Ola Electric Limited is coming up with its IPO fresh issue of Rs. 5,500 crores and offer for sale worth Rs. 645.56 crores totalling Rs. 6,145.56 crores, which will open on 2^nd August 2024. The issue will close on 6^th August 2024 and be listed on the exchange on 9^th August 2024. In this article, we will look at Ola Electric limited IPO Review and analyze its strengths and weaknesses. Keep reading to learn about the company.

Ola Electric Limited IPO – About the Company

The company was incorporated in 2017. Ola Electric is into manufacturing, and building integrated technology and components of Electric Vehicles (EVs). Their EVs and components are built at Ola Futurefactory. 

They have delivered seven products and announced four new motorcycles (Adventure, Diamondhead, Cruiser, and Roadster). Ola is planning to start motorcycle deliveries in the first half of 2026. Their products include Ola S1 Pro, Ola S1 Air, Ola S1 X, Ola S1 X+, and others. The company even plans to export its vehicles to select international markets in the future. 

Ola’s business model

• For Manufacturing and supply chain, there is an EV hub in Tamil Nadu, including Ola Futurefactory and the upcoming Ola Gigafactory. 
• The R&D platform covers software, electronics, motor and drivetrain, cells and battery packs, and manufacturing technology. The manufacturing platform includes integrated production of core components and flexible assembly lines. 
• The D2C platform comprises a company-owned sales and service network, a charging network, and an online retail platform.

The company’s market share in the E2W segment was 34.80% in FY24, which is a significant increase from 21% in FY23 and 5.70% in FY22. In D2C distribution, they have 870 experience centers and 431 service centers as of 31st March 2024.

Ola Electric Limited IPO – About the Industry

India’s automotive market is huge, producing about 28 million vehicles annually. It contributes 35% to manufacturing GDP and 7% to overall GDP. The government aims to increase its contribution to 40% of manufacturing GDP by 2026. Cell technology advancements are in the making of EVs which are comparable to ICE vehicles in performance. 

EVs have lower total ownership costs than ICE vehicles due to less or no road taxes in many states in India. EVs help India’s goal to reach net-zero emissions by 2070. They produce zero tailpipe emissions and have a smaller carbon footprint than ICE vehicles, even considering manufacturing and charging.

The government launched PLI schemes in 2020 to boost domestic manufacturing. They cover 14 sectors and seek to generate additional production of ₹30 trillion over five years. The schemes invite foreign and local investors to set up new capacities.

India is a global hub for two-wheeler production. It made about 19.5 million two-wheelers with a 15-20% share of world production in FY23. India exported 4 million units and sold 16-17 million domestically. India, a manufacturing powerhouse holds one of the largest two-wheeler markets in the world. The domestic market value was ₹1.4-1.6 trillion in FY23.

Ola Electric Limited IPO – Financial Highlights

Ola Electric reported revenue from operations of Rs. 5,009.83 crores in FY24, up 90.42% from Rs. 2,630.92 crores in FY23. Losses in FY24 were Rs. 1,584.40 crore, a decline of 7.63% from Rs. 1,472.07 crore in FY23. There was an improvement in Material Costs, Employee benefits expenses, purchase of stock, and other expenses which have limited its losses.

The government incentives in FY24 are Rs. 97.23 crore which is around 1.94% of its operating revenues which was eligible for the products on Ola S1 Pro and Ola S1 Air. Based on the fulfilment of criteria set by the government, the company considers the part of incentive under other income.  

The earnings per share in FY24 was Rs. -4.35 per share which was a slight decrease of 11.25% from the previous year’s Rs. -3.91 per share. The reduction in EPS and losses is concerning. however, they have reduced the costs thus limiting their losses.

Automobile business being capital intensive, Ola’s reserves are negative but the equity value is positive mostly by invested money by early investors. 

The RoE is negative in FY23 and FY24 due to losses. However, the gross margins (excl. employee expenses) of the company stood at 12.58% in FY24, compared to 2.30% in FY23. The company had made deliveries of 3.3L in FY24 compared to 1.56L in FY23, which is around a 111% increase YoY.

Ola Electric recognises its revenue from operations under manufacturing and supply of electric vehicles, providing services across the EV value chain and trading of related accessories. Their sales based on geographical area are mostly comprised in India. 

Ola Electric Limited – Key Players 

Ola Electric’s listed peers are TVS Motors, Eicher Motors, Bajaj Auto, and Hero Motocorp.

Compared to its peers, Ola is not profitable yet and Bajaj Auto’s EPS is better among its peers. As Ola is more of a capital-intensive business, the gross margin ratio helps to know about operational efficiency. Ola’s margin stood at 12.58% compared to its peers which are in the range of 28% to 46%. 

