Ola Electric Mobility coming with IPO to raise Rs 6451.74 crore

Ola Electric Mobility 

• Ola Electric Mobility is coming out with a 100% book building; initial public offering (IPO) of 84,89,13,150 shares of Rs 10 each in a price band Rs 72- 76 per equity share.     
• Not less than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors. 
• The issue will open for subscription on August 2, 2024 and will close on August 6, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 7.20 times of its face value on the lower side and 7.60 times on the higher side.
• Book running lead managers to the issue are BofA Securities India, Goldman Sachs (India) Securities, Axis Capital, ICICI Securities, SBI Capital Markets, BOB Capital Markets, Kotak Mahindra Capital Company and Citigroup Global Markets India.
• Compliance Officer for the issue is Pramendra Tomar. 

Profile of the company

The company is a pure EV player in India and is 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. Its business focuses on capturing the opportunity arising out of electrification of mobility in India and it 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. It 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. It plans to commence delivery of the motorcycles in the first half of Fiscal 2026.

Research and development (R&D) and technology is at the core of the company’s 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, its upcoming Ola Gigafactory and co-located suppliers in Krishnagiri district. At its Ola Futurefactory, it manufactures its EV scooters using certain EV components manufactured in-house and other components procured from third parties, such as cells. In addition, it operates a BIC in Bengaluru, India that is focused on developing cell and battery technology and manufacturing processes for its forthcoming cell manufacturing at the Ola Gigafactory. 

Proceed is being used for:

• Capital expenditure to be incurred by the company’s Subsidiary, OCT for expansion of the capacity of its cell manufacturing plant from 5 GWh to 6.4 GWh, classified as phase 2 under the expansion plan (the Project).
• Repayment or pre-payment, in full or part, of the indebtedness incurred by the company’s Subsidiary, OET.
• Investment into research and product development.
• Expenditure to be incurred for organic growth initiatives.
• General corporate purposes.

Industry overview

India has a large automotive market, comprising annual production of around 28 million vehicles as of FY 2024 (excluding electric rickshaws). It is central to India’s manufacturing sector and the overall economy, contributing around 35% to the manufacturing GDP and around 7% to the overall GDP in FY 2023. Further, the Indian government envisions improving contribution of the automotive industry to reach around 40% of the manufacturing GDP by FY 2026. While India’s (and global) vehicle production experienced a short-term decline in the FY 2020 – FY 2022 period, (due to the global shortage of semiconductors, pandemic-induced lockdowns, increase in fuel prices and volatile geo-politics driven by the Russia-Ukraine conflict), it has recovered well to around 92% of FY 2019 levels (as of FY 2024). Despite having large two-wheeler (2W) and four-wheeler passenger-vehicles (4W-Passenger Vehicle) markets, India sees limited penetration, indicating a solid backdrop for medium to long-term volume growth. In 2020, the government launched PLI scheme to boost domestic manufacturing, cut down import bills, encourage exports and generate employment. These incentives are linked to incremental sales of new-age technology products manufactured domestically. The scheme invites foreign and local investors to set up new capacities and expand existing manufacturing units. With a budget of Rs 2.73 trillion ($34.1 billion), these schemes were launched across 14 sectors, to create national manufacturing champions and an additional production of Rs 30 trillion ($375 billion) over the next 5 years. 

India is a global production hub for two-wheelers – a total of around 19.5 million 2W were produced in India in FY 2023 contributing 15-20% of the world’s total 2W production, making it the second largest 2W producer in the world after China. Of the total production, around 4 million units were exported. 16-17 million units were sold domestically. Globally, India is the second largest 2W market in terms of domestic sales volumes. Value of 2W domestic market size in India was Rs 1.4-1.6 trillion ($17-20 billion) in FY 2023. The domestic 2W sales are still recovering from the pandemic induced decline and have reached 16-17 million as of FY 2023 as opposed to the pre-pandemic levels of around 21 million. The high growth potential of the segment along with the partially recovered small base is projected to drive strong growth in volumes at around 11% CAGR over the next 5 years. This will enable the domestic 2W market to reach Rs 2.8-3.6 trillion ($ 35-45 billion) size by FY 2028.  Four-Wheeler Passenger vehicles (4W-Passenger Vehicle) segment comprises cars of various sub-segments such as hatchbacks, sedans and utility vehicles. India produced around 4.6 million 4W-Passenger Vehicles in FY 2023, of which around 0.7 million were exported and 3.9 million were sold domestically (domestic opportunity size of Rs 3.2-3.5 trillion ($ 40-45 billion) at consumer prices). In terms of domestic sales, India was the world’s third largest 4W-Passenger Vehicle market in CY 2023. Domestic sales in the 4W-Passenger Vehicle segment are projected to reach 5-6 million units in FY 2028, at a CAGR of around 6%. In terms of value, the market is projected to grow at a CAGR of 8-11% to reach Rs 5.2-5.6 trillion ($65-70 billion) size by FY 2028. 

