The recent IPO of Ola Electric has been in the limelight across the investment community. Ola Electric IPO is, without any doubt, one of the key companies involved in EVs within India on its way to disrupting the two-wheeler market. This paper covers an in-depth analysis of the company based on its business model, industry analysis, financials, key risks, and IPO details. The investors will be helped to a certain extent through the ensuing sections in deciding whether or not to invest in this opportunity.
Company Overview
Ola Electric is a pure-play electric vehicle manufacturer based in India. The group is focused on developing vertically integrated technology and manufacturing capabilities across electric vehicles and their components, such as battery packs, motors, and vehicle frames, all housed within the Ola Future Factory.
Not only does Ola Electric manufacture and sell in India, but it also exports to international markets. This global reach enhances the company’s growth potential and competitiveness in the EV landscape.
Understanding Ola Electric
Ola Electric Mobility is primarily focused on manufacturing electric two-wheelers and essential EV components. Their product range includes battery packs, motors, and vehicle frames. Currently, the company offers several electric two-wheeler models, including:
- S1 Pro
- S1 Air
- S1X
In addition to these models, Ola Electric has plans to launch four electric motorcycles in the near future. These include:
- Adventure
- Cruiser
- Roadster
- Diamond Head
The company aims to start deliveries of its electric motorcycles in the first half of fiscal year 2026. Ola Electric operates a manufacturing facility in Tamil Nadu, featuring a direct-to-consumer distribution network that includes 870 experience centers and 431 service centers. This extensive network allows the company to sell its products directly through its website, enhancing customer engagement and accessibility.
Business Model
The business model of Ola Electric has three key pillars:
- R&D: The company invests heavily in R&D, focusing on designing and developing technology in-house.
- Vertical Integration: The reason Ola Electric is involved in the in-house production of various parts, including the batteries, is to reduce dependencies on external suppliers and bring about cost efficiency.
- Go-to-Market Strategy: A direct-to-consumer model integrates how customers can book vehicles online. A pan-India footprint of 870 experience centers and 431 service centers has covered the length and breadth of the country.
Industry Analysis
It is presently the second biggest two-wheeler market in the world, providing huge growth potential. While it did slump in demand during the COVID-19 pandemic, it has shown its mettle by recovering to about 92% of pre-COVID levels.
Government of India is exceptionally pushing the electric vehicle sector through various initiatives, including Production Linked Incentive schemes. Ola Electric benefits by its positioning in this industry at a very opportune time, as it will benefit from such incentives.
The Industry Outlook for Electric Vehicles
The shift towards electric vehicles is gaining momentum globally, with India being no exception. The adoption of electric vehicles is driven by several factors, including:
- Environmental benefits over traditional vehicles
- Advancements in battery technology
- Lower cost of ownership for EVs
- Government incentives and subsidies
These factors have contributed to a notable increase in the registration of electric two-wheelers in India, rising from 5% of overall two-wheeler registrations in 2022 to 6.8% in 2024. The EV revolution is expected to continue gaining traction, presenting significant growth potential for companies like Ola Electric.
Research and Development Focus
Ola Electric thinks R&D is an intrinsic part of its future strategy. It has 304 patents granted and 74 registered designs that underline its innovation quotient. With a workforce of 959 employees focused on R&D, the Ola Electric workforce stands in a good position to move further up the technology curve.
Key Risks
While the outlook for Ola Electric remains encouraging, some key risks are as follows:
- Financial Losses: The company has been running into losses since its inception and has negative cash flow from operations, which questions the long-term sustainability of the business.
- Limited Operating History: With Ola Electric operating for only a relatively few years, there are doubts about what may lie ahead regarding their profitability and cost-effectiveness.
- Dependence on Government Incentives: Any reduction in government support would hit the company’s competitive position and financial performance.
- Employee Attrition: High attrition rates of 44% and 47% in the last two fiscal years are a cause for concern regarding workforce stability.
- Battery Performance: As the company is still within the early cycles of its EV warranties, it cannot establish an exact rate for its battery degradation or warranty claims.
Financial Performance
Ola Electric’s financials present a mixed picture. The revenue from operations has increased significantly from 3,734 million to over 50,000 million, though it is still reeling under heavy losses. The loss before tax moved from 7,800 million to 15,800 million, pointing toward major strategic steps being essentially required to attain profitability.
Even though the revenue has increased, the company still does not give an indication of when the company can turn profitable, which further increases uncertainty in its future prospects.
