Ola Electric IPO: To Subscribe Or Not To Subscribe

While the brokerages are positive on IPO-bound Ola Electric's integrated manufacturing facility, R&D capabilities, and market leadership position, they pointed out several risks for the company going forward.

The company is in a high growth phase, with volumes and revenue growing at 297% and 266% annually over fiscal 2022–2024, according to SBI Securities. "However, it is yet to report profit at the Ebitda and the profit-after-tax level as it is still in the investment phase and undertaking substantial capex," the brokerage firm said.

The company's IPO, with an issue size is Rs 6,146 crore at the upper price band, will be open for retail investors from Friday to Tuesday. This includes a fresh issue of Rs 5,500 crore and an offer-for-sale of 8.49 crore equity shares, including employee reservations of up to Rs 5 crore.

There are several competitive strengths that the company enjoys, according to HDFC Securities. "The company is a pure electric vehicle company, and its R&D and technology, including in-house design, engineering, and manufacturing, are all singularly focused on building EV products," it said. "As a greenfield EV company, it does not have to allocate financial and operational resources to ICE technologies."

Moreover, the company's penetration in India's electric two-wheeler market is expected to expand from approximately 5.40% of domestic two-wheeler registration sales reported on the VAHAN portal in Fiscal 2024 to 41–56% of the domestic 2W sales volume by Fiscal 2028, according to the brokerage. "OEML’s exclusive and singular focus on EV enables it to leverage this transition in the growing Indian two-wheeler market," it said.

SBI Securities noted that the company's subsidiary, OET, has been approved to be eligible for the Champion OEM Incentive Scheme under the Automobile PLI Scheme, and another subsidiary, OCT, has been awarded 20 GWh of capacity under the Cell PLI Scheme.

In addition, the company is creating an EV hub in Krishnagiri and Dharmapuri districts in Tamil Nadu, India, that will cover about 2,000 acres of land.

However, both the brokerages noted that any reduction or elimination of government incentives or the ineligibility of any of the electric vehicles for such incentives would increase the retail price of electric vehicles and could adversely affect customer demand for electric vehicles and their ability to achieve profitability.

An InCredit Equities report said, "We are constructive on the IPO; however, quarterly volatility from policy, EV cell plant delay penalty risk, and regular PE share sale limit stock price gains."

SBI Securities said that the company has heavily invested in and plans to continue investing in research, development, and technology. "However, there is no assurance that any returns on such investments will be realised in the future," it said.

It also pointed out that the company has a limited operating history in manufacturing EVs. "There is no assurance that it will be cost-effective in operations or profitable in the future, whether at the holding company level or at the subsidiary level," it said.

The company proposes to utilise the net proceeds towards funding the capital expenditure to be incurred by its subsidiary, Ola Cell Technologies, for the expansion of the capacity of its cell manufacturing plant from 5 GWh to 6.4 GWh, classified as phase 2 under the expansion plan.

It will also use the proceeds for repayment or pre-payment of the indebtedness incurred by Ola Electric Technologies, investment into research and product development, organic growth initiatives, and  general corporate purposes.