Pros and strengths

Pure EV player with a leadership position in the fast-growing Indian E2W market: The company’s exclusive and singular focus on EV enables it to leverage on this transition in the growing Indian 2W market. It was the largest E2W seller in India by number of units registered in Fiscal 2024, accounting for approximately 35.00% of the total E2W registrations in India for such period. It is a pure EV company and its R&D and technology including in-house design, engineering, manufacturing, are all singularly focused on building EV products. As a greenfield EV company, it does not have to allocate financial and operational resources in ICE technologies. 

Manufacturing at scale and supply chain resilience: 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. As at March 31, 2024, the Ola Futurefactory had an installed capacity of one million units per year. The Ola Futurefactory is an automated manufacturing facility equipped with modular and flexible assembly lines and an in-house paint shop. The in-house design, and manufacturing of its core EV components enhance its control over the optimization of EV performance and quality. These capabilities to manufacture at scale, automation, and flexible lines also enable it to improve cost efficiency across value chains through economies of scale in its supply chain, fast component development and cross-utilization of equipment across products. Furthermore, its direct relationship with suppliers and its focus on local suppliers for most of its EV components gives it enhanced control of its supply chain.

Scalable platform-based design and development approach: The company’s platform-focused product development is core to its business model, enabling it to leverage common elements, such as its modular electric powertrain which includes a modular battery pack with BMS and motors, as well as a power electronics module, electronics and software to develop and design new EV models. This reduces its estimated product development costs and time to market. Its capability to develop multiple models on its adaptable platform model enabled it to deliver four products and announce seven new products since its first product announcement in August 2021. As at March 31, 2024, 86.60% of the components used in three of its EV scooter models, the Ola S1 Pro, the Ola S1 Air, the Ola S1 X+ are common across all three models. Its products are optimized for performance and design from the data that it collects, which also provides feedback that it factors in when developing new products. 

Direct to Customer Omnichannel Distribution Model: The company’s digitally driven and integrated sales and service experience model offers cost advantages. Its D2C distribution model enables it to directly engage with customers and collect customer feedback, which it takes into consideration in developing its products and product upgrades to ensure they are responsive to customer preferences. It maintains low levels of vehicle inventories at its experience centres, with the majority of its inventory stored in its distribution centres. The distribution centres centrally manage the inventory and arrange for distribution to its experience centres or directly to customer addresses. This central management system enables it to forecast demand and tailor supply orders and production schedules more accurately. 

Risks and concerns

Inadequate access to public charger guns: Demand for the company’s EVs will depend in part upon the availability of a public charging infrastructure, as EV users must rely on public charging infrastructure to charge their vehicles while travelling. Charger gun locations in India are significantly less widespread than fuel pumps. As such, EV owners may face difficulties in recharging their vehicles, particularly during long-distance travels, if they are unable to locate a charger gun at a convenient location on the road. If customers anticipate difficulties in charging their EVs while travelling, this may deter some potential customers from purchasing its EVs. This in turn would adversely impact its business, prospects, financial condition, results of operations and cash flows. To the extent it is unable to meet customer expectations or experience difficulties in providing its charging solutions, its reputation and business, prospects, financial condition, results of operations, and cash flows may be materially and adversely affected. 

Face competition: The company may face competition from other EV players establishing their EV charging infrastructure. The charging standard used in its chargers and EVs may not be compatible with other EV players’ charging standards, in which case, its customers would be more reliant on its charging infrastructure and face difficulty in charging their EVs due to the limited charging options available. This could deter potential customers from purchasing its EVs. Further, as a result, it would face less demand for its charging services outside of its existing EV customer base. If the connector type in such charger guns matches its EVs and is able to connect with its inbuilt OS, its customers may opt to use charging infrastructure installed by other EV players. To the extent it is unable to meet customer expectations or experience difficulties in providing its charging solutions, its reputation and business, prospects, financial condition, results of operations, and cash flows may be materially and adversely affected. 