Analyzing the financial health of Ola Electric is crucial for potential investors. Here are some key financial metrics:
- Total equity and total liabilities from the balance sheet
- Debt-to-equity ratio has increased significantly
- Revenue from operations has grown from ₹373 crore to over ₹5,000 crore
This remarkable revenue growth of 136% per annum over the past three years is a positive indicator. However, it’s essential to note that the company has been operating at a loss:
- Negative operating profits
- Doubling of net losses over three years
- Negative cash flows from operations
While revenue growth is impressive, the overall financial condition raises concerns about sustainability and profitability.
Peer Comparison
The P/E ratio, as of date, stands at 41.37 in the current market. The current position of the company does not allow any direct comparison with peers, and much caution should be exercised while comparing Ola Electric vis-à-vis its peers.
Valuation Metrics for Ola Electric
Given that Ola Electric is currently loss-making, traditional valuation metrics such as price-to-earnings (P/E) ratios are not applicable. Instead, the focus shifts to the price-to-sales (P/S) ratio, which stands at 6.39 times. Here’s a brief overview of the company’s valuation:
- Market cap estimated at ₹33,522 crore
- Revenue for fiscal year 2024 projected at ₹5,243 crore
Comparing Ola Electric with its peers, such as Tesla and BYD, reveals that while Ola Electric is cheaper than Tesla, both companies are significantly more expensive than BYD. However, it’s crucial to note that Tesla and BYD are profit-making entities, which complicates the valuation comparison.
IPO Details
The IPO of Ola Electric is proposed to go on from 2nd August to 6th August, having a price band of 72 to 76. The total issue size is around 6,146 crores with a fresh issue component of 5,500 crores.
The proceeds from the IPO shall be used mainly for the purposes mentioned below:
- Investment in R&D
- Capital expenditure for subsidiaries
- Repayment of loans
- General corporate purposes
The Ola Electric IPO is set to close on August 6, 2024. Here are some critical details regarding the IPO:
- Total IPO size: ₹6,146 crore
- Fresh issue size: ₹5,500 crore
- Offer for sale: ₹646 crore
Notably, 89% of the IPO is a fresh issue, which is a positive sign as it indicates that the company will benefit from the proceeds. The IPO price band is set between ₹72 and ₹76 per share. For retail investors, a single lot will cost approximately ₹14,820.
Critical IPO-Related Considerations
Evaluating the IPO involves understanding several key metrics:
- Fresh issue versus offer for sale
- Use of IPO proceeds for growth
- Recent share price history
- Litigation history
Ola Electric plans to use the IPO proceeds for capital expenditures, debt repayment, R&D, and organic growth opportunities. This diversified allocation is a positive sign for potential investors.
Risk Factors to Consider
Investing in Ola Electric’s IPO comes with inherent risks. Here are some notable risk factors:
- Negative operating cash flows
- Limited operating history since 2017
- Dependence on Chinese suppliers
- Potential withdrawal of government incentives
- Insufficient warranty reserves
- Low capacity utilization of factories
- Limited charging infrastructure
These risks highlight the uncertainties surrounding the company and its operations, making it essential for investors to conduct thorough research before committing their funds.
Should You Invest in Ola Electric’s IPO?
Deciding whether to invest in Ola Electric’s IPO requires careful consideration of various factors. Here are some points to ponder:
- Unique positioning in the EV market
- Strong revenue growth
- Competition from unlisted peers
- Current financial weaknesses
While Ola Electric presents an exciting opportunity in a burgeoning industry, potential investors must weigh the risks against the potential for significant returns. Analyzing the company’s Red Herring Prospectus (RHP) is crucial for understanding all aspects of the investment.
Conclusion
Ola Electric IPO will offer a once-in-a-lifetime opportunity to investors in the electric vehicle segment with huge plans, disruptive potential, tricky financial performance, and short operational history. There are also risks inherent in the market. Investors shall look deep and take these factors into consideration while making their investment decisions.
In a nutshell, Ola Electric will have great times ahead in India within the electric vehicle market. Innovation and sustainability would be the only way toward success in the company, seeing it all in line with the growth to come. Keeping oneself up-to-date and closely monitoring the performance will definitely help an investor make better decisions in this bright opportunity.
Disclaimer: The information is only for information purpose only. It is always recommended to consult with certified financial experts before making any investment decisions. Follow busymoneyfreak.com .
Your blog is a constant source of inspiration for me. Your passion for your subject matter shines through in every post, and it’s clear that you genuinely care about making a positive impact on your readers.