approval for the IPO last month. This would be the first by an EV startup in India and will be among the biggest new-age IPOs in 2024.

The book-running lead managers to the offer are Kotak, Citi, BofA Securities, Goldman Sachs, Axis, I-Sec, SBICAP and BOBCAPS.

For further insights, check out our earlier article - EV Race is About Heat Up. Ola Electric IPO To Hit the Street Soon.

Net Proceeds Utilisation Plan

Ola Electric plans to allocate Rs 12.3 bn of the total net proceeds from its IPO to expand the capacity of its battery cell manufacturing facility, Ola Gigafactory, from 5 gigawatt hours (GWh) to 6.4 GWh.

The company aims to achieve this enhanced capacity by the end of April 2025.

Additionally, Ola Electric will use Rs 8 bn of the net proceeds to repay loans taken by its subsidiary, Ola Electric Technologies.

The company will also invest Rs 16 bn into research and product development.

Business Dynamics

Ola Electric dominates the electric scooter segment in India, often capturing over a third of the market. It competes with major players like Hero MotoCorp-backed Ather Energy, Bajaj Auto, and TVS Motors.

As of 27 July, Ola Electric held a 39% market share in the electric two-wheeler market, according to data from the government's transportation portal Vahan. This is a decrease from its 46% share in June and a significant drop from the 58% market share it held in May. Competitors like Bajaj, TVS Motors, and Ather are gradually increasing their share of sales.

The competition is expected to intensify as Ather Energy launches Rizta, a new model targeting the family scooter segment, where Ola currently has a strong presence.

Meanwhile, Ola Electric is restructuring internally to enhance profitability, resulting in the layoff of approximately 600-800 employees.

Ola Crosses Rs 50 Billion Revenue Mark: What Do the Figures Reveal?

Ola's revenue has shown significant growth over the three-year period. From Rs 0.5 billion (bn) in FY22, its revenue crossed Rs 50 bn mark, reaching Rs 52.4 bn in FY24, driven by a surge in e-scooter sales.

Over this period, the compound annual growth rate (CAGR) for revenue was approximately 237.5%.

Despite a jump in revenue, the firm's losses have widened from net loss of Rs 7.8 bn to net loss of Rs 15.8 bn in FY24, on the back of an increase in its expenses.

As part of the internal risk disclosure within the prospectus, Ola Electric has said that it may continue to incur operating losses in the near term as it is investing in business and focussing on expansion.

For FY24, its total expenses increased to Rs 62.7 bn in FY24 from Rs 38.8 bn in FY23 primarily due to an increase in the cost of materials consumed in the production of scooters and other expenses, in line with the growth in sales.

Ola's Financial Snapshot (2022-24)

Particulars	31-Mar-22	31-Mar-23	31-Mar-24
Revenues (Rs in bn)	4.6	27.8	52.4
Revenue Growth (%)	-	460	85.7
Net Profit (Rs in bn)	-7.8	-14.7	-15.8
Net Worth (Rs in bn)	36.6	23.6	20.2

Data Source: Company's Draft Red Herring Prospectus (DRHP)

The firm's total employee cost which includes salaries, bonuses, and other employee-related costs, went up by 3% to Rs 4.4 bn in FY24.

Valuation Dip

On July 17, media reports reported that Ola Electric is likely to launch its public offering at a discounted valuation of around US$ 4 billion (bn), a decrease of about a fourth from its last private funding round.

In September 2023, Ola Electric received funding of US$ 140 million from Singapore sovereign wealth fund Temasek after which it was valued at US$ 5.4 bn. It was initially aiming for a US$ 6-7 bn valuation when it filed draft IPO papers, but the Bengaluru company has since revised its price expectation.

This downward adjustment is primarily attributed to the prevailing market conditions. The global tech industry has experienced a slowdown, with investors becoming more cautious and demanding profitability from startups.

Additionally, increased competition in the electric vehicle market and the need to price the IPO attractively for investor interest have contributed to the valuation dip.

While this lower valuation might impact Ola's fundraising capabilities and investor confidence, it could also present opportunities for strategic manoeuvring and a renewed focus on profitability.

How Does Ola Electric Stack up Against Listed Peers?

As per the company's red herring prospectus, these are the industry peers of ola Electric.

Peer Comparison

Company	Revenue from operations for FY23 (Rs in billion)	EPS (Basic) (in Rs)
Ola Electric	26.3	-3.9
TVS Motors	319.7	27.9
Eicher motors	144.4	106.4
Bajaj Auto	364.6	212.5
Hero MotoCorp	341.6	140.5

Data Source: Company's Red Herring Prospectus (RHP)

Most of its listed peers are primarily internal combustion engine (ICE) makers.

As far as market capitalisation is concerned, Ola will be the smallest among well-established names like Bajaj Auto, Eicher Motors, TVS Motors, and Hero MotoCorp. This indicates that while Ola Electric is growing, it is still in the early stages of scaling up.

Ola Electric's EPS is negative, at Rs (3.9), because the company is currently operating at a loss. This highlights Ola Electric's current challenges in achieving profitability.

The company has been burning cash but has managed to improve its free cash flow loss margin to -31% in FY24. Due to the cash burn, Ola has moved from net cash positive in FY22 to net debt in FY24.

Meanwhile, most other peers have a healthy profitability track record and enjoy EBITDA margins between 14% and 33%.

However, if the future of the two-wheeler industry is to be electric, Ola has a head start over the competition. With close to 330,000 deliveries in FY24, Ola had a market share of 35%, more than the combined market share of listed peers.

However, the company is set to benefit from growing EV demand.

Conclusion

The electric vehicle (EV) sector in India is experiencing significant momentum, with the FAME II scheme continuing its second phase while anticipation builds for the rollout of FAME III.

Despite the absence of a mention of FAME III in the Budget 2024, the government has introduced measures to bolster the EV ecosystem, including enhancing storage and charging infrastructure.

Notably, the government has substantially increased the budget allocation for the production-linked incentive (PLI) scheme to Rs 35 bn for FY25, up from Rs 4.8 bn in the previous financial year.

Additionally, the allocation for advanced chemistry cells (ACC) and battery storage under the PLI scheme has been raised from Rs 120 m to Rs 2.5 bn for 2024-25.

Moreover, state governments are also offering incentives to encourage the adoption of electric vehicles, aiming to mitigate pollution levels and reduce vehicular emissions.

The Indian EV market is hotter than ever, and electric scooters are leading the charge.

Nevertheless, it is always prudent to conduct thorough research before making any investment decisions. Ensure that the investment aligns with your financial objectives and matches your risk tolerance level.

For more information on IPOs, check out the list of upcoming IPOs.

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