Ola Electric DRHP: Seven considerations, such as the promoter's conflict of interest and growing losses

 Ola Electric DRHP: Seven considerations, such as the promoter's conflict of interest and growing losses

Ola Electric DRHP: Seven considerations, such as the promoter's conflict of interest and growing losses

Ola Electric intends to earn Rs 7,250 crore via an initial public offering (IPO) and submitted its draft red herring paper (DRHP) on December 22.

A new issuance of up to Rs 5,500 crore and an offer to sell 95.19 million equity shares to selling shareholders make up the company's initial public offering (IPO). The IPO is worth a total of Rs 7,250 crore, including OFS.

Ola Electric, a company that started producing electric vehicles (EVs) in December 2021, has submitted its Draft Red Herring Paper (DRHP) to the Securities Exchange Board of India, the market regulator, and is now moving toward becoming public. filed on December 22 with SEBI.

Since it will be the first pure-play EV manufacturer to go public, the EV maker's IPO is much awaited.

The DRHP is a crucial document that serves as a proof of concept to educate stakeholders and investors about the firm. The company's financial data, growth objectives, and some significant internal and external risk factors that potentially have an influence on the firm are all highlighted in Ola Electric's DRHP.

The top seven features of Ola Electric's DRHP are as follows:

A new issuance of up to Rs 5,500 crore and an offer to sell 95.19 million equity shares to selling shareholders make up the company's initial public offering (IPO). The IPO is worth a total of Rs 7,250 crore, including OFS.

Bhavish Aggarwal, the founder of Ola Electric, plans to sell up to 47.3 million shares. During the IPO, early investors in the firm, including AlphaWave, Alpine, DIG Investments, Matrix, and others, will also sell their shares.

The business is also thinking at the possibility of placing equity shares up to Rs 1,100 crore in advance of an initial public offering. The amount of the new issue will be lowered to the extent of any pre-IPO placement, if one is done.

Using the monies raised: R&D will be the primary emphasis.

The business has said that research and development (R&D), debt repayment, and capital expenditures would be covered by the funds obtained via the IPO. The business plans to spend around Rs 1,226 crore of the total funds obtained for capital expenditures (capex) and Rs 800 crore for debt repayment.

The majority of the net proceeds, up to Rs 1,600 crore, would be allocated by the EV manufacturer to R&D and Rs 350 crore to inorganic expansion activities.

Ola Electric has said that one of the company's main costs is research & development.

"With growth of 7.32% Included., 18.25%, 38.54%, and 41.11% respectively of our total income for such period, our R&D spend for the three-month period ending June 30, 2023 and financial years 2023, 2022, and 2021 stood at Rs 93.5 crore, Rs 5,07.7 crore, Rs 1,75.8 crore, and Rs 43.6 crore, respectively," the company stated in its DRHP.

By October 31, 2023, it had around 974 on-roll and off-roll staff working on research and development projects. Among them were engineers and scientists, 60 of whom had PhDs.

This is significant since, despite the fact that these are top priorities for Ola Electric's expansion, the firm has also said that there can be no guarantees about the returns on these expenditures.

"We have made significant investments in R&D and technology, and we want to keep doing so. One of our recent initiatives was expanding our cell manufacturing capabilities via BIC. "We cannot guarantee that these investments will yield returns," the statement said, listing it as one of the internal risks that compromises corporate continuity.

Internal risk factors for Ola Electric that were discovered

Numerous risk factors, including external and internal ones as well as those pertaining to the offer of equity shares, are stated in the DRHP. Ola Electric has identified a number of significant hazards that may eventually affect the business's operations and viability.

Reduction or deletion of FAME or quick adoption of electric manufacturing and subsidies are some of the concerns.

"The purchase cost of our electric vehicles would not increase if any government incentives were reduced or eliminated, including the FAME subsidy, benefits under the Production Linked Incentive Scheme for the Automobile and Auto Component Industry, the PLI Scheme for National Program on Advanced Chemistry Cell Battery Storage Subsidy from the Government of Tamil Nadu, and accessories and our Service tax concessions available to customers, or the ineligibility of any of our electric vehicles for such subsidies," the statement stated. As.

Actually, in mid-2023, the government cut the FAME subsidy for electric two-wheelers from forty percent to fifteen percent. According to Ola Electric's DRHP, this led to higher pricing for customers.

The retail price of our EV scooters increased for our clients by ₹ 22,784 for the Ola S1 and ₹ 37,106 for the Ola S1 Pro due to the decrease in subsidies. In June 2023, we had a 5 8.14% decrease in orders from May 2023, according to DRHP.

The company's chairman and promoter, Bhavish Agarwal, was noted as another internal danger due to his emphasis on many industries.

Our Founder, Chairman, and Managing Director, Bhavish Aggarwal, greatly influences our company approach, therefore we rely heavily on his services and reputation. Along with founding Crutrim SI Designs Pvt Ltd, he is the new Chairman and Managing Director of ANI Technologies Pvt Ltd. His time to dedicate to our organization may be reduced due to his engagement with Crutrim SI Designs Pvt Ltd and ANI Technologies Pvt Ltd, the statement said.

In addition, Agarwal has shares in Torque Motors Private Limited, a company that does business in a sector comparable to Ola Electric. The DRHP made clear that conflicts of interest might occur and that how they are resolved could negatively impact operations or company.

The company said that they want sufficient skills in fields like software development and also brought up the lack of technical talent.

