Ola Electric’s DRHP Reveals IPO Plans and Internal Risks: What Investors Need to Know

Ola Electric, the electric vehicle (EV) maker that commenced operations in December 2021, has taken a significant step toward entering the public markets. On December 22, the company filed its Draft Red Herring Paper (DRHP) with the market regulator, the Securities Exchange Board of India (SEBI). Ola Electric aims to raise a substantial Rs 7,250 crore via an initial public offering (IPO), making it the first pure-play EV maker to venture into the public markets.

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Here are seven crucial highlights from Ola Electric’s DRHP:

1. The Offer: The IPO comprises a fresh issue aggregating up to Rs 5,500 crore and an offer for the sale of up to 95.19 million equity shares by selling shareholders. This totals the IPO size to Rs 7,250 crore, including the offer for sale (OFS). Founder Bhavish Aggarwal and early investors, including AlphaWave, Alpine, DIG Investment, Matrix, and others, will be selling their shares during the IPO. There is also consideration of pre-IPO placement of equity shares for up to Rs 1,100 crore.

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2. Utilizing the Funds Raised: Ola Electric plans to allocate the funds raised through the IPO towards capital expenses, repaying debt, and Research and Development (R&D). Approximately Rs 1,226 crore will be allocated for capital expenses, Rs 800 crore for debt repayment, Rs 1,600 crore for R&D investment, and Rs 350 crore for inorganic growth initiatives.

3. Internal Risk Factors: The DRHP highlights several internal risks that could impact Ola Electric’s operations and continuity. These include the reduction or elimination of government incentives, including subsidies, which could increase the purchase cost of EVs. The document also notes the founder’s involvement in multiple businesses, potential conflicts of interest, a shortage of technical talent, and the likelihood of continuing operating losses during expansion phases.

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4. Ola Electric’s Board Members: The company’s board comprises six directors, including one Executive Director, two non-executive directors, and three independent directors. Bhavish Aggarwal serves as Chairman and Managing Director. Notably, Aggarwal’s involvement in other ventures, including Tork Motors, raises concerns about potential conflicts of interest.

5. Pending Litigations: Ola Electric has faced legal issues, including a case related to copyright infringement regarding songs played on Ola Play devices. The Enforcement Directorate (ED) has issued summons to Bhavish Aggarwal, but the matter is said to have been settled through a settlement agreement. The company also has 189 pending legal proceedings involving an aggregate claim amount of Rs 4 crore.

6. Key Financial Metrics: While Ola Electric reported a significant increase in consolidated revenue to Rs 2,782 crore in FY23, its net loss widened to Rs 1,472 crore due to rising expenses. The company reported a loss of Rs 267 crore in the first quarter of FY24. Employee benefits expenses also increased, and the firm continues to report operating losses during its expansion.

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7. Growth Roadmap: Ola Electric plans to invest in its Gigafactory and an EV hub in Tamil Nadu. The Gigafactory’s Phase I is expected to be operational by March 31, 2024, with a production capacity of 1.4 GWh, set to expand to 5 GWh by October 2024. The company is also building an EV hub with co-located suppliers to streamline its supply chain.

Ola Electric

Ola Electric’s IPO is highly anticipated, and investors and stakeholders are closely watching these factors as they consider participating in the offering. The EV maker faces both significant opportunities and challenges as it seeks to establish a foothold in the burgeoning electric vehicle market in India.

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