Ola Electric plans for an IPO by 2023 end, has hired Goldman Sachs & Kotak

It looks like another big bet on the alternative mobility may fructify its IPO plans soon. We are talking about Ola Electric. Incidentally, Ola Electric was also founded by India’s billionaire entrepreneur, Bhavish Aggarwal, who also happens to be the founder of the cab hailing service Ola Cars. Over time, Bhavish had realized that the cab hailing website would always be a drag on valuations as ecommerce platforms would have their saturation point when more participants enter the fray. However, alternate mobility is a much bigger long haul game and hence a better bet on long term valuations. Now, with this venture, and the benefit of a war chest created by an IPO, Ola Electric plans to capture India's nascent, yet promising electric vehicle (EV) market.

Ola Electric IPO plans on the anvil

India’s Ola Electric is planning a stock market listing by the end of 2023, so the process has already started since a typical IPO process would take about 6 months from start to finish. In fact, Ola Electric has already appointed investment bank Goldman Sachs and Kotak Mahindra Capital Company to manage the share sale. They, along with few more investment banks in India, will act as the book running lead managers (BRLM) to the issue when it is actually announced. Incidentally, Ola Electric manufacturers electric scooters in India and is backed by marquee global investors like the SoftBank Group of Japan and Tiger Global Management. Its last fund raising exercise in 2022 was done at a valuation of $5 billion and we are not aware if any further write downs have been provided for by these investors. For now, the $5 billion valuation appears to stand.

Needless to say, for an IPO of this magnitude, one can logically expect that more investment banks are likely to be added closer to the deal. While the ride sharing app, Ola Cabs, competes with the likes of Uber and a host of local players, Ola Electric competes with scores of players in the electrical mobility segment in India. India is expected to be one of the fastest growing markets for electrical vehicles considering the huge potential that two-wheelers have in India and the willingness and urgency shown by the government to make a rapid and decisive shift to a zero carbon regime.

Ola Electric business model – as we know it

In the month of April, Ola Electric sold around 30,000 scooters in April, its highest so far. Incidentally, Ola Electric is the market leader in the EV scooter space currently in terms of top line sales and even in terms of the indicative valuations. In the recent past, the company did face some challenges on the safety front after a series of fires had been reported in the EVs. However, those teething problems have been addressed already. While the shift to electrical scooters is expected to sync with the growth in infrastructure, these industries typically operate on a tipping point logic. Already, there are heavy investments coming into the EV space and once the infrastructure reaches a threshold, the shift to EV scooters is likely to become a lot more rapid. That is the tipping point that Ola Electric is betting on in a big way in the Indian market.

What we know about the issue?

While the IPO size is not known, we can look at the indicative valuation of $5 billion for 2022. Obviously, the IPO would be at a premium, so even the bare minimum requirement of a 10% dilution would entail an IPO of $700 million to $800 million. While it will not match some of the other digital IPOs of 2021 in size, it is likely to be the biggest IPO of the current calendar year, at least based on what we know now. In the case of Ola Electric, there has not been any significant write down of investment value by the investors, which is the good news for the valuation of the IPO.

Ola Electric is backed by investors such as SoftBank Group and Tiger Global Management. The listing is expected to happen by the end of 2023, so the IPO may be slated around November or December of this year. However, experts who spoke to Reuters expressed doubts if the entire process can be completed in a short span of time. The company is yet to file the draft red herring prospectus and then you have to give SEBI up to 2 months to vet and approve the IPO. Only after that, the game plan can kick off.

Financially, Bhavish Aggarwal may have some advantages in this game plan. For instance, the company is already EBITDA positive. Although Ola Electric commenced operations only in 2021, it reported positive EBITDA (earnings before interest, tax, depreciation, and amortisation) for the latest period. That is a fairly remarkable achievement. But there is a bigger bite of the cake that Bhavish and Ola Electric are currently looking at. For instance, Ola Electric is already looking beyond scooters. It has big plans to launch electric motorcycles and even an electric car, although that could be a little more down the line. The company is also in the process of scaling up investments in cell manufacturing, to deepen localisation, since the lithium ion batteries remain the biggest cost factor. Hopefully, things should fall in place more for the company by the time of the IPO.