Depends substantially on continued efforts of Key Managerial Personnel: The company’s success depends substantially on the continued efforts of its Key Managerial Personnel and Senior Management Personnel with expertise in various areas. If one or more of its executive officers or key employees are unable or unwilling to continue their services with it, it might not be able to replace them easily, in a timely manner, or at all. As it builds its brand and become more well-known, the risk that competitors or other companies may poach its talent increases. Its industry is characterised by high demand and intense competition for talent, and therefore it cannot assure that it will be able to attract or retain engineers, qualified staff or other highly skilled employees. While there was no such turnover in Fiscal 2024, it had turnover in some of its Key Managerial Personnel and Senior Management Personnel, including certain senior executives, in Fiscals 2022 and 2023. Furthermore, as the company is relatively young, with limited experience in training new employees, its ability to train and integrate new employees into its operations may not meet the growing demands of its business, which may materially and adversely affect its ability to grow its business and its results of operations. 

Received customer complaints pertaining to product quality in past: EVs that the company delivers must meet the relevant EV standards prescribed by the Automotive Research Association of India (ARAI), the Central Motor Vehicles Rules, 1989 (CMVR) and the Automotive Industry Standards as amended from time to time. However, these testing and approval protocols may not succeed in identifying and addressing all latent, potential and other defects. There have been certain reports of its product catching fire. On May 31, 2022, it received a show cause notice from the Joint Secretary to the Government of India, Ministry of Road Transport and Highways (motor vehicle legislation (MVL) section) in relation to an incident in Pune, Maharashtra, India on March 26, 2022, wherein an Ola S1 Pro scooter caught fire. It cannot assure that it will be able to detect and fix any defects in the EVs on a timely basis, or at all. Any defects or any other failure of its EVs to perform or operate as advertised may result in motor vehicle accidents, fires or other incidents which could lead to customer complaints and harm its reputation and the ‘Ola’ brand and result in negative publicity. It could experience loss of revenue, delivery delays, and product liability claims, incur significant expenses including warranty claims, and be subject to lawsuits. 

Outlook

Ola Electric Mobility is an electric vehicle company that primarily manufactures electric vehicles and certain core components for electric vehicles such as battery packs, motors, and vehicle frames at the Ola Futurefactory. Since August 2021, the company has launched seven new products and announced four. The Ola S1 Pro, the first EV model, was delivered in December 2021, followed by the Ola S1, Ola S1 Air, Ola S1 X and Ola S1 X+ in the following years. On August 15, 2023, the company announced new EV models and a range of motorcycles including Diamondhead, Adventure, Roadster, and Cruiser. The company’s DNA of R&D and technology including design, engineering and manufacturing are focussed on building high-quality and accessible EV products.  From cell to electric vehicles, it is building the core technologies of the future which would drive this transition. It has largest integrated and automated E2W manufacturing plant in India, spread across 400 plus acres in Krishanagiri, Tamil Nadu. It operates R&D facilities across India, UK and US including the Battery Innovation Centre where it is developing industry leading cell and battery technology. On the concern side, some of the company’s competitors, including competitors that are incumbent ICE players, have a wider distribution network than us. As such, they may have greater customer reach than it, particularly in certain markets, and it may face difficulties breaking into markets in which its competitors maintain significant presence. This in turn could adversely impact its business, prospects, financial condition, results of operations and cash flows. 

The company is coming out with a maiden IPO of 84,89,13,150 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 72-76 per equity share. The aggregate size of the offer is around Rs 6112.17 crore to Rs 6451.74 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased to Rs 50,098.31 million in Fiscal 2024 from Rs 26,309.27 million in Fiscal 2023 primarily due to increased sales of the Ola S1 and Ola S1 Pro scooters and the commencement of deliveries of the Ola S1 Air and Ola S1 X+ in Fiscal 2024. The company has reported net loss of Rs 15,844.00 million in Fiscal 2024 from net loss of Rs 14,720.79 million in Fiscal 2023. Meanwhile, the company intends to further invest in flexible assembly lines within its Ola Futurefactory which are able to adapt to the production of different EV models. Its EV hub is also pivotal to its aim to build a resilient supply chain as it will serve as a co-location site for its suppliers in the future. It plans to further expand its product portfolio to also cover mass market motorcycles to capture a broader base of consumers across different product types and price points in the long run. It seeks to enhance the customer experience through the continued expansion of its network of experience centres and service centres across both rural and urban areas and deepen its penetration within India.