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Unlocking India's EV Potential..

Ola Electric Mobility Ltd. (OEML) is a prominent Electric Vehicle (EV) company in the rapidly growing Indian electric two-wheeler (E2W) market. Founded in 2017, OEML focuses on developing advanced technology and manufacturing capabilities for EVs and their components, including battery cells. The company has introduced seven products, securing a leading position in the E2W market with a 35% market share in FY24. Additionally, OEML has unveiled plans to launch four motorcycle models, expected to be available in H1FY26. The company utilizes a direct-to-customer (D2C) omnichannel distribution network, which includes 935 experience centers and 414 service centers as of March 31, 2024.

* E2W penetration in India is anticipated to rise from ~5.4% of domestic 2W registrations in FY24 to 41-56% of sales volume by FY28. The Indian E2W industry is projected to grow at a CAGR of 11%, reaching a market size of Rs.2.8 trillion to Rs.3.6 trillion by FY28. (Source: Redseer Report).

* The company is the only automaker in India approved for both Production-Linked Incentive (PLI) schemes for advanced automotive technology and cell chemistry batteries.

* OEML’s revenue grew at a CAGR of 267% from FY22 to FY24, reaching Rs.5,009.8cr. Despite profitability challenges and a loss of Rs.1,584cr in FY24, the company is poised to enhance profitability through improved scalability and vertical integration.

* OEML had a debt-to-equity ratio of 1.3x in FY24. By using Rs.800cr of IPO proceeds to repay debt, the company’s debt-to-equity ratio is expected to decrease to 0.3x, thereby improving its bottom line.

* The company has an annual production capacity of 1 million units but is currently utilizing 49% of it. Ola Electric is constructing an EV hub in Tamil Nadu, which will include the Ola Futurefactory for E2Ws and the Ola Gigafactory for cell manufacturing.

* The introduction of in-house cell production (which constitutes 35-40% of scooter costs) in upcoming models, combined with vertical integration, will further enhance profitability.

* At the upper price band of Rs.76, OEML’s EV/sales ratio of 7.2x (FY24) appears expensive. However, as a leader in the E2W segment, the company is in a strong growth phase with robust R&D, a broad product portfolio, and a vertically integrated approach. Benefiting from government incentives and a scalable model, OEML is well-positioned to leverage India’s EV market and explore international opportunities. Despite current profitability challenges and valuation concerns, we recommend a "Subscribe" rating for high-risk investors with a long-term outlook.

Purpose of IPO

The offer includes both a fresh issue of Rs.5,500cr and an offer for sale amounting to Rs.645.6cr by 10 selling shareholders. The company plans to use the net proceeds from the fresh issue for: i) Rs.1,227.6cr for expanding cell manufacturing capacity at Ola Cell Technologies Private Ltd (OCT); ii) Rs.800cr for repaying or pre-paying subsidiary debt; iii) Rs.1,600cr for research and product development; iv) Rs.350cr for organic growth initiatives; and v) general corporate purposes.

Key Risks

* Changes or reductions in EV subsidy schemes could impact its profitability.

* Rely on Chinese suppliers for cell manufacturing materials poses a risk of supply chain disruptions.

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