Ola Electric IPO Notes

Electric mobility company Ola Electric filed its Red Herring Prospectus (RHP) with the Securities and Exchange Board of India (SEBI) on July 26, offering fresh shares worth Rs 5,500 crore and selling over 84.94 million shares. Founder and CEO Bhavish Aggarwal will sell over 37.92 million shares, while investor Indus Trust will sell over 4.18 million shares. The IPO is scheduled to open on Friday, August 2.

The price range for the initial public offering (IPO) is Rs 72-76 per share, with a lot size of 195.

How will the money be used?

The Company plans to use the net proceeds from the IPO for the following purposes:

Expansion of Ola ‘GigaFactory’ from 5 GWh to 6.4 GWh. The company will utilise over Rs 1,227 crore from the tender for this task.
Repayment of loans worth over Rs 996 crore from various banks. The company will allocate Rs 800 crore for this purpose.
Investment in product research and development. This will include design and development of new electric vehicles, batteries etc. and will require Rs 1,600 crore.
Organic Growth initiatives include paying rent for existing showrooms (so-called “Experience Centres”), starting new ones and expanding the network of hypercharger pistols. These initiatives will require Rs 350 crore.
General corporate purposes, the costs of which have not yet been declared.

Cup

Shareholder name	Percentage of shares
Bhavish Aggarwal	36.94
SVF II Ostrich (DE) limited liability company	21.98
OEM Employees Prosperity Foundation	7.67
Internet Fund III Pte Ltd	6.03
ANI Technologies Limited liability companies	4.35
Indus Trust	3.85
Alpha wave Projects II, LP	3.49
Matrix Partners Investments in India III, Limited Liability Company	3.43
Hyundai engine Business	2.95
V-Sciences Investments Pte Ltd	1.78
MacRitchie Investments Sp. Ltd	1.25

Key Indicators

Distribution network:Ola Electric operates an omnichannel direct-to-consumer distribution network across India. As of October 31, 2023, the network included 935 experience centers and 414 service centers. The company also leverages its website as part of its distribution strategy.

Assets and liabilities:The company has assets worth over Rs 7,735 crore as of March 2024, of which around Rs 4,046 crore are current assets while over Rs 368 crore are non-current assets. Ola Electric touts assets worth over Rs 2,019 crore but also faces liabilities worth around Rs 5,716 crore.

Income and expenses:The company’s total expenses were over Rs 6,277 crore and the income was only around Rs 5,243 crore, leading to a total loss of over Rs 1,587 crore for the financial year ending March 2024.

Operational Metrics:Ola Electric sold close to 330,000 units in the last fiscal, which was more than double the previous year when it sold 156,000 units. Revenue from operations also saw a two-fold increase to just over Rs 5,000 crore. However, losses widened from around Rs 1,472 crore to over Rs 1,584 crore. The company’s EBITDA (earnings before interest, tax, depreciation and amortisation) also declined from Rs 1,197 crore to Rs 1,040 crore. Regardless, the company was able to capture 35% market share in electric two-wheelers (E2W), which is a 14 percentage point increase over the previous year.

Risk factors

Supply Chain Risks

The electric battery alone makes up over 30% of the Ola S1 scooter’s bill of materials, making it a key risk factor for the company. The company states that any disruption in the supply chain or an increase in raw material prices could result in an increase in the prices of its products, which would impact production and delivery schedules.

While Ola Electric plans to produce cells at its “GigaFactory,” it will continue to import raw materials from Chinese suppliers. So any geopolitical tensions or tariff increases could easily lead to supply chain disruptions or price increases.

Ola Electric manufactures some EV components in-house and sources others from domestic and international suppliers. The company imports battery cells from two overseas manufacturers and sources plastic, electronics and metal parts from various suppliers in India and abroad. In fiscal 2024, 2023 and 2022, imported supplies accounted for 37.03%, 31.11% and 29.76% of Ola Electric’s total material cost, respectively. Domestic supplies accounted for the remaining 62.97%, 68.89% and 70.24% during the same periods. The data shows a gradual increase in the company’s dependence on imported components over the three-year period. Moreover, the cost of materials accounted for almost 70% of the company’s total expenses in the last fiscal year.

The cost of materials, as well as international supply chains, mean that any disruptions (e.g. pandemics, lockdowns, geopolitical tensions) can hamper the production process or cause the price of the final product to increase.

Relying on subsidies

The company also admits that it relies on government incentives such as FAME Phase II (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles), which offers a range of incentives to buyers and manufacturers of electric vehicles, subsidies from the Tamil Nadu government, and Goods and Services Tax rebates. It says that any change in these policies could easily impact the demand for its products.

Ola Electric knows that demand for its EVs depends in part on the availability of public charging infrastructure. According to a Redseer report commissioned by Ola, charging points are much rarer in India than traditional petrol pumps. This scarcity poses a challenge for EV owners, especially when travelling long distances, as they may struggle to find convenient charging spots on the road.

Technological challenges

Ola Electric’s technology consists of two parts – the hardware and software of the EVs themselves, and the MoveOS software architecture. The company says it designs most of its hardware and software components in-house, including the operating system, cells, and electric drivetrain. Ola Electric’s EVs are designed to receive remote updates, adding functionality over time.

However, the company is aware of the potential technological challenges. Its systems are susceptible to various disruptions, including natural disasters and technical failures. While Ola Electric has implemented security measures, it acknowledges the risk of unauthorized access to its networks and vehicles. The company’s data centres are also vulnerable to physical and natural hazards, which can lead to service disruptions.

Another possible risk is customers attempting to modify electric vehicles, potentially compromising safety systems. The company warns that unauthorized changes could lead to injuries and negative publicity.

The company admits that its lithium-ion cells can catch fire or explode, citing an incident in Pune, Maharashtra, where one of Ola Electric’s S1 Pro scooters caught fire. The government eventually fined the company Rs 15 lakh.

Data breach risk

Ola Electric anticipates significant information security and privacy challenges, particularly around the collection, storage, and transmission of personal and confidential information of its employees and customers. This includes names, account details, customer IDs, passwords, EV information, and payment details. While the company has not identified any confirmed losses or breaches of confidential information, it acknowledges the possibility of undetected incidents. A data breach could disrupt Ola Electric’s systems and could lead to data leaks, liability issues, and financial repercussions. In addition, such breaches could compromise the safety of employees and customers.

Open Source Software Problems

Ola Electric uses open-source software to develop and deploy its electric vehicles, which exposes the company to potential legal challenges regarding ownership and compliance with open-source license terms. Undiscovered bugs in open-source components could weaken Ola Electric’s systems and damage its reputation. In addition, the public availability of such software could make the Ola Electric platform more vulnerable to cyberattacks.

For example, Ola Electric was recently sued by MapMyIndia for allegedly copying the company’s proprietary product, which the company denied.