Ola Electric IPO: Pioneering the Future of Indian Electric Mobility

The upcoming Ola Electric IPO would have a great impact on the financial sector which represents a major advantage for the Indian electric vehicle (EV) market. The IPO is set to debut on August 2, 2024 and the IPO is going to raise ₹6,145 crore with the price band of ₹72-₹76 per share. The initial Indian EV maker to become publicly traded, Ola Electric's IPO showed significant enthusiasm among investors and industry professionals. The Ola Electric IPO has the attention and interest from many well-known investors such as Nomura, Fidelity, Norway's Norges Bank, and mutual funds like HDFC, UTI, SBI, and Nippon India. The bidding for anchor investors will be held on August 1, 2024.

Company Overview 

Ola Electric has emerged as a leading force in the Indian Electric vehicle sector. The main focus of the company is on manufacturing electric vehicles and required components like battery packs, motors vehicle frames etc. Its main product that launched the Ola S1 Pro in December 2021 and other models such as the Ola S1, Ola S1 Air, and a new range of motorcycles were revealed recently.

Ola Electric IPO Details

The Ola Electric IPO will include a fresh share issue of ₹5,500 crore and an offer for sale from promoters and investors worth ₹645 crores whilst the founder Bhavish Aggarwal would offload 3.8 crore shares (approximately 45% of OFS). The IPO will open for subscription from August 2 to August 6,2024, with shares expected on BSE & NSE both trading platform on date of August 9,2024 To ensure investor participation in the IPO, some of the shares were reserved by the company for eligible institutional buyers (QIBs), non-institutional investors (NIIs) and retail investors.

Financial Performance

Ola Electric has performed well in terms of financial performance in recent years which is driven by strong demand for its innovative EV products. The company's revenue has seen significant growth that is supported by its  omnichannel distribution network across India which includes 870 experience centers and 431 service centers. This growth has enabled Ola Electric a  substantial market share in the burgeoning EV sector.

Ola Electric has a 40% market share. The company revenue increase from ₹373 crore in FY22 to ₹2,630 crore in FY23, shows a 604% increase. The company has made significant environmental contributions with its scooters that covers a distance of 300 crore kilometers by avoiding 8.7 crore kilograms of emissions, and saving ₹704 crores in fuel costs.

In terms of market capitalization, Ola Electric will be smaller than the prominent names like Bajaj Auto, Eicher Motors, TVS Motors, and Hero MotoCorp.  The company revenue for FY24 of ₹5,010 crore is also much lower than these competitors. Ola also reported a net loss for FY24 and the company loss-making at the operating profit level, burning cash but improving its free cash flow loss margin to -31% in FY24. The company has moved from being net cash positive in FY22 to net debt in FY24, and on the other side most competitors have strong profitability and enjoy EBITDA margins between 14% and 33%.

Utilization of Ola Electric IPO Proceeds

Ola Electric focused on electric scooters for urban commute. The two prime offerings, the Ola S1 and S1 Pro electric scooters have received reviews from many for their design, performance as well as being priced affordably. The features include a large battery, long range and connectivity. These scooters have set new benchmarks in the industry.

The electric two-wheeler manufacturer Ola Electric has plans for deploying the raised funds from its IPO in a variety of strategic projects. From the IPO funds, Ola Electric will deploy ₹1,227 crore to increase its cell manufacturing plant capacity from 5 GWh to 6.4 GWh. Another ₹1,600 crore, for Research and development head; and  ₹800 crores for the settlement of debts This investment is expected to help in both improving the manufacturing capabilities as well enhancing its technology.

Ola Share Price and Target

Ola Electric Mobility unlisted share prices available and are trading in the Pre IPO market. The Ola Electric share price is set to be ₹130 per share.  The face value of each Ola Electric IPO share is ₹10. The IPO price band set between ₹72 and ₹76 per share, with eligible employees receiving a ₹7 per share discount. The company has eyeing for the valuation of $4 billion through this initial public offering.

Key Risks

Cash Burn: Ola Electric has shown growth in terms of revenue but it also faces some challenges that have a limited operating history and substantial losses. The company reported the net loss of ₹1,472 crore in FY23, doubling from the previous year. These challenges represent the volatility and potential challenges in the path of rapid expansion.

No signs of profitability in the near term: Due to high capital expenditure requirements for vertical integration and the introduction of new products and the expansion into the global automotive market the management is not able to forecast  profitability shortly in the long run. 

High Debt: The company has a total debt of ₹1,664 Crore, and given the current profit margins, this leads to a significant concern. While the debt-to-equity ratio stands at a seems manageable 0.4, it's crucial to mention  that the company's equity hasn't expanded due to accrued profits or reserves but rather by  the issuance of compulsory convertible Preference Shares (CCPS). Additionally with a cash reserve of ₹1,140 Crore and current mutual fund investments totalling ₹242 Crore, the adjusted net debt is ₹282.1 Crore. 

The company also  does not own the trademark for the brand name 'Ola' 

Runway of less than 12 months: The company has a monthly burn of around ₹108 Crore that comprise ₹34 Crore in fixed costs and ₹74 Crore in variable costs linked to vehicle sales. Given the sustained sales volume of 30,303 units (as of December 2023), the company has a cash runway of 11 months before exhausting its current cash.

Battery Manufacturing: The additional risk noticed about Ola's plan to vertically integrate the EV supply chain and enter into battery manufacturing. Despite this, the availability of raw materials and the success of R&D initiatives are critical aspects to monitor in Ola's battery manufacturing venture. ​

Conclusion

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Ola Electric unlisted share will be able to capitalize on the increasing demand for sustainable transportation solutions. The company presents steady revenue growth and strong position in the EV market. Ola Electric has shown its ability to grow and highlights the significant portion of the market by boosting its revenue. However, the uncertainty and potential challenges are underscored by the company's brief operating history and substantial financial losses.

In conclusion, investors should caution and evaluate the financial risks and the company's ability to achieve long-term profitability. Considering both the benefits and challenges is crucial while making investments in this fast-evolving sector.

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