Ola Electric IPO: What does Dalal Street have to say?

As Bhavish Aggarwal-led Ola Electric prepares to open its public subscription from August 2-6, analysts are generally supportive of the company's plans, with the listing likely to one of the biggest D-Street debuts of the year.

Dominating nearly 35% of the electric two-wheeler market, Ola Electric aims to raise ₹6,146 crore through its IPO. The price band has been set at ₹72-76 per share. The company’s growth strategy includes building India-centric EV products as it plans to continue to invest in R&D to advance technological capabilities and optimize costs. The company said it’s building an EV hub with vertically integrated manufacturing and supply chain to improve cost efficiency and developing cell technology to strengthen in-house manufacturing capabilities

According to SBI Securities, its risk factors include increase in prices and delays in raw material availability. “The company could experience disruptions in the supply or an increase in prices of components and raw materials used in the manufacture of the electric vehicles which may result in the delay in operation or affecting the profit margins of the company,” it said.

The company is in a high growth phase with volumes/revenue growing at a CAGR of 297%/266% over FY22-24, SBI Securities report added, noting that it has not been able to report profits as it is still in the investment phase and undertaking substantial capex. It noted that the shares are valued at 6.7x FY24 sales at the upper price band.

It adds that any reduction or elimination of government incentives, or the ineligibility of electric vehicles for such incentives could increase affect the retail price and potentially reduce customer demand, impacting the volumes and the margins. Another potential risk is its investment in R&D.

“The company has heavily invested in and plans to continue investing in research and development (R&D) and technology. There is no assurance that any returns on such investment would be realised in future. Also, the company has a limited operating history in manufacturing EVs. There is no assurance that it will be cost-effective in the operations or profitable in the future whether at the holding company level or at the subsidiary level,” it said.

As per Axis Capital, India is emerging as a manufacturing powerhouse of EVs and that could be a big market opportunity for the company. “India is the 2nd largest 2W market globally and 3 rd largest in the 4W market in terms of domestic sales. The total addressable market for 2W exports from India is between ₹7.20 trillion to ₹8.00 trillion. E2Ws are at the forefront of the electrification of mobility in India due to their favourable total cost of ownership. E2Ws are projected to account for 41-56% of the domestic 2W sales volume by Fiscal 2028,” it said.

It added that the company is well-positioned to address the large market opportunity in EV led by their vertical integrated approach, focus on technology, R&D, execution ability and eligibility to avail certain government incentives. “Globally disruptor OEMs (versus incumbent OEMs) have emerged as winners in EVs driven by a focus on innovation. Similarly, in India, disruptor OEMs have scaled well to cover more than 67% of the E2W domestic sales by volume in the first half of Fiscal 2024,” it said.

HDFC securities, too, believes that technologically advanced electric vehicles are expected to disrupt the India market with greater affordability, advanced software enabled features, better consumer experience and decarbonization capabilities. “E2W adoption has grown rapidly to reach ~5.4% of total 2W registrations in India in FY 2024. E2W are projected to account for 41-56% of the domestic 2W sales volumes by FY2028. E2W OEMs are also well placed to serve the exports opportunity of 100-110 Mn units globally,” it said.

But key concerns for the company arise from the fact that the company has incurred losses and negative cash flows from operations since inception. Its medium to long-term plans place emphasis on backward integration for greater control over supply chain and costs, Ashika Research said.

“The company commenced construction of its Ola Gigafactory for cell manufacturing in June 2023. The company expects to use the cells produced by the Ola Gigafactory for the existing and future EV products. Its sustainable platform-based approach, whereby the company in-house designed EV components can be adapted for use in different EV models, allows the company to develop products in a timely and cost-efficient manner, achieve a fast time to market and improve margins,” it said.