Ola Electric IPO review (May apply)

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Review By Dilip Davda on July 31, 2024

•    The company is an emerging leader in E-2W segment with rising market share.
•    It is expanding its product portfolio to be numero uno in the segment.
•    The company has been posting losses, and may take some more time to turn the corner.
•    Due to negative earnings, the issue is at a negative P/E.
•    Well-informed investors may park moderate funds for the long term.

ABOUT COMPANY:
Ola Electric Mobility Ltd. (OEML) is a pure EV player in India and are building vertically integrated technology and manufacturing capabilities for EVs and EV components, including cells. It manufactures EVs and certain core EV components like battery packs, motors and vehicle frames at the Ola Futurefactory. Company's business focuses on capturing the opportunity arising out of electrification of mobility in India and also seek opportunities to export its EVs in select international markets in the future. 

It has delivered seven products and additionally announced four new products since its first product announcement in August 2021. The company commenced delivery of its first EV model, the Ola S1 Pro, in December 2021. This was followed by the delivery of the Ola S1 in September 2022, the Ola S1 Air in August 2023, the Ola S1 X+ in December 2023 and the Ola S1 X (2 kWh), the Ola S1 X (3 kWh) and the Ola S1 X (4 kWh) in May 2024. On August 15, 2023, it also announced a line-up of motorcycles comprising four models, Diamondhead, Adventure, Roadster and Cruiser. The company plans to commence delivery of the motorcycles in the first half of Fiscal 2026. 

it had the highest revenue of all Indian incorporated electric 2Ws ("E2Ws") original equipment manufacturers ("OEMs") from E2W sales in Fiscal 2023, according to the RedSeer Report. Within nine months of delivering its first EV scooter in December 2021, the company became the best-selling E2W brand in India in terms of monthly E2W registrations on the VAHAN Portal of Ministry of Road Transport and Highways ("VAHAN") according to the RedSeer Report. 

Research and development ("R&D") and technology is at the core of its business model with a focus on in-house product innovation. It undertakes R&D activities in India, the United Kingdom ("UK") and the United States ("US") focused on designing and developing new EV products and core EV components, such as battery packs, motors and vehicle frames. It is in the process of building its EV hub in Krishnagiri and Dharmapuri districts in Tamil Nadu, India, which includes its Ola Futurefactory, and upcoming Ola Gigafactory and co-located suppliers in Krishnagiri district. At Ola Futurefactory, it manufactures EV scooters using certain EV components manufactured in-house and other components procured from third parties, such as cells. The Ola Futurefactory is the largest integrated and automated E2W manufacturing plant in India (in terms of production capacity) by an E2W-only OEM, as at March 31, 2024, according to the RedSeer Report. In addition, it operates a BIC in Bengaluru, India that is focused on developing cell and battery technology and manufacturing processes for forthcoming cell manufacturing at the Ola Gigafactory.

The company operates own direct-to-customer ("D2C") Omni channel distribution network across India, comprising 870 experience centres and 431 service centres (of which 429 service centres are located within experience centres) as at March 31, 2024 in addition to its Ola Electric website. Its network of experience centres was India's largest company-owned network of experience centres as at March 31, 2024 according to the RedSeer Report.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of fresh equity shares issue worth Rs. 5500.00 cr. (approx. 723684210 shares at the upper cap), and an Offer for Sale (OFS) of 84941997 equity shares (worth Rs. 645.56 cr. at the upper cap). The company has announced a price band of Rs. 72 - Rs. 76 per equity shares of Rs. 10 each. The overall size of the issue will be approx. 808626207 shares worth Rs. 6145.56 cr. The issue opens for subscription on August 02, 2024, and will close on August 06, 2024. The minimum application to be made is for 195 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 18.33% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 1227.64 cr. for capex to be incurred by its subsidiary OCT, Rs. 800.00 cr. for repayment/prepayment of debt by its subsidiary OET., Rs. 1600.00 cr. for investment into research and product development, Rs. 350.00 cr. for expenses on organic growth initiatives, and the rest for general corporate purposes. 

The company has reserved equity shares worth Rs. 5.50 cr. for its eligible employees and offering them a discount of Rs. 7 per share. From the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., Citigroup Global Markets India Pvt. Ltd., BofA Securities India Ltd., Goldman Sachs (India) Securities Pvt. Ltd., Axis Capital Ltd., ICICI Securities Ltd., SBI Capital Markets Ltd., and BOB Capital Markets Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

The company has issued/converted entire initial equity shares at par value. It has also issued bonus shares in the ratio of 194998 for 1 in December 2021. It has converted CCPS at the agreed terms in June 2024, and July 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. Negligible, Rs. NIL, Rs. 8.22, Rs. 11.70, Rs. 62.38, Rs. 71.15, Rs. 74.06, Rs. 75.11, and Rs. 111.51 per share. 

Post-IPO, its current paid-up equity capital of Rs. 368.71 cr. will stand enhanced to Rs. 441.08 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 33521.75 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/ - (loss) of Rs. 456.26X cr. / Rs. - (784.15) cr. (FY22), Rs. 2782.70 cr. / Rs. - (1472.08) cr. (FY23), and Rs. 5243.27 cr. / Rs. - (1584.40) cr. (FY24). 

For the last three fiscals, the company has posted an average EPS of Rs. - (3.85) and an average RoNW of - (63.62) %. The issue is priced at a P/BV of 13.72 based on its NAV of Rs. 5.54 as of March 31, 2024, and at a P/BV of 4.46 based on its post-IPO NAV of Rs. 17.05 per share (at the upper cap). 

The issue is priced at a negative P/E as the company has been incurring losses since inception.

As the company is running in losses, it has not reported data for its PAT and RoCE margins for the reported periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in December 2023, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown TVS Motors, Eicher Motors, Bajaj Auto, Hero Motocorp as their listed peers. They are trading at a P/E of 74.1, 34.0, 33.7, and 29.1 (as of July 31, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The Eight BRLMs associated with the offer have handled 80 pubic issues in the past three fiscals, out of which 21 issues closed below the offer price on the listing date. 

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