As India's electric vehicle (EV) market continues to expand, Ola Electric is set to play a significant role with its upcoming IPO. Opening on August 2, 2024, and closing on August 6, 2024, this IPO is the largest since the Life Insurance Corporation of India's ₹21,000 crore IPO in May 2022. Here's a comprehensive look at what investors need to know.

IPO Details

• Price Band: ₹72 to ₹76 per equity share of face value ₹10
• IPO Size: ₹6,146 crore, comprising a fresh issue of ₹5,500 crore and an Offer for Sale (OFS) of ₹645.56 crore
• Notable Sellers: Founder Bhavish Aggarwal plans to sell around 3.8 crore shares
• Anchor Investors: Raised ₹2,763.03 crore from major investors, including SBI MF, HDFC MF, and Morgan Stanley

Subscription Status

On the first day, the IPO received a mixed response. By 4:00 PM IST, the total subscription stood at 32%, with the retail portion fully subscribed at 1.48 times, and the employee portion was booked 4.61 times. Non-institutional investors (NIIs) subscribed at 16%, while Qualified Institutional Buyers (QIBs) had yet to fully engage.

Market Position and Future Plans

Ola Electric is a leader in the electric two-wheeler (E2W) segment, holding a 35% market share in FY 2024. The company is eyeing expansion into electric motorcycles, three-wheelers, and even the production of 4680 Li-ion batteries. The construction of the Ola Futurefactory, with an annual capacity of one million units, underscores its commitment to becoming a one-stop shop for EV technology and infrastructure.

Analyst Views

LKP Securities and Hensex Securities recommend subscribing for long-term gains, citing Ola's leadership in the E2W market and the potential for future growth. Dilip Davda of Chittorgarh.com also views the IPO as a long-term investment, emphasizing the company's strategic initiatives and the growing EV market in India. However, he cautions that profitability may take time due to current operating-level losses.

Deven Choksey Research highlights the company's leadership position and strategic initiatives, such as the development of the Ola Gigafactory and backward integration, to enhance supply chain control and cost efficiency. They also recommend subscribing to the IPO.

Conversely, Swastika Investment adopts a neutral stance, pointing out the company's ongoing financial challenges and the need for more time to achieve profitability. The firm advises caution, particularly given the high valuation of the IPO.

Valuation and GMP

The IPO is priced at a Price-to-Earnings (P/E) ratio of approximately 6.8 times FY24 revenues. The grey market premium (GMP) is currently at ₹13, indicating a potential listing price of ₹89 per share, a 17.11% premium over the upper price band. InCred Equities notes that the company's valuation is slightly higher than the median of its peers, but they remains optimistic about its long-term prospects, especially with the anticipated EV proliferation and favorable market conditions.

Pros and Cons of the Ola Electric IPO

Pros

1. Market Leadership:
   • Ola Electric holds a dominant position in India's electric two-wheeler (E2W) market, commanding approximately 35% of E2W registrations in FY 2024. This leadership position provides a competitive edge in a rapidly growing sector.
2. Strong Growth Potential:
   • The Indian electric vehicle (EV) market is expanding due to rising environmental awareness, government incentives, and increasing consumer adoption. Ola's strategic investments in technology and infrastructure position it well to benefit from this growth.
3. State-of-the-Art Manufacturing:
   • The Ola Futurefactory, with its planned capacity of one million units annually, demonstrates the company's commitment to large-scale production. This facility aims to produce a range of EV components, enhancing the company’s supply chain and production capabilities.
4. Diverse EV Portfolio:
   • Ola Electric is expanding its product lineup beyond scooters to include electric motorcycles, three-wheelers, and advanced battery technologies. This diversification can help mitigate risks associated with reliance on a single product segment.
5. Strategic Investments:
   • Significant investments from anchor investors, including major financial institutions, underline strong confidence in Ola's business model and growth prospects.

Cons

1. High Valuation:
   • The IPO is priced at a Price-to-Earnings (P/E) ratio of approximately 6.8 times FY24 revenues. While this reflects the company’s growth potential, it may also imply high valuation risks, especially if the company's performance does not meet market expectations.
2. Operating Losses:
   • Despite strong revenue growth, Ola Electric has faced significant operating-level losses. The company has shown a reduction in losses over time, but it may still take years to achieve consistent profitability.
3. Competitive Market:
   • The EV market is becoming increasingly competitive, with both established players and new entrants vying for market share. Ola Electric will need to continuously innovate and adapt to maintain its leading position.
4. Regulatory and Policy Risks:
   • Changes in government policies and incentives for EVs could impact the company’s financial performance. Additionally, delays in policy implementation or changes in subsidy structures might affect growth projections.
5. Execution Risks:
   • Scaling up production and technology while maintaining quality and managing costs presents significant challenges. The success of the Ola Futurefactory and other strategic initiatives is critical for the company’s long-term success.

Should You Subscribe?

Ola Electric's IPO offers an opportunity to invest in a leading player in India's rapidly growing EV market. The company's ambitious expansion plans and strong market position make it an attractive investment. However, the high valuation and ongoing financial challenges should be considered.

Investors with a high-risk appetite and a long-term perspective may find the IPO appealing, especially given the company's potential for growth and market leadership. However, cautious investors may want to wait for more clarity on the company's path to profitability and the evolving competitive landscape in the EV sector.

In conclusion, Ola Electric's IPO is a significant event in India's EV market, offering both opportunities and risks. Investors should carefully weigh these factors before making a decision.

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