Ola Electric IPOs & Layoffs: Is It a Good Investment?

Stay alert as the IPO train finally arrives at the EV sector station. Ola Electric is planning to issue a whopping Initial Public Offer of ₹7,500 crore this summer. Despite being new, Ola Electric became the market leader in India's E2W space, capturing over 30% of the market share in September 2023.

Their biggest strength is their large-scale, automated E2W manufacturing plant;, boasting a capacity of 1 million units annually. The plan to launch the IPO within the next month and to lay off over 450 employees are some signs that the EV maker might be a little eager to dip its toes in public offerings.  

This scenario raises the question: When the IPO is going to be a ₹7,500 crore issue, then why is Ola Electric planning to wave goodbye to some of its employees. What could be the usage for the to-be raised fund.

Let’s not forget the most important of all: Will investing in this IPO be worth it? Let’s explore answers to these prominent questions in this article.

Ola Electric IPO Details

The IPO had a ₹5,500 crore fresh issue and an Offer-for-Sale (OFS) of 8.49 crore shares. The OLA Electric IPO was 4.45 times subscribed till the last day of subscription i.e.  August 6, 2024. It saw a 4.05 times subscription in the retail category, 5.53 times in the QIB category, and 2.51 times in the NII category.

The funds raised will be used to expand the capacity of Ola Electric’s cell manufacturing plant, repay debt, conduct research and development, and pursue other growth initiatives. As of October 2023, Ola Electric reported outstanding consolidated borrowings of ₹17,68.81 crore.

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What Makes Ola Electric's Upcoming IPO Noteworthy?

Among all the basic questions regarding an IPO, a common query that plagues most of us is what makes this IPO a good investment choice. I have a swift albeit short list of factors that might help you make a sound decision:

• Ola Electric is looking to be the first pure-play electric two-wheeler maker to launch an IPO in India.
• They are currently the market leader in E2W sales, with a 52% share.
• The company has strong growth projections for the E2W market in India.

Want to know more? Keep reading to learn about the company's financials and position in the EV market.

How Was Ola Electric Formed?

Ola Electric isn't a separate company but a division of Ola, which was founded in 2011. The story of Ola and, by extension, Ola Electric’s foundation is an inspiring story, and I will tell you why.

So, a young entrepreneur named Bhavish Aggarwal went on a trip, and he rented a car to reach his destination. But, his experience in that little car ride changed his life for good. The cab ride in itself was too excruciating as the cab driver asked for more money in the middle and supposedly took wrong turns to extend the distance.

Like any of us, this frustrated Bhavish and led to his determination to find a solution. He became determined to create a reliable and transparent way to hail cabs.

If only I were as adamant about solving my problems instead of ignoring them. 😅  

So, Bhavish, along with Anthony Thomas, co-founded Ola (initially named Olatrip.com) in December 2010. Their vision? To revolutionise the Indian taxi market with app-based cab booking. This idea came at a time when people were not in the practice of using the internet and mobile phones for every little thing.

GenZ’s right now: 👇

Convincing people to trust an app for booking cabs was a challenge. But Bhavish and Anthony persevered. They offered competitive fares, a user-friendly app, and a focus on driver training and safety.

Meanwhile, the world is buzzing with the revolution that would be electric vehicles. Bhavish recognised the potential of EVs in India's pollution-plagued cities. He saw an opportunity to not just disrupt the cab market but to be a leader in sustainable transportation.

In 2017, Ola took a bold step. It launched India's first multimodal electric vehicle project in Nagpur, partnering with the government to promote electric public transport. This was a clear sign of Ola's commitment to EVs.

But they didn’t stop there. In 2021, Ola announced a dedicated electric vehicle arm - Ola Electric. Electric two-wheelers (E2Ws), the most popular mode of transport in India, were the focus of this new firm. For this, the startup built a massive, automated E2W factory with a production capacity of 1 million units annually.

This initiative was a game-changer as it allowed them to potentially become the world's largest E2W manufacturer and helped them grab a market share of 52% in India.

Their first offering, the Ola S1 scooter, was met with immense enthusiasm. Pre-bookings shattered expectations, showcasing the massive demand for electric scooters in India.

EV 2-Wheeler Market Overview

India's automotive market is significant, with an annual production of approximately 26 million vehicles as of FY 2023, excluding electric rickshaws. This sector plays a central role in India's manufacturing and overall economy, contributing around 35% to the manufacturing GDP and 5-6% to the overall GDP in FY 2023.

Additionally, the Indian government aims to increase the automotive industry's contribution to approximately 40% of the manufacturing GDP by FY 2026.

Furthermore, the increase in EVs will contribute to India's commitment to achieving net-zero emissions by CY 2070, as communicated at the UN COP26 summit. In contrast to internal combustion engine (ICE) vehicles, EVs produce zero tailpipe emissions. This would boost the demand and the overall EV market for the better.

Apart from the advancing technologies, the government's efforts in the form of schemes and financial support will also help. The Production-Linked Incentive (PLI) aims to address cost disabilities, create economies of scale, generate employment, and establish a robust supply chain for the automotive sector.

The scheme offers financial incentives of up to 18% (sales-linked) to promote domestic manufacturing of automotive products and attract investments.

