Ola Electric Mobility Ltd IPO Analysis: GMP, Subscription Status, Strengths & Risks

Ola Electric Mobility Ltd, India’s largest electric two-wheeler (E2W) manufacturer, is opening its Initial Public Offering (IPO) on August 02, 2024, and closing on August 6, 2024. With a Grey Market Premium (GMP) of 16% and a strong market share, the IPO may initially appear appealing. However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Ola Electric Mobility IPO Details

Issue Size: 6,145.56 crore
Fresh Issue: 5,500 crore
OFS: 645.56 crore
Price Band: Rs 72 – Rs 76
Market Lot: 195 shares
Minimum Investment Value: Rs 14,820
Listing Date: August 9, 2024

Use of Proceeds

Ola Electric plans to utilise the net proceeds from the fresh issue for the following purposes:

Expand the capacity of its cell manufacturing plant from 5 GWh to 6.4 GWh through capital expenditures incurred by its subsidiary;
Repay or pre-pay, either fully or partially, the debts accumulated by its subsidiary;
Invest in research and product development to innovate and improve its offerings;
Allocate funds for initiatives aimed at organic growth; and
General corporate purposes.

Ola Electric Mobility IPO Subscription Status

The Ola Electric IPO attracted a 0.38 times overall subscription on its first day of bidding. Investor interest varied across different categories: The retail individual investors (RIIs) part got 1.69 times subscribed while non-institutional investors (NIIs) was subscribed 0.22 times. Meanwhile, the Qualified Institutional Buyers (QIBs) category has not yet seen any subscriptions.

Overview of Ola Electric Mobility Ltd

As India's largest E2W manufacturer, Ola Electric specializes in producing electric vehicles and key components like battery packs, motors, and frames at its Ola Future factory, the country’s largest dedicated E2W production facility, with an annual capacity of one million units. Additionally, the company runs a Battery Innovation Center (BIC) in Bengaluru, dedicated to developing advanced cell and battery technologies for future EVs.

Ola Electric Mobility Ltd Key Strengths

Dominant Market Presence: Ola Electric commands a leading 35% market share in the E2W sector as of FY24, outperforming rivals such as TVS Motor (19%), Bajaj Auto Ltd (11%), and Hero MotoCorp (2%).
Remarkable Growth Trajectory: Ola Electric’s scooter sales increased 2.1 times to 330,000 units in FY24, following a sevenfold rise the previous year. Revenue also nearly doubled to Rs 5,009.8 crore in FY24, after a 605% increase in the prior year.
Favourable Industry Trends: E2Ws are projected to account for about 41-56% of domestic two-wheeler sales by FY28. Ola Electric's market leadership and expansion plans position it well to capitalize on these trends.

Ola Electric Mobility Ltd Risk Factors

Loss-Making Company: Ola Electric and its material subsidiaries, Ola Electric Technologies and Ola Cell Technologies, have experienced losses and negative operating cash flows since inception, with no immediate prospects for profitability.
Limited Experience: Ola Electric's relatively brief history in EV manufacturing presents uncertainties regarding its ability to manage costs and achieve profitability.
High Dependence on a Single Product: 59.62% of FY24 revenue was generated from the Ola S1 Pro model, exposing the company to risks like demand fluctuations and competitive pressures.
Employee Retention and Order Cancellations: High employee turnover at a rate of 44.25% in FY24, coupled with increasing order cancellations at 9.14% of confirmed orders, suggest potential challenges in maintaining workforce stability and customer satisfaction.
Customer Complaints: Ola Electric received 2,994 complaints related to product quality and 1,742 regarding vehicle servicing in FY24. These issues could harm business and damage reputation if not addressed.
Reliance on Imported Supplies: A significant portion (36.86%) of materials was imported from China in FY24. Political tensions affecting these imports could negatively impact operations.

Ola Electric Mobility Valuation & Investment Recommendation

Ola Electric, India's largest pure-play E2W manufacturer, holds a 35% market share. With EV scooter penetration at 15% and overall EV market penetration at 5.4%, growth potential is significant. However, there are some serious concerns.

Losses have more than doubled from Rs 784 crore in FY22 to Rs 1,584 crore in FY24, and management expects losses to continue in the short term due to expansion investments. Additionally, the company has been offering substantial discounts up to Rs 25,000 on its flagship Ola S1 model. However, as the push towards profitability intensifies, these discounts may need to be reduced, potentially affecting demand.

The company’s estimated market cap-to-sales ratio is 6.7 times, significantly higher than competitors like TVS Motor Ltd (3.5 times) and Hero MotoCorp Ltd (2.8 times), raising valuation concerns. Given these factors, long-term investors might prefer to wait and monitor the company's performance over the next two quarters, as current risks outweigh potential benefits.

For a deeper dive into this IPO, explore: IPO Corner on Liquide

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