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Can Ola Electric Cruise to 6,146 Cr IPO?

By Samie Modak, Shivani Shinde, Sohini Das
July 30, 2024 11:55 IST
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The Softbank-backed company has set a price band of Rs 72 to Rs 76 per share for the maiden share sale and is expected to test the appetite for new-age loss-making companies.

IMAGE: Bhavish Aggarwal, CEO, Ola Cabs and founder of Ola Electric, poses for pictures ahead of the company's IPO launch in Mumbai, July 29, 2024. Photograph: Francis Mascarenhas/Reuters
 

Ola Electric, the market leader in the e-scooter segment, has set a price band of Rs 72 to Rs 76 per share for its Rs 6,146 crore (Rs 61.46 billion) initial public offering (IPO).

The IPO comprises fresh fund raise of Rs 5,500 crore (Rs 55 billion) and secondary share sale of just Rs 646 crore (Rs 6.46 billion).

At the top-end, Ola is valued at Rs 33,522 crore/Rs 33.522 villion ($4 billion) on a post-diluted basis -- down from $7 billion to $8 billion it was targeting when it first filed its offer document in December.

The Softbank-backed company had also pruned the secondary share sale component from Rs 724 crore (Rs 7.24 billion).

If the IPO is successful, Ola will become the first electric two-wheeler (E2W)-to- manufacturer to list on the Dalal Street.

Most of the listed peers are primarily internal combustion engine (ICE) makers. Nonetheless, it is important to see how Bengaluru-based firm stacks up against them.

IMAGE: Bhavish Aggarwal, poses with Ola electric scooters ahead of the company's IPO launch. Photograph: Francis Mascarenhas/Reuters

As far as market cap is concerned, Ola will be the smallest among well-established names like Bajaj Auto, Eicher Motors, TVS Motors and Hero MotoCorp. Its 2023-2024 revenues from operations at Rs 5,010 crore (Rs 50.10 billion) is also a fraction of these players.

Ola reported a net loss in FY24 and was even loss-making at the operating profit level.

The company has been burning cash, but has managed to improve its free cash flows loss margin to -31 per cent 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 healthy profitability track record and enjoy Ebitda margin between 14 per cent and 33 per cent.

However, if the future of the 2W industry is to be electric, Ola has a head start over the competition. With close to 3.3 lakh deliveries in FY24, Ola had a market share of 35 per cent -- more than the combined market share of listed peers.

According to Redseer, E2W penetration in India is expected to expand from approximately 5.4 per cent of domestic 2W registrations in FY24 to 41 TO 56 per cent of domestic 2W sales volume by FY28.

The Indian E2W industry is expected to grow at a CAGR of 11 per cent to reach a size of $35 billion (Rs 2.8 trillion) to $45 billion (Rs 3.6 trillion) in FY28.

Can Ola Electric Cruise to Rs 6,146 Crore IPO?S

Samie Modak, Shivani Shinde, Sohini Das

The country's largest electric two wheeler (e2W) player Ola Electric is going for the biggest IPO of the year, so far, aiming to raise Rs 6,146 crore ($734 million).

Around 150 companies in the country have already gone public this year in a bid to raise a total of $5 billion, double the amount raised during this period last year, according to estimates.

The Softbank-backed company has set a price band of Rs 72 to Rs 76 per share for the maiden share sale and is expected to test the appetite for new-age loss-making companies.

At the top-end of the price band, Ola will be valued at Rs 33,522 crore ($4 billion) on a post-diluted basis. The company's IPO will open on August 2.

IMAGE: Bhavish Aggarwal explains his gigafactory. Photograph: Francis Mascarenhas/Reuters

Founder and CEO Bhavish Aggarwal, who's charting a path to profitability for Ola Electric, told reporters at the IPO press conference in Mumbai that volume growth and vertical integration would be the main pillars for improving the company's margins.

Through the IPO, the Bengaluru-based firm is looking to issue fresh shares worth Rs 5,500 crore, which will be utilised to repay debt, expand its gigafactory and used for research and development.

The Offer for sale (OFS) portion of the issue is only Rs 646 crore (Rs 6.46 billion), of which Aggarwal's share is Rs 288 crore (Rs 2.88 billion). About nine other investors are selling stakes, including Tiger Global (Rs 48 crore/Rs 480 million) and Softbank (Rs 181 crore/Rs 1.81 billion).

Alpine Opportunity and Tekne Private are offloading small quantities at a loss as their acquisition cost is over Rs 111 per share.

Following the IPO, the promoter shareholding in the company will decline from nearly 45 per cent to 36.78 per cent.

Investment bankers said the pricing of the IPO is based on investor feedback. They expect strong responses from domestic as well as foreign mutual funds.

According to Reuters report citing sources, the IPO is set to draw bids from Fidelity, Nomura and Norges Bank as well as several Indian mutual funds.

Aggarwal said: "The India EV story is still in early days. Three years ago, when we launched our products, that is when I believe the EV story began.

"We see the EV market only expanding. You also see the incumbents, who three years back said there is no EV story, are also joining the segment."

When asked about the drop in sales and even the global EV segment going through a slowdown, Aggarwal said like other industries this would go through a cycle.

"There will be cyclical ups and downs, either subsidy changes or some cyclical seasonal stuff," he said.

Ola Electric's gross margins have improved from 5.4 per cent in FY22 to 7.63 per cent in FY23 and 16.47 per cent in FY24. Its volumes have grown from 156,000 units in FY23 to 330,000 units in FY24.

IMAGE: Bhavish Aggarwal holds the new 4680 lithium-ion battery cell during the press conference. Photograph: Francis Mascarenhas/Reuters

Ola Electric currently sources cells from third party suppliers. It has started trial runs at the gigafactory in Tamil Nadu where phase 1 of the project was completed in May (1.4 GwH capacity).

It has developed a cell technology around the 4680 form factor for which it has received BIS certification in May, which will be used in existing and future products.

The gigafactory will have a capacity of 20 GwH (in four phases). Ola Electric is also in line for the Cell PLI (production-linked incentive) scheme.

It has already received certification for the S1 Pro product under the PLI scheme and is currently filing for the first claims to the Centre.

IMAGE: Bhavish Aggarwal speaks during the press conference while photographs of the four motorcycle models -- Adventure, Cruiser, Roadster and Diamondhead -- can be seen in the background. Photograph: Francis Mascarenhas/Reuters

The company's 2,000-acres EV hub in Krishnagiri and Dharmapuri districts of Tamil Nadu, which houses the 'futurefactory' and the gigafactory, along with co-located suppliers, will help achieve greater efficiency.

Aggarwal said the company would start delivering motorcycles by early next year. It had showcased four motorcycle models -- Adventure, Cruiser, Roadster and Diamondhead -- last August.

Meanwhile, on August 15, the company plans to unveil more two-wheeler models.

As India expects to grab a larger share of two-wheeler exports, Aggarwal is betting big on Ola Electric for a smooth drive.

Feature Presentation: Ashish Narsale/Rediff.com

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Samie Modak, Shivani Shinde, Sohini Das
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