Ola Electric's Multibillion-Dollar Electric Vehicle Surge: Can Soaring Sales Alleviate Concerns Over IPO Pricing and Valuation?

Ola Cabs continues its gradual journey towards profitability, but founder and CEO Bhavish Aggarwal’s primary focus remains on Ola Electric. The spotlight is now on a significant milestone for the relatively new player in India’s automobile industry. It’s the first initial public offering (IPO) by an Indian pure-play electric vehicle (EV) business.


Ola Electric has accelerated its aspirations by filing its Draft Red Herring Prospectus (DRHP), aiming to raise an impressive $1 billion through pre-IPO placements and the IPO scheduled for 2024. Despite selling over 3.5 lakh electric two-wheelers and boasting an extensive omnichannel network, challenges lie ahead, including concerns about reliance on government subsidies, a lofty valuation, and uncertainties regarding future product launches, notably the venture into car manufacturing.


The critical question is whether the public markets will be swayed by Ola’s remarkable growth and aggressive infrastructure expansion or if the IPO will face challenges, potentially leaving investors in limbo at the charging station. Analysts warn of a bumpy road ahead for Ola Electric.


Ola Electric’s ambitious $1 billion IPO plans validate India’s EV market potential, which is expected to catalyze further growth, investment, and transformation within the sector. Tushar Kansal, founder of Kansaltancy Ventures, believes that going public allows Ola Electric to set benchmarks and expectations for industry stakeholders.


The company aims to raise funds by issuing fresh shares valued at INR 5,500 Cr and offering up to 95 million existing equity shares for sale. With a targeted amount of INR 1,750 Cr from the offer for sale (OFS) and an additional INR 1,100 Cr from pre-IPO placements, the total IPO size could reach INR 8,350 Cr, equivalent to $1 billion.


Founder Bhavish Aggarwal plans to divest 47 million shares, representing a modest 3.4% of his total holdings. Other investors are also diluting their shares at smaller percentages, ranging from 2.3% to 2.94%.


Ola Electric’s business model, outlined in the DRHP, is built on three critical scalable platforms: R&D and technology, adaptable manufacturing and supply chain, and D2C omnichannel distribution.


To maintain its dominant position and expand further, Ola Electric plans to construct the largest ‘future factory,’ establish the most significant battery cell manufacturing facility, set up an R&D Innovation Centre, and expand its retail experience centres nationwide.


However, questions arise about the pricing strategy for the IPO, especially considering Ola Electric’s valuation of $5.4 billion in October 2023 and varying analyst estimates ranging from $6 billion to $7.5 billion post-IPO. Some analysts argue that even at $7 billion, Ola would be overvalued, pointing to a market cap: revenue ratio of 18x to 21x, in contrast to industry peers trading at lower ratios.


The comparisons with established players like TVS, Bajaj, and Hero MotorCorp reveal growing competition in the EV market. Despite its impressive sales volume, Ola Electric is now facing stiff competition from these players, which have a deeper supply chain network and boast more service centres.


Analysts raise concerns about Ola Electric’s valuation compared to its financial performance, market dynamics, and the potential challenges of scaling up its ambitious expansion plans, particularly in battery manufacturing.


The grey market has shown limited interest in Ola Electric’s shares, reflecting investor caution due to the EV industry’s dependence on government incentives and subsidies and Ola Electric’s lack of profitability.


As Ola Electric charts its IPO journey, it is pivotal in India’s EV evolution. Despite impressive financial growth and unique features, challenges persist, including valuation debates and the feasibility of aggressive expansion plans. As stakeholders prepare for this electrifying ride, Ola Electric’s IPO is an uncertain path filled with hurdles, even though it promises a great opportunity.