Ola Electric Mobility Limited IPO: Get Date, Price, Review and Details

About the Company:

Ola Electric Mobility Limited is a leading player in the Indian electric vehicle (EV) market, specializing in vertically integrated technology and manufacturing for EVs and components, including battery cells. Its product portfolio includes EVs and core components such as battery packs, motors, and vehicle frames. The company aims to capitalize on the electrification of mobility in India while exploring export opportunities in select international markets. The company is 4-5 years old, and it delivered its first EV model, the Ola S1 Pro, in December 2021. So far, the company has delivered seven products and announced a line-up of four motorcycle models to be delivered from H1 FY2026. According to the Redseer Report, it is the largest E2W seller in India by number of units registered in FY2024, and has grown its E2W Market share from 5.7% in FY2022 to 34.8% in FY2024. The company is building an EV hub in Tamil Nadu, comprising Ola Futurefactory for EV manufacturing, Ola Gigafactory for cell manufacturing, and co-located suppliers. It operates on a direct-to-customer omnichannel distribution network across India, comprising 870 experience centres and 431 service centres as of March 31, 2024, and its website.

IPO Details:

Objects of the Offer:

The company intends to utilize the fresh issue proceeds towards the following objects:

Key Strengths and Opportunities:

• Growing EV Industry: E2W penetration in India is expected to expand from approximately 5.4% of domestic 2W registrations in FY2024 to 41-56% of domestic 2W sales volume by FY2028, while the Indian E2W industry is expected to grow at a CAGR of 11% to reach Rs. 3.6 trillion by FY2028.
• Business Growth & Economies of Scale: The company delivered around 330 thousand E2W in FY2024, doubling from the previous year, and achieving in-line top-line growth. In Q1 FY2025, its EV retail volume has crossed 1 lakh mark with 57% YoY increase. The increase in volume with cost structure remaining the same would result in an improvement in margins and a reduction in losses. In FY2024, the installed capacity was 450,000 per annum until October 30, 2023 and 1 million units per annum from October 31, 2023 onwards. With capacity utilisation at 49% in FY2024, there is ample space to increase it in existing facilities.
• R&D-focused Vertically Integrated Operations: The company has in-house R&D capability. It is developing cell technologies and cell manufacturing processes for use in the Ola Gigafactory. The cell comprises around one-third of the total manufacturing cost of an EV. The internally owned cell manufacturing facility would help on the cost front.
• Founder-led Company and Experienced Leadership Team: Founder, Chairman and Managing Director of the company Mr. Bhavish Aggarwal, is an innovative entrepreneur who has also founded Ola Cabs. Bhavish has received several accolades such as India 30 under 30 from Forbes, Entrepreneur of the Year from the Economic Times etc. Also, many senior managers have experience across a broad range of industries and functions, enabling effective formulation of business strategy.
• EV-related Government Incentives: The government’s production-linked incentive schemes and subsidies like FAME Phase II, EMPS 2024 to promote domestic manufacturing and adoption of EVs set a positive political environment and give cost advantages to the company.

Risks:

• Business Losses and Negative Cashflows: The company, including its material subsidiaries, has incurred losses and negative cashflows from operations since inception. Consolidated loss and cash used in operation for the FY2024 amount to Rs. 1,584 crores and Rs. 633 crores respectively. It may continue to incur operating losses in the near term as it invests in the business, expands its product portfolio, builds capacity, and scales its operations.
• Uncertainty of Realization from R&D Expenditure: It is heavily invested in and plans to continue investing in R&D and technology, including developing cell manufacturing capabilities. There is no assurance that returns on such investments will be realized. It has incurred 7.69%, 19.30% and 47.09% of revenue from operations on research and product development in FY2024, FY2023, FY2022 respectively. Also, there is a risk of technology disruption as the EV industry is evolving.
• Increase in Raw Material Prices: The cost of materials consumed accounts for 69.95% of Total Operating Expenses in FY2024. The company could experience an increase in prices of components and raw materials used in the manufacture of EVs or disruptions in the supply, which could increase the cost of its EVs and impact projected manufacturing and delivery timelines.
• Defects or Quality Issues in EV Components: The company develops certain core electric vehicle components in-house and procures certain electric vehicle components from foreign and domestic suppliers. If its EVs, their components or raw materials used in the manufacturing contain defects or have quality issues, or if EVs do not perform as per industry standards, then the company’s brand and ability to develop, market and sell EVs could be adversely impacted.
• Discontinuance of Government’s EV Incentives: Any reduction or elimination of government incentives like FAME II, subsidies from the government of Tamil Nadu and GST reimbursements or the ineligibility of its EVs for such incentives would increase the retail price of its EVs and cause EVs to be less price competitive in comparison to conventional ICE vehicles. This could in turn adversely affect customer demand and its ability to achieve profitability.

Financial Snapshot:

Conclusion:

Electric two-wheelers (E2Ws) are at the forefront of the electrification of mobility in India due to their favorable total cost of ownership for customers and their ability to reduce the carbon footprint. India’s two-wheeler (2W) industry is expected to grow at an 11% CAGR, with EVs projected to capture a significant share. By 2030, the government also intends to have EV sales penetration of 80 per cent for two-wheelers. Ola Electric, currently in the growth phase and holding a 34.80% market share in the E2W industry, is poised to yield phenomenal returns as the industry expands. With the increase in volumes, the company’s EBITDA margin and PAT margin have shown significant improvement in the past two financial years, although remaining negative in absolute terms.

Listed peers include Hero MotoCorp, TVS Motors, Bajaj Auto, and Eicher Motors, while unlisted peers include Ather and Piaggio. As the listed peers are deriving their revenue primarily from ICE-based two-wheelers, they are not completely comparable with the pure EV company on valuation perspective. However, compared to the previous funding round valuation of $5.4 billion, the current issue of the company has been offered aggressively at a 25% discount at $4.04 billion to attract a wider investor base.

Considering the company’s up-trending EV sales volumes, growth potential, capacity expansion initiatives in cell manufacturing and improving financial performance, we recommend investors subscribe to the issue for long-term gains.