It said, "Our employee attrition rates were 42.06% and 47.48%, correspondingly, for the seven-month period ending October 31, 2023 (on an adjusted for inflation basis) and fiscal year 2023."

Regarding risk concerns for profitability, the company said that it could continue to disclose operational losses as it expands both domestically in India and internationally.

"We might still incur operating losses in the near term as we invest in our business as well as expand our product portfolio, build capacity as well as scale our operations," stated DRHP.

Members of the Ola Electric Board and Their Pay

Six directors make up Ola Electric's board, according to the DRHP: two non-executive directors, one executive director, and three independent directors, one of whom is a woman.

Ola Electric's chairman and managing director will be Bhavish Aggarwal. Arun Sarin, a board member of Accenture as well as ANI Technologies, and Krishnamurthy Venugopal Teneti, a member of the board of ANI Technologies, are non-executive directors of the company.

Manoj Kohli, the former CEO of Airtel, Ananth Shankaranarayan, the creator of Mensa Brands, and Shraddha Sharma, the founder of YourStory Media, have been named as independent directors of the firm.

Prior to its first public offering (IPO), the business named Harish Abichandani Ola Electric's chief financial officer. Chief Markets Officer Anshul Khandelwal, General People Officer N Balachander, Chief Technology Officer Suvonil Chatterjee, as well as Chief Operating Officer Shawn William Calvert will all continue in their roles.

Agarwal would get a base pay of Rs. 6 crore annually as well as a variable income of Rs. 3 crore. Non-executive and independent directors would get an annual salary of Rs 0.5 crore in addition to Rs 1 lakh in meeting fees.

Directors are compensated with meeting fees for attending all Board of Directors and committee meetings.

Highlights of ongoing cases

The Enforcement Directorate (ED) has taken a closer look at the firm, and its promoter has been summoned under Section 50 of the Prevention of Money Laundering Act, 2002.

The ED summons relates to a formal complaint (FIR) that was filed by Lahari Recording Company against Bhavish Aggarwal, the promoter of ANI Technologies, and Ankit Bhati, the co-founder of Ola, who departed the company to launch his own business.

Music played on 'Ola Play' devices without a legal license is a copyright violation, according to Lahori's FIR. Nonetheless, the parties have settled the dispute in accordance with the settlement agreement dated August 20, 2022, which was signed by the complainant, our promoter, and ANI Technologies Private Limited.

The ED was looking for specific records and information about the copyright licenses that ANI had acquired from the companies that had the rights to download and play music from movies, as well as specifics about the contract that ANI had with Lahari Recording Company.

According to the specified schedule, "our promoters are currently in the process of providing the details that are sought by the directorate," the DRHP said.

There were over 189 legal cases against Ola Electric outstanding as of December 22 before several consumer dispute redressal agencies, with a total claim value of Rs 4 crore.

These cases include: delivery of vehicles that are defective or fall short of advertised standards; cancellation of purchase orders and loan applications without first the consent of the customer; improper vehicle servicing; reveal of incorrect charge levels; and scooter breakdowns.

Important financial indicators: Deficits persist

In the fiscal year ending in March 2023 (FY23), Rajbhasha Electric reported a roughly 51% increase in consolidated revenue at Rs 2,782 crore; nevertheless, growing costs caused its net loss to expand to Rs 1,472 crore.

In Q1FY24, which concludes on June 30, 2023, Ola Electric recorded total revenue of Rs 1,272 crore. Nonetheless, the company's loss for the three months was reported to be Rs 267 crore. June 30, 202 Ola Electric's net worth was Rs 2,111 crore as of 2019.

Compared to Rs 715 crore in FY2012, the company's operational loss, or EBITDA loss, was Rs 1,197 crore in FY2013. The company has declared a loss of Rs 183 crore for Q1FY24.

The DRHP statement states that, apart from share options awarded to some workers, the company's employee benefit expenditure grew from Rs 282.4 crore in FY2012 to Rs 426.7 crore in FY2013 as a result of hiring more people and raising employee compensation. was one crore rupees. At the moment, the firm employs around 3,000 people.

Ola Electric has bank balances of Rs 908.4 crore and cash and cash equivalents of Rs 231.7 crore as of June 30, 2023. Additionally, the company owed Rs 1,61.6 crore in total borrowings, which included both current and non-current debt. The establishment of industrial facilities and the payment of working capital needs were the primary uses of these loans.

Development schedule: planned gigafactories and EV hubs

The Gigafactory, the company's cell production facility, is currently under development. In actuality, a part of the money collected by the IPO is used specifically to build this facility.

"We are constructing the Ola Gigafactory in the Tamil Nadu region of Krishnagiri, India, to manufacture cells. By March 31, 2024, the first phase of the Ola Gigafactory is anticipated to be operational, with a 1.4 GWh output capacity. By October 2024, we want to finish Phase 1(B) and increase Ola Gigafactory's generating capacity to 5 GW, according to a DRHP statement.

The business is also constructing an electric vehicle hub in Tamil Nadu, which will have co-located suppliers, the soon-to-be Ola Gigafactory for cell production, and Ola Future Factory for EV manufacture.

For the EV producer to maintain supply chain management and timely production, suppliers are essential.

The company said, "We are in talks with other suppliers to be co-located at our EV hub in Krishnagiri district of Tamil Nadu, where three of our direct and indirect suppliers are currently co-located."

According to Ola Electric's product plan, the Ola S1 Will go will begin to be delivered.