All you need to know about Ola Electric's IPO: Should you subscribe or not?

The much-anticipated IPO of Ola Electric Mobility, which opened for subscription on August 2, 2024, and will close on August 6, 2024, is looking to raise Rs 6,145.56 crore from the markets in total, out of which Rs 5,500 crore will be raised via the issue of fresh shares.

With a price band of Rs 72–76 per share, only 10% of the issue is available for retail investors. In comparison, 75% is made available to QIBs (qualified institutional buyers), and the remaining 15% is available to NIIs (non-institutional investors).

The allotment date is August 7th, and refunds will be processed by August 8th. Successful allottees will also receive the shares on the same day, and the company will tentatively be listed on the NSE and BSE by August 9th, 2024. As per the data, the company's IPO had been subscribed to 0.38 times as of Friday evening, with a 1.70-time subscription in the retail category, 0.22 times in the NII category, and no significant bids in the QIB segment.

But should you subscribe to the IPO? What are the experts saying? How is this IPO placed in terms of its strengths and weaknesses? Let's find out.

The company plans to utilize these funds towards expanding its subsidiary OCT, which is involved in cell manufacturing, from its present capacity of 5 GWh to 6.4 GWh. It will also be directed towards research, development, and corporate purposes, along with paying back debts incurred by one of the company’s other subsidiaries, OET.

How does Ola Electric Mobility fare?

The company has seen a consistent, yearly improvement in its PAT (profit after tax) and revenue from operations between FY23 and FY24. Ola Electric’s PAT surged marginally from Rs 14,720 million in FY23 to Rs 15,844 million in FY24. On similar lines, the company’s revenue from operations jumped from Rs 26,301.27 million in FY23 to Rs 50,098.31 million in FY24.

The management expects sales of EV 2-wheelers in the country to jump by 4.5% in FY24 to over 40% in the upcoming 4 years. With seven products already in its portfolio and four bikes in the pipeline, which are expected to be out by FY26, Ola is well poised to take advantage of the impending EV boom in the country, given that India’s automotive market makes up 35% of the country’s manufacturing GDP and 7% of its overall GDP in FY23. The situation is only set to improve from here, with the government pushing for automobiles to reach 40% of India’s manufacturing GDP by FY2026.

It also helps that Ola Electric is the only EV manufacturer in India that is a beneficiary of two Government of India PLI schemes: the Automobile PLI Scheme and the Cell PLI Scheme. For the latter, they are one of only three beneficiaries awarded benefits under the Cell PLI Scheme as of March 31, 2024, which was awarded for 30 GWh capacity, of which they were awarded 20 GWh.

However, if the company fails to meet the criteria set by the government under these schemes, Ola may also end up paying a hefty penalty. Moreover, around 37% of materials used in manufacturing EVs are imported, raising major costs for the company. Out of this, at 32.4%, batteries make up for the most expensive component. Other than that, the company aims to invest a significant amount towards research and development, which may or may not translate into monetary benefits for it. Its subsidiaries, OET and OCT, have been raking up losses, with OCT's losses before taxes burgeoning from Rs 137.91 million in FY23 to Rs 652.47 million in FY24.

Expert View

Master Capital Services Ltd. advises subscribing to this IPO from a medium-to-long-term perspective.

“As India focuses on reducing its carbon footprint and enhancing energy security, Ola Electric's IPO could be a pivotal development in the green mobility space. With a 35% market share in India's electric two-wheeler market in FY24, up from 21% in FY23, Ola Electric sold 3.29 lakh units in FY24, more than doubling its sales from the previous year. The IPO not only showcases Ola Electric's growth and market leadership but also highlights the potential of the EV sector. Investors are encouraged to subscribe to this IPO with a medium- to long-term view.

Stock analyst Dilip Dawda also advises only well-informed, seasoned investors to park their funds in this IPO, from a long-term perspective.

“The company is a pure E2W play emerging leader, and with many big and small companies dropping their hats in the fray, sphere competition is shaping ahead. Ola has laid down its future path with its future factory and Gigafactory to take on any kind of competition. The company is planning to enter E-2W bikes, three-wheelers, cars, and most importantly, the 4680 Li-thion battery, making it a global hub for EV batteries. While its top line has been surging year-on-year, its bottom line marked improvement in reduced losses. No doubt it will take some more time to turn the corner and wipe out the losses. Thus, it’s a pure long-term investment bet," he continued.

As per Anand Rathi Research's IPO note, "Ola Electric Mobility is the fastest-growing segment in the EV space. Going ahead, EVs are anticipated to drive substantial growth in the global automotive market. However, we believe that Ola has significant headroom to grow in the coming years. Moreover, they commenced manufacturing the 4680-form factor cells at the Ola Gigafactory on March 24, which is expected to allow better control over battery and EV quality, supply, and costs".

"Despite being a loss-making entity, the company has gained market share of 34.8% in the E2W segment. At the upper price band, the company is valuing at market-cap/Sales of 6.6x with a market cap of ₹335,220 million post issue of equity shares. Currently, top global automobile entities are trading between 1-8x as on market-cap/sales. Therefore, on the valuation front, we believe that the company is richly priced. Thus, we recommend a “Subscribe – long term” rating to the IPO with a higher risk appetite", the IPO note explains