On the other hand, initiatives like India Semiconductor Mission with a budget of ₹76,100 crore and multiple schemes. Some of them are semiconductor fabrication, display fabrication, manufacturing and packaging, design-linked incentives, etc. This initiative will drive technological innovation and enhance the global competitiveness of the Indian automotive market.  

Last but not least comes the FAME scheme. The Faster Adoption and Manufacturing (of Hybrid &) Electric Vehicles in India scheme was launched in 2015 to facilitate a transition to environmentally cleaner, sustainable, advanced, and more efficient electric vehicle-based systems.

• Phase I of the scheme, with a budget of ₹900 crore, was initiated between FY 2015 and FY 2019.
• Phase II, with a budget of ₹10,000 crore, was introduced in FY 2020 for a duration of 3 years and later extended up to FY 2024.
• Phase III is currently being discussed.

The scheme aims to generate demand and develop charging infrastructure. The inclusion of these schemes has led to a massive increase in the nation's penetration of electric vehicles.

The growth is so impressive that India is trailing behind China in terms of two-wheelers with 16-17 million domestic sales. Although China has a sales count of over 60 million, there is a major gap to be filled in this particular sector.

Ola Electric Financials & Peer Comparison

Let's analyse the financial aspect of Ola Electric.
Take a look at the Profit & Loss Statement of the EV maker:

The net sales have been similar to a rollercoaster ride as it jumped to ₹1.79 crore in 2020 from ₹0.10 crore in 2019. Then it took a steep dive to ₹0.87 crore in 2021, which you can blame on the Covid-19 disrupted market.

After which, Ola Electric jumped massively to ₹28.13 crore in 2022 and then took things to another level, touching ₹170.15 crore in 2023.

As for the net profit, the company has been dishing out negative numbers over the years. Although the amount has been reducing with every year, a minus sign can still be a cause for concern.

Now, let's talk about Ola Electric's presence amidst its competitors. The Indian E2W market is crowded with established players like Bajaj Auto, TVS Motor Company, and Hero MotoCorp.

These companies have a wider product range, including petrol-powered vehicles, which gives them a broader market reach. However, Ola Electric stands out for its focus solely on electric scooters and its aggressive expansion plans.

It also has an advantage in terms of technological innovation, with in-house R&D facilities spread across India, the US, and the UK.

The Bottom Line

While the EV market holds promise, concerns about Ola Electric's financial health (potential losses, high debt) and competition from established players could dampen investor enthusiasm.

So, before coming to a conclusion as to whether this IPO investment would be worth it, it is crucial that you think upon certain factors, including market conditions, investor sentiment, and the company's ability to address any concerns are areas you should start with.

It's important for you to carefully consider the risks and opportunities involved before making any investment decisions.

What's the Latest?

The Central Consumer Protection Authority (CCPA) issued a notice to Ola Electric after registering 9,948 complaints on the National Consumer Helpline between 1 September 2023 and 30 August 2024. The notice points to a series of alleged violations under the Consumer Protection Act 2019, such as deficiencies in service, unfair trade practices, and misleading advertisements.

Ola Electric, which once held a dominant 52% share of the electric two-wheeler (e2W) market in April, saw its share drop to 27% by September. On 7 October, Ola Electric's market capitalisation fell below $5 billion for the first time since its August listing, closing at $4.7 billion—a significant decline from its IPO valuation, which peaked above $7 billion with an issue price of ₹ $76 per share.

Nearly 10,000 complaints have been filed against Ola Electric. Of these, 3,364 complaints relate to slow repairs and service, 1,899 to delayed deliveries of its electric scooters, and 1,459 to unfulfilled promises regarding product features and services.

The notice follows a social media altercation between Bhavish Aggarwal and comedian Kunal Kamra. It all started when Kunal Kamra posted a picture of Ola Electric scooters gathering dust outside a dealership, tagging Union Minister Nitin Gadkari and the Department of Consumer Affairs. He questioned if this was how Indians would transition to electric vehicles and invited users to share their issues with Ola scooters.

Quite the drama, right? Who do you think had the better comebacks?

This is not the first time the three-year-old company has been under regulatory inquiry. Ola Electric, along with Ather Energy, TVS Motor, and Hero MotoCorp's Vida, were examined last year for breaking price standards as part of the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme's second phase. These companies were accused of invoicing chargers separately, which violated the ₹ 1.5 lacks ex-factory pricing cap intended to make EVs more accessible.

In response, the businesses agreed to compensate consumers for around ₹300 crore by May 2023, with Ola refunding ₹130 crore to approximately 100,000 clients.

FAQs

1. What is the issue size of the Ola Electric IPO?

The issue size of the Ola Electric IPO is ₹5,500 crore fresh issue combined with an Offer-for-Sale (OFS) of 95.19 million shares.

2. When will Ola Electric IPO be listed?

The official listing date for the Ola Electric IPO hasn't been announced yet. SEBI approval has been received, but the company is likely waiting for favourable market conditions before setting a date.

3. What are the open and close dates of Ola Electric's IPO?

Similar to the listing date, the application window (open and close dates) for the Ola Electric IPO hasn't been revealed yet. These dates are typically announced a few weeks before the IPO opens for bidding.

4. What is the expected price band for the Ola Electric IPO?

The price band for the Ola Electric IPO is yet to be determined. This information is usually disclosed closer to the application window opening.

5. Is Ola Electric profitable?

Ola Electric is a relatively new company that is not yet profitable. It is still in the investment phase, focusing on growth and market share.

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.