The EBITDA margin of Ola Electric is around -19.84% in FY24, compared to its peers which is in the range of 14% to 33%. Ola Electric’s margins are negative compared to its peers. However, Ola improved their margins YoY. 

Ola Electric’s market share in the E2W segment is around 34.80%, which is higher compared to its peers. Ola improved their market share exponentially YoY which outpaced its competitors by a wide margin. The next peer’s market share (TVS Motors) is holding around 19.30% with Bajaj holding 11.30% and Hero holding around 1.90%. Eicher has no market share in this segment.

Here is a list of peers compared with Ola Electric 

Strengths of the Company

1. Leading the EV Market: The company dominates the fast-growing Indian E2W market. It held approximately 35% of total E2W registrations in India for Fiscal 2024. As a pure EV player, they focus on resources on EV technology without diverting efforts to ICE vehicles.
2. Experienced Management: The founder-led company benefits from experienced leadership. Bhavish Aggarwal, the founder, has received into many ventures including Ola Cabs. The Board of Directors and senior management with cross-industry experience effectively guide business strategy and operations.
3. In-house R&D capabilities: The R&D within the company can help drive EV technology development and backward integration. The company conducts R&D in India, the UK, and the US, focusing on key areas like software, electronics, motors, batteries, and manufacturing. It spent ₹3,851.06 million on R&D in Fiscal 2022, 2023 and 2024.
4. Manufacturing Prowess: The company operates India’s largest integrated E2W manufacturing plant. The Ola Futurefactory has a one million unit annual capacity. In-house design and manufacturing of core components enhance performance control and enable cost efficiencies through economies of scale.
5. Production Flexibility: The company employs a scalable, platform-based design approach. This enables the rapid development of multiple models using common elements. As of March 31, 2024, 86.60% of components were shared across three scooter models, reducing development costs and time to market. 

Weaknesses of the Company

1. Constraint on Cash Flows: The company has incurred consistent losses and negative cash flows from operations from FY22. This includes significant losses in recent fiscal years on a consolidated basis, and continuing in the trend might hamper their prospects.
2. Limited Exposure: The company has a limited operating history in manufacturing EVs, having delivered its first electric scooter in the recent past. The lack of experience may lead to unforeseen challenges in scaling production, managing costs, and achieving profitability in the competitive EV market.
3. Raw Material dependency: The company heavily relies on imported components, particularly from China, for its EV production. This dependence exposes the company to supply chain risks, potential geopolitical issues, and currency fluctuations that could disrupt production and increase costs.
4. PLI Scheme Risks: The company’s business model depends significantly on government incentives and subsidies for EVs. Any reduction or elimination of these incentives could increase the retail prices of their vehicles, potentially decreasing customer demand and affecting the company’s ability to achieve profitability.
5. Risk in Supply Chain: The company faces risks in sourcing critical raw materials for cell manufacturing, particularly cathode and anode active materials. Dependence on imports can potentially disrupt supply chains and can affect quality issues.

Ola Electric Limited IPO – GMP

The shares of Ola Electric Ltd’s price in the grey market were trading at a 20.39% premium as of July 31^st, 2024. The shares in Grey Market traded at Rs.91.5. This gives it a premium of Rs.15.50 per share over the cap price of Rs. 76.

Ola Electric Limited – Key IPO Information

Promoters: Bhavish Aggarwal.

Book Running Lead Manager: Kotak Mahindra Capital Company Limited, BofA Securities India Limited, Axis Capital Limited, SBI Capital Markets Limited, Citigroup Global Markets India Private Limited, Goldman Sachs (India) Securities Private Limited, ICICI Securities and BOB Capital Markets Limited.

Registrar to the Offer: Link Intime India Private Limited.

The Objective of the Issue

1. Capital expenditure of Subsidiary, Expansion of cell manufacturing plant from 5 GWh to 6.4 GWh for Ola Cell Technologies Private Limited (OCT).
2. Repayment or/and pre-payment of certain borrows of its subsidiary- Ola Electric Technologies Private Limited (OET).
3. Investment into Research and Development.
4. Expenses required for inorganic growth initiatives.
5. General Corporate Purposes.

Conclusion

Ola Electric Limited has an opportunity to grow, especially in growing EV segment based on their growth from their recent financials. The company has a higher market share and that can provide an edge for further expansion based on product development and customer services. 

There are concerns regarding the cost of manufacturing scooters and in the longer run, the established 2-wheeler vehicles can grab the market share as they have in-house capabilities, experience, outreach, and brand value. 

So what do you make of this company? Will it be able to increase its market share based on its competition with peers? What is your view? Let us know in the comments below.

Written by Santhosh

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