Evaluating Ola Electric Mobility Ltd IPO opportunity; Should you invest?

In this analysis, we take a closer look at Ola Electric Mobility Ltd and present you with the exclusive IPO details.

About the Issue  

Ola Electric Mobility Ltd is set to launch its initial public offering (IPO) for equity shares, each with a face value of Rs 10. The IPO price range is set between Rs 72 and Rs 76 per equity share, resulting in a total issue size of Rs 6,145.56 crore at the upper price band.  

The IPO is scheduled to commence on August 02, 2024, and will conclude on August 06, 2024. The market lot size for the IPO is 195 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 2,535 shares or a total investment of Rs 1,92,660 assuming the upper price band.

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Capital expenditure to be incurred by the company’s subsidiary, Ola Cell Technologies Private Limited (OCT) for expansion of the capacity of its cell manufacturing plant from 5GWh to 6.4 GWh, classified as phase 2 under the expansion plan

2. Repayment or pre-payment, in full or part, of the indebtedness incurred by the subsidiary, OET

3. Investment in research and product development

4. Expenditure to be incurred for organic growth initiatives

5. General corporate purposes.

Promoter holding  

Bhavish Aggarwal is the promoter of the company, holding a pre-issue shareholding stake of 36.94 per cent.

Company profile  

Ola Electric Mobility Ltd is a dedicated EV player in India, focused on developing vertically integrated technology and manufacturing capabilities for EVs and EV components, including battery cells. The company has been approved for India’s Production-Linked Incentive (PLI) schemes, specifically for the manufacturing of advanced automotive technology products under the "Automobile PLI Scheme" and for advanced cell chemistry batteries under the "Cell PLI Scheme".

Its business strategy focuses on leveraging the opportunities created by the electrification of mobility in India. It's also exploring potential export opportunities for its EVs in select international markets in the future.

Within nine months of delivering its first EV scooter in December 2021, the company became the top-selling electric two-wheeler (E2W) brand in India based on monthly E2W registrations on the VAHAN Portal of the Ministry of Road Transport and Highways.

The company has delivered seven products and announced four additional products since its first announcement in August 2021. It has also introduced a lineup of motorcycles, including the Diamondhead, Adventure, Roadster, and Cruiser models, with plans to commence deliveries in the first half of Fiscal 2026.

The company built the Ola Futurefactory in just eight months, achieving an installed capacity of one million units per year as of March 31, 2024. Additionally, it is developing an EV hub in Tamil Nadu, India, which is expected to cover up to 2,000 acres. This hub will include the Ola Futurefactory and the upcoming Ola Gigafactory for cell manufacturing.

The company operates its own direct-to-customer (D2C) omnichannel distribution network across India, which includes 870 experience centres and 431 service centres. As of March 31, 2024, this network of experience centres was the largest company-owned network in India.

Financials  

The Indian electric vehicle (EV) industry concluded fiscal 2024 on a stellar note, achieving record-breaking sales across various vehicle types with an impressive 41 per cent annual growth. A total of 1.7 million EVs were sold, with electric two-wheelers constituting over 55 per cent of the annual sales.

Ola Electric has secured the top position in India's electric two-wheeler market, commanding a 52 per cent share as of April 2024. This surge in demand led to an outstanding revenue growth of over 1,000 per cent in FY24 compared to FY22.

The company is facing profitability challenges due to the high costs associated with manufacturing and the strategy to offer discounted prices. However, as demand grows and production scales up, the company is poised to enhance its profitability through improved scalability and operating leverage.

Its bottom-line figures could have been stronger if not for substantial interest costs. The company plans to use a significant portion of the net proceeds from its IPO for loan repayment, which will help reduce its debt and subsequently improve its bottom line.

Valuation and outlook  

The issue is priced with a P/BV ratio of 13.72 times, calculated using its Net Asset Value (NAV) of Rs 5.54 as of March 31, 2024. At the upper price cap, it is priced at a P/BV ratio of 4 times, considering its post-IPO NAV. When we calculate the PE ratio for the company by considering the FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at -18.

Despite current profitability concerns, the government's strong focus and initiatives on EV mobility, the company's eligibility for PLI schemes, substantial market share, scalable business model, and in-house R&D and technology capabilities position the company to achieve record highs in the future. Hence, we recommend investors subscribe to the issue with a long-term perspective.