Ola Electric Charges Up For IPO 

It’s been a busy year for Bhavish Aggarwal and 2024 promises to be nothing less. With Ola Electric filing for its IPO on the cusp of the new year, Aggarwal is in for a nervous few months and lots of twists and turns ahead.

Ola Electric’s INR 5,500 Cr+ IPO, coming just seven years after its incorporation, is not just going to be crucial for Aggarwal, but also a test for India’s electric vehicle market. Interestingly, Ola Electric is looking to go public at a time when India’s EV ecosystem has just begun to find its feet. It’s also the first auto sector listing in two decades.

Despite doubts about how quickly the EV market can grow, the stage is set for Ola Electric to be the first Indian EV startup to go public, and it’s now time to look ahead. The big question for Ola Electric and Aggarwal will be whether public markets will embrace EVs and a new-age company in a sector led by giants.

But for now, we can of course read between the lines of Ola Electric’s pre-IPO filings to see where the EV giant stands today. But first, here are our top stories from the newsroom this week:

• Bhavish Aggarwal’s Other Big Bet: At a time when the LLM fight seems to be intensifying worldwide and in India, Aggarwal-led Krutrim aspires to develop AI-centred cloud infrastructure and more. Here’s our deep-dive
• The Big VC Rejig: Partner exits, venture capital firms pulling out of India, rebranding and separation of VC structures and new fund managers coming into the picture — we recap a troubled year for India’s investor ecosystem
• PhonePe’s Billion-Dollar Year: PhonePe built a war chest in early 2023 and soon after came a flurry of new products that have changed the company considerably, as it steps into 2024

Ola Electric IPO In A Nutshell

Firstly, let’s look at the key details of the IPO itself. The public issue comprises a fresh issue of INR 5,500 Cr and reports indicate an offer-for-sale (OFS) component of INR 1,750 Cr for 9.5 Cr shares.

Aggarwal and major investors such as SoftBank, Temasek, Tiger Global, Alpha Wave, Tekne Capital and Matrix Partners are slated to offload their shares, with the founder and CEO leading the way here with half of the OFS section.

The EV unicorn plans to deploy the capital raised towards setting up its Ola Gigafactory project — targeting 100 GWh capacity for battery production at full scale —  to manufacture EVs, batteries and other components. Proceeds will also be utilised for research and product development, organic growth and general corporate purposes, including paying off some debt raised by Ola Electric.

Finally, the draft red herring prospectus (DRHP) made financial disclosures that Ola Electric reported a loss of INR 1,472 Cr in FY23, growing 1.87X from INR 784.1 Cr in the previous fiscal. Revenue from sales of EVs jumped more than 7X to INR 2,630 Cr in FY23 from INR 373.4 Cr in FY22.

The company also shed light on its financial numbers for the first quarter (Q1) of FY24 where loss stood at INR 267.1 Cr on an operating revenue of INR 1,242.7 Cr. So, essentially, Ola Electric has reached nearly half of its FY23 revenue in the first quarter itself.

That is significant growth for a company that’s just over two years into actually starting its OEM business by shipping units. How exactly has Ola Electric managed this?

What Can Ola Count On?

The company started with two models in 2021 and currently has a portfolio of five scooter models, which it retails through the Ola Cab app, dealers and experience centres.

As per the DRHP, the company operates a full-fledged omnichannel distribution network that comprises 935 experience centres, including 414 service centres, as of October 2023.

In October, Ola Electric also raised a mammoth INR 3,200 Cr funding round, in a mix of equity and debt, that saw participation from Temasek, SBI and others. This is the capital it is deploying to ramp up sales in 2023.

EV two-wheeler registrations have been seeing a solid growth momentum for the last few months, and rose 14% month-on-month (MoM) in November to cross the 85,000 units mark. Ola Electric made the most of the festive season rush for new EV two-wheelers and continued to lead the market by a distance. Its scooter registrations jumped over 14% MoM to 27,331 units in November 2023 from 23,821 units in October.

Besides the festive season, the high demand for Ola Electric scooters comes from its new product offerings. Ola Electric launched a new S1X model in three variants in August this year, with deliveries beginning in mid-September.

Further, Ola Electric tied up with Ola Cabs and brought its EVs into the ride-hailing arena.

As per Ola rider partners that Inc42 spoke to, the company is offering these bikes at an upfront security deposit of INR 5,000 (as of early December) and there are no other costs involved for the rider partners. This model, which opens up a new channel for Ola Electric, is also expected to play a big role in the surge in registrations and potential sales in the months to come.

These are all positives for the company in the crucial run-up to the public listing when its bankers would pitch the model to potential investors.

But in balance, the sales boom for Ola Electric masks many of the pain points that industry experts have raised in the past. Beyond this, the DRHP also includes some of Ola Electric’s admissions of risk factors.

What Are The Red Flags?

For one, the DRHP also gave an insight into the risks of growing operating losses in the near term, adding that it may face significant delays in setting up its Gigafactory due to the uncertain timelines around key government approvals. Any delay would result in rising costs for the company in the near future.

There is also the risk that the company is unable to achieve the level of automation and precision required for cell manufacturing, the DRHP highlighted.

