Ola Electric Mobility

Largest E-scooter maker in India

Expanding the product portfolio, with a focus on cell manufacturing and R&D

Ola Electric Mobility is a manufacturer of electric vehicles (EVs) and certain core components for EVs such as battery packs, motors, and vehicle frames at the Ola Future factory. The business is focused on capturing the opportunity arising out of electrification of mobility in India and to export EVs in select international markets in future. Its business model is founded on three key scalable platforms: (1) R&D and technology platform with in-house design and development across EV technologies and components, (2) adaptable manufacturing and supply chain platform, and (3) D2C omnichannel distribution platform.

The R&D and technology platform consists of interconnected technologies. The company undertakes R&D activities in India, the United Kingdom (UK) and the United States (US). These are focused on designing and developing new EV products and core EV components, such as battery packs, motors and vehicle frames. The R&D cost was 7.69% of total revenue in FY 2024.

The manufacturing and supply chain platform consists of a vertically integrated manufacturing ecosystem across core EV components like battery packs, motors and vehicle frames, a resilient and common supply chain, with a focus on co-location and localization and flexible assembly lines.

Ola Electric Mobility operates its own direct-to-customer (D2C) omnichannel distribution network across India. It comprises 870 experience centres and 431 service centres (of which 429 service centres are located within experience centres) as of March 31, 2024, in addition to the Ola Electric website.

The Ola Future factory manufactures EV scooters using certain EV components made in-house and other components, such as cells, procured from third parties. 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 of March 31, 2024.

The Ola Future factory had an installed capacity of one million units per year as of March 31, 2024. In addition, the company operates a battery innovation center (BIC) in Bengaluru, India, focused on developing cell and battery technology.

Additionally, Ola Electric Mobility is in the process of building the Ola Gigafactory for cell manufacturing in the Krishnagiri district of Tamil Nadu, India. Construction having started in June 2023. Phase 1(a) of the Gigafactory began commercial operations on March 22, 2024. The set-up was completed by May 31, 2024. The current production capacity of the Gigafactory is 1.4 GWh. The company intends to use the net proceeds to boost this capacity to 6.4 GWh by April 2025 and further expand to 20 GWh in the later phases by the second quarter of 2026.

Ola Electric Mobility has a larger goal of building its EV hub in the Krishnagiri and Dharmapuri districts of Tamil Nadu, India. This is expected to span up to 2,000 acres of land, and includes Ola Future factory, the upcoming Ola Gigafactory for cell manufacturing, and co-located suppliers in Krishnagiri district. It plans to set up multiple manufacturing facilities within the EV hub to support production of existing and future EV scooter models.

Ola Electric Mobility is expanding the product portfolio to drive market penetration. The company has introduced seven products and additionally announced four new products since its first product announcement in August 2021. Furthermore, on August 15, 2023, it announced a line-up of motorcycles comprising four models, Diamondhead, Adventure, Roadster and Cruiser, to cater to broader consumer base. It plans to commence delivery of the motorcycles in the first half of FY2026.

Ola Electric Mobility provides an end-to-end online purchase experience to customers. In addition to facilitating home charging through portable chargers, it also offers customers exclusive charging services through its charging network comprising 250 hyper charger guns and 764 standard charger guns as at March 31, 2024, with hyper charging guns spread across 17 states and standard charging guns spread across 21 states.

Ola Electric Mobility captured a 35% market share in the E2W sector, with scooter sales totaling 329,618 units, in FY 2024.

With the adoption of an `India first’ strategy, the plan is to carefully assess the export opportunities across geographies under its `export next’ strategy.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 5500 crore and an offer for sale of 8,49,41,997 equity shares, aggregating up to Rs 645.56 crore, by the existing shareholders.

The price band for the IPO is Rs 72 to Rs 76 per equity share of face value Rs 10 each.

The objectives of the fresh issue include Rs 1,227.64 crore for capital expenditure by subsidiary, Rs 800 crore for debt repayment or pre-payment, Rs 1,600 crore for R&D development, Rs 350 crore for organic growth initiatives, and the remaining funds for general corporate purposes.

Bhavish Aggarwal is the promoters of Ola Electric Mobility. Promoters and promoter group hold an aggregate of 1,66,44,13,358 equity shares, making up to 45.14% of the pre-offer issued and paid-up equity share capital. The post-IPO shareholding is expected to be around 36.78%.

The issue, through the book-building process, will open on 2 August 2024 and close on 6 August 2024.

Strengths

Reported the highest revenue from E2W sales among all Indian electric 2W OEMs in FY2023. Within nine months of delivering the first EV scooter in December 2021, became the best-selling E2W brand in India in terms of monthly E2W registrations on the Vahan Portal of the Ministry of Road Transport and Highways.

Well positioned to capitalize on the growth trend towards electrification of mobility, fueled by greater affordability of EVs, enhanced driving ranges, and regulatory support, among other factors. E2Ws are expected to make up 41-56% of the domestic 2W sales volume by FY 2028. Furthermore, markets such as Africa, Latam, and South-East Asia offer export opportunities for Indian E2W OEMs, thereby expanding their total addressable market (TAM). The increase in the market share of E2W from 6% in FY2022 to 35% in FY2024 presents an opportunity to be leveraged.

