Founded in 2017, Ola Electric Mobility Limited is an electric vehicle company that primarily manufactures electric vehicles and certain core components for electric vehicles such as battery packs, motors, and vehicle frames at the Ola Future factory.
The initial public offering (IPO) of Ola Electric opened for subscription on August 2 and will close on August 6. The IPO includes a fresh equity sale of ₹5,500 crore and an offer for sale (OFS) of 8.4 crore shares, with a price band of ₹72 to ₹76 per share. The company is anticipated to list on August 9. Before investing, here are some key points to consider about Ola Electric:
The company’s market share in the electric two-wheeler (E2W) segment surged to 34.80% in FY24, up from 21% in FY23 and 5.70% in FY22. As of March 31, 2024, Ola Electric operates 870 experience centers and 431 service centers in direct-to-consumer (D2C) distribution.
Heavy Cash Burn: Ola Electric is heavily investing in marketing to attract both riders and drivers, by offering significant discounts. Additionally, The company has diversified its operations beyond ride-hailing into electric vehicles (Ola Electric) and financial services (Ola Money), resulting in significant operational losses.
Consequently, the company’s net losses have increased by 7.6% from FY23 to FY24, reaching ₹1,584.40 crores, despite a revenue growth of 88% to ₹5,243 crores in FY24.
Rise in Expenditure: Ola Electric’s total expenses, which encompass the cost of materials consumed, employee costs, and other expenses, more than doubled in FY24 compared to the previous fiscal year. Specifically, expenses increased from ₹3,883 crores in FY23 to ₹6,277 crores in FY24.
Similarly, borrowings have increased by 45%, rising from ₹1,647 crores to ₹2,389 crores.
Revenue Skewed:
In FY24, the Ola S1 Pro accounted for nearly 60% of total revenue, while the Ola S1 Air contributed 18.93%. In contrast, the Ola S1 model generated only 2.68% of the revenue, a significant drop from 29.36% in the previous year.
This indicates a heavy reliance on the Ola S1 Pro, highlighting both the advantages and risks associated with depending heavily on a single model for revenue.
Debt Repayment from IPO Proceeds:
The company plans to raise ₹5,500 crore through the IPO, with the proceeds allocated as follows: ₹1,227.6 crores for capital expenditure, ₹800 crores for debt repayment, ₹1,600 crores for research and development, ₹350 crores for organic growth initiatives, and the remaining amount for general corporate purposes.
Notably, Ola Electric intends to use a significant portion of the IPO funds for capital expenditure and research and development, with ₹800 crore specifically allocated for repaying existing debt.
This indicates companies strategic move to improve its financial health rather than focusing primarily on expansion.
PLI Scheme Risks: Ola Electric is the first Indian 2W EV company certified under the Production Linked Incentive (PLI) Scheme for automobiles and auto components, granting them benefits of Rs 15,000 to Rs 18,000 per unit to enhance vehicle affordability.
As of March 31, 2024, Ola Electric is one of three beneficiaries under the Cell PLI Scheme, awarded 20 GWh out of 30 GWh to boost domestic advanced chemistry cell battery storage.
However, failure to meet government criteria, like domestic value addition requirements, may result in penalties. Moreover, reducing or removing incentives like the FAME subsidy or GST concessions could raise vehicle costs and lower demand.
Raw Material dependency: In FY24, the company’s material costs rose to Rs 4,390 crore, a 75% increase from FY23. Imports from China accounted for Rs 1,624 crore. Ola Electric reported that 37.03% of its material costs were from imports, up from 19% last year, this highlights Ola’s growing reliance on Chinese suppliers for electric vehicle components and batteries.
Risk in Supply Chain:
Ola Electric relies on importing essential components, such as battery cells from international manufacturers, as well as various parts from both domestic and global suppliers.
This dependence on imports exposes the company to potential disruptions in the global supply chain caused by geopolitical tensions, trade restrictions, or natural disasters. Additionally, fluctuations in the prices of raw materials and components could negatively impact Ola Electric’s production costs
Valuation Concern: Ola is currently valued at approximately Rs 33,522 crore ($4 billion), marking a 26% drop from its previous valuation of $5.4 billion in September 2023. This reduced valuation is likely to diminish the investment value for early investors by around 30%. Initially, Ola Electric had aimed for an IPO valuation between $6.5 billion and $8 billion.
High Employee Attrition Rate: Ola Electric’s employee attrition rate stood at 47.48% for the fiscal year 2023 that high attrition rate indicates that nearly half of the workforce is leaving the company, which can lead to a loss of valuable talent and institutional knowledge and High attrition rates often result in increased hiring and training costs.
Plant Utilization Capacity:
Ola’s Future factory in Krishnagiri, Tamil Nadu, currently has an annual production capacity of 1 million units. However, with a capacity utilization rate of just 49%, there are indications of potential limitations in production efficiency, operational effectiveness, and slower demand growth.
Promoter stake sale:
Bhavish Aggarwal, the company’s founder and promoter, holds 1,36,18,75,240 equity shares, representing a 36.94% stake in the company. His stake is currently valued between ₹9,919 crore and ₹10,350 crore based on the IPO price band.
Aggarwal plans to reduce his stake by 20%, intending to sell 3,79,12,211 equity shares through an Offer for Sale (OFS). At the lower price band, this sale will generate approximately ₹273 crore, while at the upper price band, it will total over ₹288 crore.
Written by Omkar Chitnis
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