Daybreak - All you need to know about Ola Electric's IPO

Episode Date: July 29, 2024

On Friday this week, we’re going to see one of the largest IPOs of 2024 by a new-economy company. The Bhavish Aggarwal-led Ola Electric is all set to make its debut in the stock market. The IPO which has been in the works for sometime is expected to value the company at a little over $4 billion. Aggarwal is due to sell almost 38 million shares as part of the offer for sale which is nearly 20% lower than what the company had indicated in its DHRP. The company is a leader in the two wheeler EV space in india with more than one third of the market share. Of course, getting here has been no cakewalk for Ola Electric. Just last month it was reported that the company was planning to let go of 400-500 employees to streamline its operations before the listing.In this episode we go over some of the highlights from the company's offer document.Tune in.P.S. Check out the most recent episode of Two by Two, our brand new business podcast, where the hosts ask: why has all the disruption and joy gone out of startups? Stream on Spotify, Apple Podcasts or other platforms!Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio recording, episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. This is the season of IPOs, dear listeners. On Friday, we're going to see one of the largest IPOs by a new economy company this year. The Bhawe-Saggurval led Ola Electric is going for its public listing. The IPO, which has been in the works for some time now, is expected to value the

company at a little over $4 billion. It was initially aiming for a $6 to $7 billion valuation when it filed its draft IPO papers. But the company seems to have revised its price expectation. Agarwal is due to sell almost 38 million shares as a part of the offer sale, which is nearly 20% lower than what the company had indicated. in its draft red herring prospectus or DHRP. DHRP is essentially a document that is prepared by a company to introduce a business or a product to a potential investor. The company is a leader in the two-wheeler EV space in India

with more than one-third of the market share. Of course, getting here has been no cakewalk. Just last month, it was reported that Ola Electric was planning to let go 400 to 500 employees to streamline its operations before the listing. Now, I thought today is a great day to take you back a few months ago when Ola Electric had released its DHRP. We'll go over some of the things that were surprising and a few others that were not. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Daashirma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rahal Philipos

and I will come to you with. with one business story that is worth understanding and worth your time. Today is Monday, the 29th of July. Not long after Ola Electric's DHRP was released, my colleague, the Ken editor, Seema Singh, who's been covering the EV sector in India from its very inception, went through the document with great interest. Mainly because Ola is a company that has a very controlled way

of how much information it lets out about its corporate developments. So Seema was hoping that the DHRP would enlighten her. It kind of did, but in a very limited way, she says. Before we get into it, every DHRP has a long list of every conceivable risk in the business. Now, let us read a disclaimer that Ola Electric put in the document. It reads, and I'm quoting, We also cannot guarantee the suppliers' compliance with ethical business practices such as environmental responsibilities,

industry standards on sustainability, fair wage practices, and compliance with child labour laws among others. End quote. Wait. What? For a clean tech company that has been riding the climate tech wave and has been bagging subsidies left right and centre,

this disclaimer sounds a little over the top. Seema says this is a cop-out for a supposedly low-carbon business. You see, measuring emissions in the supply chain and outside of one's operations falls under scope three emissions reporting and helps prioritize emissions reduction strategy. Scope three emissions, by the way, are categorized as those resulting from assets not owned or controlled by a company, but are nevertheless indirectly affected by its activities both up and down the value chain. Seema says OLA can easily help identify which suppliers are laggards and which are leaders when it comes to sustainable practices.

And as for the clauses on fair wage practices and child labour laws, they're just disappointing to say the least. Now, let us move on to the next risk. But before that, my colleague, Praveen Gopalakrishnan, has something to tell you. Hi, I'm Praveen Gopalakrishna, co-host of the Ken's brand new business podcast, 2 by 2. For months, everyone who works at a startup has been telling me the same story. It's a story that begins with the line, I don't know what's the point of all this anymore. I've met several senior executives. They've either quit their jobs, they're on a career break, and others are in a process of quitting and negotiating sabbaticals.

I've heard stories about founders and co-founders who confess that they no longer feel much joy or satisfaction in what they're doing. But they really see no option but to continue running on the treadmill. There are other people who are much younger in their career, often in their 20s, and they're throwing all their energy, creativity and focus not in work, but in retiring from work. Not to get a safety net to pursue work that they love, but just simply to retire. There's an entire generation of people inside startups who are weary, tired and see no purpose. These are smart, talented,

ambitious people who were once excited and found meaning in work. And it's not just them. For a long time, startups created products and services that dramatically changed the way we buy, drive, learn, create, invest or express ourselves. Not any longer. So why has all the excitement and disruption gone out of startups? 2x2 is a podcast where we take questions like this and try to find answers.