Vertically integrated the manufacturing ecosystem across core EV components, with a focus on co-location and localization. This combined with the ability to scale manufacturing capacity in coordination with network of suppliers will help drive down costs and optimize capital expenditure on the development of EVs.

Creates products using a flexible platform architecture that includes standardized EV components. These components are designed in-house and include an electric powertrain, a modular battery pack with a battery management system (BMS), and a motor, along with a power electronics module. The design allows adaption of these components for various EV models, enabling quick and cost-effective development of new models.

Currently constructing a Gigafactory to manufacture cells for both existing and future EV products. The initiative will help minimize imports and provide improved control over quality, supply, and costs.

Bringing E2Ws, cell manufacturing and component suppliers together in the EV hub to foster innovation and improve cost efficiency.

The only EV manufacturer is a beneficiary of two PLI schemes: one relating to the manufacturing of advanced automotive technology products (the Automobile PLI Scheme), and another relating to advanced cell chemistry batteries (the Cell PLI Scheme).

The emphasize is on R&D and technology, enabling to maintain a competitive edge by providing enhanced products and features that draw in customers. The R&D cost was 7.69% of total revenue in FY 2024.

Weaknesses

Including material subsidiaries Ola Electric Technologies (OET) and Ola Cell Technologies (OCT), has incurred losses and negative cash flows from operations since inception. May continue to incur operating losses in the near term as investment is made in the business to expand the product portfolio, build capacity, and scale operations.

Imported supplies, representing 36.86% of the cost of materials consumed, were from China in FY 2024. Any delay, interruption, reduction or increase in cost of raw materials because of any political tensions could have a negative impact on the business.

The Union Budget for 2024-25 offered no direct announcements on subsidies or other benefits for promoting E2Ws. Moreover, the new edition of FAME will shift focus to supporting EVs in CVs and higher CC PVs, shifting from EV 2Ws.

The plan is to import cathode active material (CAM) and anode active material (AAM), the two key raw materials for use in cell manufacturing at the Ola Gigafactory. Any quality issues in CAM and AAM imports or significant increases in the price of CAM and AAM would adversely affect business.

Approved to be eligible for the Cell PLI Scheme on March 28, 2022, by the Ministry of Heavy Industries, Government of India. Failure to achieve the agreed upon capacity each year, as prescribed under the Cell PLI Scheme and the Programmer Agreement gives the Government the right to deduct twice the shortfall in the committed capacity from the total subsidy payable to the issuer, potentially impacting the business.

Revenue from EV scooter sales is heavily reliant on the Ola S1 Pro model, accounting for 59.62% of total revenue in FY2024. The dependency could be a potential weakness, exposing to risks associated with fluctuations in demand or competition for that specific model.

The Ola Future factory had a capacity utilization rate of 49% in FY 2024. The lower capacity utilization of Ola Future factory may limit the ability to leverage economies of scale.

Received 2,994 customer complaints in FY2024 pertaining to product quality and 1,742 complaints relating to vehicle servicing. Any defects or any other failure of EVs to perform or operate as advertised may result in loss of business.

The Reserve Bank of India (RBI) has taken certain actions in the past against Ola Financial Services (OFSPL), a Promoter Group entity and a Group Company. Moreover, the Statutory Auditors’ examination report on the Restated Consolidated Financial includes certain observations.

Valuation

Consolidated sales increased 90.42% to Rs 5009.83 crore as compared to FY2023. The OPM improved from negative 47.6% to negative 25.3%, leading to 1.21% increase in operating loss to Rs 1267.58 crore. OI jumped 53.81% to Rs 233.44 crore. Interest cost rose 72.88% to Rs 186.57 crore. Depreciation spurted 114.07% to Rs 357.64 crore. Loss before tax and extraordinary items went up 14.73% to Rs 1578.35 crore. Tax expense remained nil in FY2024. The net loss grew 7.63% to Rs 1584.4 crore.

Negative earnings were posted in FY2022, FY2023, and FY2024. As a result, the EV/FY2024 sales ratio is more appropriate for valuing the company. At the higher price band of Rs 76, the offer is made at a post-issue EV/ FY2024 sales of 6.68 times on a post-issue equity share capital of Rs 4410.75 crore of face value of Rs 10 each. Listed industry peers TVS Motors trades at 3.62 times its EV/ TTM sales, Bajaj Auto at 5.91 times, Hero MotoCorp at 2.87 times,and Eicher Motors at 8.37 times.

Based on its EV/FY2024 sales, the valuation seems high. However, Ola Electric Mobility operates in a fast-growing segment, with EVs seen as the future of the industry. EVs are anticipated to drive substantial growth in the global automotive market. Additionally, the cell manufacturing capacity is being increased. This is crucial for the future of energy storage. The expansion will allow better control over battery and EV quality, supply, and costs.

Furthermore, to attract a broader range of investors, the IPO valuation has been reduced from the previous private funding round. Ola Electric Mobility‘s post-IPO valuation shows a 26% decline, decreasing from US$5.4 billion in 2023 to US$4 billion in 2024.