As we had reported in the past, Ola Electric currently has a production capacity of up to 2 Mn scooters annually. It plans to increase this capacity to 10 Mn scooters per year. However, last year the company sold just over 155K scooters.

Speaking to Inc42 earlier, Dr Deb Mukherji, the former MD of Omega Seiki Mobility, said that Indian EV two-wheeler penetration is far too low and Ola Electric’s projections seem too bullish, unless the company expands to international sales.

“India hardly consumes 6 Mn scooters in total. Even if we assume a 50% conversion to EVs, the figures claimed by Ola Electric simply don’t add up,” Mukherji had said then.

There’s another potential risk for Ola Electric in the long run.

The fire incident involving Ola S1 Pro scooters in Pune last year led to Ola Electric paying a fine of INR 15 Lakh. Whether the company is likely to face a similar fine in the future is uncertain, but there have been other reports of safety incidents since last year, which may still be investigated.

After commencing deliveries in December 2021, the company has allocated INR 68 Cr for warranty expenses as of June 30, 2023, increasing from INR 44 Cr and INR 12 Cr as of March 2023 and March 2022, respectively.

Ola Electric is yet to complete a full warranty cycle since the policy covers three years, and the company says it has only seen a limited number of claims for the scooters it has sold. The key here would be to ensure high-quality production and high safety standards, where the EV market is yet to prove itself.

Will Markets Ride On Ola Electric?

While Ola Electric has joined a growing list of Indian startups looking to list on the bourses in 2024, it is pertinent to see what the market is looking for right now.  It’s widely expected that the bearish sentiment of the past couple of years will subside in mid-2024. That could be fortuitous for Ola Electric given that it would potentially only list after this period.

Even though investor sentiments might improve, there is still a risk for new-age tech companies, given that most have weak fundamentals.

Ola Electric’s losses don’t paint the most accurate picture either. As seen in our graphic above, the company currently has negative cash flows to the tune of nearly INR 885 Cr in FY22.

This is going to be a major sticking point for investors. Plus, there will be more questions about the valuation given that the company is eyeing a potential post-listing valuation of $7 Bn (more than 2X its current private valuation).

Investors are likely to ask themselves if it is worth investing in Ola Electric at the IPO stage or they should wait for the valuation to become less rich. Of course, valuation will depend on the IPO pricing.

In the past, massive IPOs such as Paytm, Zomato and Nykaa saw big pressure on their valuations in the early days. While Zomato has turned its course with back-to-back profitable quarters, Paytm and Nykaa are still trying to grow into their IPO valuations.

“There are two kinds of companies that can pull off massive IPOs. One they have really great fundamentals, and two, they have very charismatic promoters. Right now, Ola Electric is in the second category, so investors will look into Bhavish Aggarwal’s capabilities and leadership as a key success factor,” said a Delhi-based cofounder of a VC firm, adding that the EV boom should reduce some of the burden on the CEO.

EV companies could potentially attract higher valuations given that technology is a constant growth area. Plus, investors are likely to be attracted to the fact that this is the only EV company in the market, and positive EV policy changes will give them a big upside on the stock.

But IPO pricing will be key. Many public market investors are reading through the fact that venture capitalists pay a premium price, knowing they are investing for the future. But public market investors think relatively short-term.

Substantial revenues are no guarantee when it comes to retaining investors’ faith, especially when cash flow is poor. Bottom-line profitability and consistent financial reporting are the only true metrics that unlock this faith.

Ola Electric has just kick-started its journey and it has serious momentum, and while it does have some experience dealing with questions about range anxiety in EVs, does it have enough charge to prevent investor anxiety?

Wrapping Up 2023 And Looking Ahead To 2024 

• Next Big Things In Gaming: As RMG fades into the background, the gaming sector is anticipated to witness springtime for mid-core and casual gaming studios in 2024. But there’s a lot more too
• 2023’s Newsmakers: Which personalities, founders and leaders drove prominent themes and trends in Indian tech this past year. Here are the newsmakers of the year gone by
• Will 2024 Prove IPO Friendly? Considering the current bull run in the domestic equity market and a healthy pipeline of startups aiming to go public, the year 2024 is expected to see a sharp increase in new-age tech IPOs
• Climate Tech Outlook: Despite policies in place to support climate tech and given India’s net zero goals, the sector is yet to show the impact that was expected. Will 2024 change the game?

Sunday Roundup: Startup Funding, Tech Stocks & More

• Funding Picks Up: Indian startups raised $349 Mn in funding across 25 deals in the past seven days, a jump of 34% week-on-week
• Big Loss For slice: The fintech unicorn saw its loss surge to INR 405.8 Cr in FY23, even as it is looking to merge with loss-making North East Small Finance Bank
• BCCI Vs BYJU’S: The cash-strapped edtech giant assured the NCLT about its ‘good health’ in relation to the dues recovery case filed by BCCI, despite its losses reportedly growing to INR 8,200 Cr+ in FY22

• Awfis Joins IPO Parade: Coworking startup Awfis, which counts VC giant Peak XV Partners as a promoter, has filed its DRHP ahead of its potential INR 160 Cr+ IPO

We’ll be back next week with our last weekly roundup of 2023.

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Correction Note | December 26, 2023; 12 Noon

• An earlier version of this story included a graphic with erroneous figures about Ola’s net loss from operating activities. The error has now been rectified

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