Ola Electric is gearing up for its initial public offering (IPO), aiming for a valuation between $4.25 billion and $4.5 billion. This figure is more than 20% lower than its last private-market valuation of $5.4 billion. The IPO process is set to begin in the first week of August, following the company's December 2023 filing and recent approval from the market regulator SEBI. Notably, Ola Electric is the first Indian EV startup to attempt a stock listing.

IPO Details and Investor Participation

The company plans to raise Rs 5,500 crore ($660 million) in primary capital. Founder Bhavish Aggarwal and existing shareholders, including Tiger Global, SoftBank Vision Fund, Temasek, Alpha Wave, and Matrix Partners India, will sell about 95 million shares. Given that Ola Electric is currently a loss-making enterprise, only 10% of the IPO will be available for retail investors, with 75% reserved for qualified institutional buyers and 15% for high-net-worth individuals.

Business Operations and Growth

Ola Electric has developed a comprehensive ecosystem for EV manufacturing and sales. It currently produces three models of e-scooters from its factory, which can produce 1 million vehicles per year. These scooters are sold through over 1,000 company stores nationwide and via the company's website. Ola Electric also offers subscription plans for after-sales service.

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Despite a rally in Indian stock markets, there is resistance to high valuations for loss-making startups, even those with rapid sales growth. Ola Electric has adjusted its valuation expectations from $8 billion to around $4.5 billion pre-money, significantly lower than its $5.4 billion valuation in 2023.

Why the Lower Valuation?

Ola Electric's decision to target a lower valuation of $4.25 billion to $4.5 billion for its upcoming IPO, compared to its previous private-market valuation of $5.4 billion, reflects a strategic response to various market and business factors. The company is in a critical phase of expansion, requiring substantial capital to increase its manufacturing capacity and build a battery cell factory. This expansion is essential to maintain its competitive edge in the rapidly evolving electric vehicle market. The recent funding round, led by a notable high-profile investor, highlighted challenges in achieving a higher valuation, as it wasn’t large enough to establish a strong valuation benchmark. This, coupled with a shift in investor sentiment towards more cautious valuations for loss-making startups, has led Ola Electric to adopt a more realistic financial outlook. The broader market conditions, including global economic uncertainties and a cautious investor environment, further underscore the need for a conservative valuation approach. By setting a lower valuation, Ola Electric aims to attract investors by providing an attractive entry point, focusing on long-term growth and sustainability, and ensuring successful capital raising in a competitive IPO landscape. This move also positions Ola Electric as an appealing investment opportunity, aligning with current market realities and evolving investor expectations in the dynamic EV industry.

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Market Dynamics for Unicorns

The landscape for Indian unicorns has shifted since 2021. Despite losses, companies like Zomato, Policybazaar, and Freshworks previously priced their IPOs well above their last private-market valuations. In contrast, 2024 markets are less supportive of such valuations. In the US, companies like Reddit and Instacart have also opted to list their last private-market valuations below.

In summary, Ola Electric’s lowered valuation reflects a cautious approach to align with current market realities and investor sentiments.

Ola Electric's Strategic IPO Move

Ola Electric's IPO benefits from the booming EV sector, which has investors ready to take risks. Another strategic reason for tempering its valuation is Hyundai India's upcoming $3.5 billion IPO in October, which will likely affect market liquidity and investor allocation in the auto sector.

Importance for Stakeholders

The IPO is crucial for Ola Electric's investors and founder-CEO Bhavish Aggarwal, with nearly 95 million shares, including 47 million held by Aggarwal, up for sale. Major investors like SoftBank, Matrix Partners (now Z47), and Alpha Wave will also sell shares. These investors also back Aggarwal's ride-hailing company, Ola (ANI Technologies), which has yet to finalize its IPO plans for 2022.

CEO Bhavish Aggarwal is determined to demonstrate that his ventures can deliver solid returns. Despite facing valuation challenges in the past—such as when Ola's valuation fell from $5 billion in 2015 to $3 billion in 2017 amid fierce competition with Uber—the company rebounded to reach a valuation of $7.1 billion during the fundraising surge of 2021. The crucial question now is whether Aggarwal can replicate this success with Ola Electric as it faces the scrutiny of public markets.

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