With its impending initial public offering (IPO), Ola Electric Mobility Ltd., a well-known electric scooter maker in Bengaluru, is poised to create waves in the industry. The initial public offering (IPO) begins on August 2 and ends on August 6, with a price per share of Rs 72–76. The anchor book opens on August 1. With this change, the company’s valuation is reduced by 30% to Rs 33,522 crore ($4 billion), which is much less than what it was valued at during the December 2023 Series E fundraising.
Credits: NDTV Profit
A Steep Valuation Discount: What It Means
Ola Electric raised Rs 1,163.20 crore at a valuation of Rs 47,932 crore, or around $5.7 billion, in December 2023 for its Series E funding round. The company’s shares were valued at almost Rs 130 per during this investment round. However, the firm is valued at over Rs 33,522 crore, or $4 billion, based on the IPO pricing, which represents a 30% reduction. The company’s existing market position and investor mood are called into doubt by such a significant markdown.
The decrease in value may be interpreted as a calculated attempt to lower the share price and draw in a wider range of buyers. It may also be an indication of a more cautious perspective for the market or internal evaluations of the company’s growth trajectory. This markdown may cause investors who are already invested to worry.
Fundraising and Utilization
Ola Electric plans to raise Rs 5,500 crore through the primary issue and Rs 645.6 crore via an offer for sale from promoters and investors. The proceeds from the IPO are earmarked for several critical areas:
Capital Expenditure: Rs 1,227.64 crore will be allocated towards capital expenditure. This investment is crucial for scaling production capabilities, improving manufacturing processes, and expanding facilities.
Repayment of Borrowing: Rs 800 crore will be used to repay existing debts, thereby strengthening the company’s balance sheet and improving its financial health.
Research and Development: A significant portion, Rs 1,600 crore, will be invested in research and development. This is vital for maintaining competitive advantage and driving innovation in the rapidly evolving EV market.
Organic Growth: Rs 350 crore will be dedicated to organic growth initiatives, helping Ola Electric expand its market reach and enhance its product offerings.
Impact on Promoter Stake
The promoter interest will be diluted as a result of the IPO, going from 45.14% to 36.8%. The dynamics of control inside the organization may change as a result of this ownership reduction. It also shows how confident the promoters are in their ability to share ownership with a larger group of investors and raise money from the public market. The market may view their move to lower their ownership favorably since it demonstrates their willingness to work with and expand alongside public investors.
Valuation Metrics and Market Position
Ola Electric is valued at roughly 5.3 times the EV to sales for the current fiscal year and 6.8 times the enterprise value to sales for the fiscal year that ended in March 2023, respectively, at the top end of the IPO pricing range of Rs 76 per share. Investors use these valuation criteria to assess the company’s growth potential and financial stability.
These multiples seem realistic in light of the current market conditions and the competitive environment of the electric vehicle business, and they may draw investors seeking to expand their holdings in the green mobility sector. In addition, a more sustainable growth path could be implied by the lower price, preventing the company from overpromising and underdelivering.
Broader Impact on the EV Market
The IPO of Ola Electric is a noteworthy development for the EV industry in India. Being one of the front-runners, the company’s IPO could serve as a model for other EV businesses thinking about going public. Additionally, it might increase funding and focus on the electric vehicle market, spurring competitiveness and innovation.
Conclusion
The impending IPO of Ola Electric is a historic development that might change the course of the business and have an effect on the larger EV market. The deliberate distribution of capital and the diluting of promoter stakes, in spite of the significant valuation discount, point to a well-considered strategy for expansion and innovation. It will be interesting to watch how the business handles the potential and difficulties in the ever-changing EV landscape as it sets out on this new path.
