The highly anticipated Ola Electric IPO is scheduled to launch on August 2, 2024. With a target of raising over Rs 6,100 crore, it is set to become India’s biggest IPO this year and the first-ever IPO for an electric vehicle (EV) company in the country.
The OLA Electric Mobility IPO is priced between ₹72 and ₹76 per share and will close on Tuesday, August 6. This pricing is significantly lower than the IPO prices of other high-profile unicorn startups such as Paytm (₹2,080-2,150 per share), Nykaa (₹1,125-1,200 per share), and Urban Company (₹850-900 per share); however, it matches the price of Zomato’s IPO.
It is important to note that IPO price is one of the most important factors in determining a company’s success when debuting on the public market. For instance, due to its high issue price, One 97 Communications Ltd (NSE: PAYTM), once touted as the largest-ever IPO in Indian history, failed miserably, whereas Zomato Ltd (NSE: ZOMATO) succeeded.
The OLA Electric IPO will comprise a fresh issue of Rs 5,500 crore and an offer for sale (OFS) of up to 84.94 million shares. At the upper end of the price band, the OFS portion is valued at Rs 645.96 crore, bringing the total issue size to Rs 6,145.96 crore. This influx of capital is expected to propel Ola Electric’s market valuation to around Rs 33,522 crore.
However, a stark contrast emerges when we compare Ola Electric’s pre- and post-IPO valuation to that of its other startups that went public in the last three years. Compared to its last private valuation, Ola Electric’s post-IPO valuation reflects a 26% decrease, dropping from $5.4 billion in 2023 to $4 billion in 2024. This contrasts sharply with the impressive gains seen by other Indian startups. Nykaa’s valuation soared an astonishing 270%, from $2 billion to $7.4 billion in 2021, while Zomato witnessed a dramatic 118% increase, rising from $5.5 billion to $12 billion during the same period.
What could be the reasons behind a 26% drop in Ola Electric’s valuation in less than a year, especially given the company’s growing recognition and positive feedback from industry experts and investors?
Let’s find out!
Bhavish Aggarwal’s Strategic Move
In an interview with ET, Ola Electric’s founder and CEO, Bhavish Aggarwal, acknowledged the drop in Ola Electric’s valuation, stating it was a deliberate move to make the IPO more attractive to a wider range of investors. Aggarwal’s vision for Ola Electric is clear: to position the company as a leader in India’s EV market. By offering shares at a 25% discount to the company’s previous valuation, he aims to strike a balance between enticing investors and ensuring a successful public offering.
“We are four-five years old and have scaled significantly. I wanted to make sure we price it attractively for the entire investor community in India. It’s a journey of significance for the country — we’re doing EVs, cells, India manufacturing, cutting-edge manufacturing. Hence, we represent a lot of themes that the future of the Indian economy is built on. The response from investors has been very encouraging,” said Bhavish Aggarwal.
However, a deeper look into the decision to set a lower IPO issue price for Ola Electric reflects the company’s ongoing financial challenges also, which may have played a role here.
For the fiscal year ending March 2024, Ola Electric’s net loss widened to ₹1,584.4 crore, up from ₹1,471.6 crore the previous year. This is despite a remarkable 90.4% YoY surge in revenue from operations, amounting to ₹5,009.8 crore during the last fiscal year.
In response to these increasing losses, Ola Electric has reportedly laid off approximately 500 employees across various verticals, including two top-level C executives.
Early Birds Reap Rich Rewards
For early investors such as Tiger Global and Z47 (formerly Matrix Partners India Investments), the Ola Electric IPO is nothing short of a goldmine. The early bets of these venture capital firms on Aggarwal’s vision have paid off handsomely.
Interestingly, Tiger Global, through its Internet Fund Pte, purchased shares at ₹11.70 each and stands to realize an astonishing 549% return on its investment with the IPO. The firm is selling approximately 63.6 lakh shares under the offer for sale (OFS) and is expected to generate a profit of ₹49 crore. Before the IPO, Tiger Global held a 6.03% stake in Ola Electric, equivalent to 22.34 crore shares, valued at ₹1,691 crore at the upper end of the price range.
Similarly, Z47 acquired shares at a price of ₹8.22 each. This investment is set to return a remarkable 824% through the public offering. Z47 holds a 3.43% stake, or 1.26 crore shares, in Ola Electric. It plans to sell around 37.27 lakh shares under the OFS, potentially earning a profit of ₹28.3 crore.
On the flip side, some investors might face losses due to the decline in Ola Electric’s valuation. Alpine Opportunity Fund VI and Tekne Private Ventures acquired shares at higher prices, at Rs 111.51 and Rs 113.12, respectively. Both will account losses as they divest their holdings through the OFS.
Ola Electric Future Post IPO
There’s no room for doubt that Ola Electric will have a successful debut in the Indian stock market. Its attractive IPO issue price is likely to capture significant attention, and the rising popularity of electric two-wheelers among young consumers adds to the company’s appeal.
Ola Electric is leveraging its IPO funds to propel future growth. The company plans to utilize Rs 800 crore to repay debts, which amounted to Rs 996.67 crore as of June 2024. In addition, the EV company will allocate Rs 1,600 crore towards research and development and Rs 350 crore towards organic growth initiatives, with the remainder supporting general corporate purposes.
CEO Bhavish Aggarwal has expressed strong confidence in both the present and future prospects of Ola Electric. He explained that the 2W EV company has already established a prominent position in the EV space, with a significant margin advantage over competitors. Aggarwal also highlighted the company’s aggressive scaling strategy and its role in what he sees as the most significant transformation in the automotive industry over the past century.
According to the VAHAN portal, Ola Electric emerged as the top seller of electric two-wheelers in India in FY24, accounting for a 35% share of the total sales. The company sold appropriately 3.26 lakh units during the last fiscal year, a whopping 113.7% YoY jump from the previous year’s sales of over 1.5 lakh units.
So far in FY25, Ola Electric sold 89,947 2W EVs in India, accounting for an impressive 38% share of the total market sales.
All said and done, the market’s reception to the upcoming Ola Electric IPO is poised to make a significant impact on India’s stock market and the broader EV industry. It is set to disrupt the two-wheeler electric vehicle sector and emerge as a formidable competitor to other two-wheeler EV players.