In the latest episode, Rohan, who's my other co-host, and I, we talked to Ashi Sinha, who's the founder of Next Big Wat, and to Professor Soram Mokajee from Iron Bangal. Fun fact, Professor Soraf Mokajji actually taught me when I was in preschool. So it's fun to get him back on the show to get him on the other side. You can click on the link in the show notes to listen to the episode, or you can simply type two by two wherever you get your podcast. Now, back to your show.

Polar Electric is very new. For context, it was found. founded only in 2019 and it shipped its first electric scooter in December 2021. And it started recognizing revenues from sales in the financial year that ended in March 22. And even though it enjoys the largest market share in India's electric two-wheeler market so far, the fact that remains is that the company has a limited operating history. So when OLA Electric lists its ability to design and manufacture EVs without defects as a risk factor, Seema says we should believe them. And when you consider how Ola Electric has nearly

200 matters filed by its customers to the consumer dispute redressal commissions in this short operating history, it all does add up. Plus, if you're on social media, it is hard to miss the customer complaints that have often gone viral. Now, let us move on to what is not really a risk, but maybe being made out to be to a certain extent. You see, For two years until December 20203, OLA Electric customers were able to charge their OLA EV scooters with their standard and hypercharger guns for free. Now, OLA plans to charge for this service.

OLA's DHRP, therefore, says that such a policy change could result in consumer dissatisfaction and deter some customers from purchasing their scooters. Seema doesn't think so. She says that it's just a routine part of group. growing up for EV companies. Now, that OLA may have taken growth pills or maybe even steroids is a whole different matter. But even Tesla gave free charging to its customers for four full years from 2012 to 2016 and then it started charging a small fee. Ola is doing this in two years. But that is a good thing because any time you give away something for free, people tend to

overuse it. Asking people to pay will ensure people charge as much as they need and OLA will be able to manage the line better. The maturing of a business, Sima says, should not be seen as a risk factor. But here's what may be worth keeping in mind. For a company as young as Ola Electric, it has too many subsidiaries. 10 right now and the promoter group has 15 entities to its name. See, Related party transactions are common commercial practices and can be beneficial to the company. For example, they reduce transaction costs. But it's also given that the uncontrolled nature of related party transactions allows wealth transfer between the company and the related parties.

And this is usually not good for minority shareholders. For instance, Seema points out for a business that calls itself software computer, on wheels, why would it keep a key component like the navigation system powered by OLA Maps in a separate promoter group company? In case you didn't know, OLA Maps is owned by Geospatial Services Private Limited, a promoter group company. And last but not the least, attrition has always been high at OLA Electric and it's mentioned in its DHRP. It was at 47% in the financial year that ended in March 2023. But what's important to remember is that there is a dearth of skilled people for the EV ecosystem in India.

But Ola says that one of the reasons it has high attrition is that its people get poached by other companies. Industry people told Sima that it has gotten easier to get people for areas like mechanical, electrical design and testing roles because there are a ton of startups where people are getting their hands dirty and learning quickly. But there is a dearth of talent in more specific areas such as control systems, sell design, sell manufacturing, etc. And that's because as a country we haven't explored these areas, so the tech has to be imported. A professional from a rival company explained how original equipment manufacturers vertically integrate different parts of the value chain and those are the bits that are hard to hire for. Not a lot of folks who have been there and done that.

Hence, you will see a lot of expats of folks from the US returning to fill these roles. So, now that it's going public, what is OLA Electric planning to do with the 5,500 cro rupees that it is planning to raise? It wants to use around 1,200 cro rupees to expand the capacity of its battery cell manufacturing plant called Ola gigaGigar factory. From 5 gigawatt per hour to 6.5.5.5. 4 gigawatt per hour. The plant aims to reach the 6.4 goal by the end of April next year.

Next, the company will use 800 crore rupees to repay loans that has been taken on by its unit, OLA Electric Technologies. And it will also invest 1,600 crore rupees into research and product development. That's all for today. Thank you for tuning in. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-undi offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras.

To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv CN.