Hyundai Motor owns $99 million worth Ola Electric shares; here's how

Hyundai Motor Company would own $99 million worth Ola Electric Mobility Ltd shares if the ongoing initial public offer (IPO) by the manufacturer of electric vehicles sails through. Data showed Hyundai Motor Company held 10,88,68,928 shares, or 2.95 per cent stake, in Ola Electric, post conversion of compulsory convertible preference shares (CCPS). These shares at the upper limit of the IPO price band of Rs 72-76 apiece are worth Rs 827 crore or $98.76 million (at 83.73 per dollar).  

A wholly-owned subsidiary of Hyundai Motor Company, Hyundai Motor India, has also filed draft papers for IPO with the market regulator Sebi. 

On Day 1 of its bidding process, Ola Electric received bids for 14,12,21,535 shares so far, which is 30 per cent of the total issue size of 46,51,59,451 shares. The total IPO size is $734 million  or Rs 6,145.56 crore. This includes a fresh share sale of up to Rs 5,500 crore and offer for sale (OFS) of up to 8,49,41,997 equity shares by its promoters and existing shareholders.

Ola Electric had a debt-to-equity ratio of 1.3 times in FY24. By using the IPO proceeds to repay debt, the company’s debt-to-equity ratio is expected to decline to 0.3 times, thereby improving its bottom line.

At the upper price band of Rs 76, Ola Electric's EV/sales ratio of 7.2 times (FY24) appears expensive, said Geojit Financial Services. 

"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," it said.

Despite profitability and valuation concerns, it recommended a Subscribe' rating on Ola Electric and said it is for high-risk investors with a long-term outlook.

LKP Securities said that while it is cognizant of the fact that the company is running into losses at the operating level itself, the extent of loss margins are reducing -- 25.3 per cent in FY24 from 47.6 per cent in FY23. 

"Ola’s topline has also grown at a stupendous 90 per cent in FY24. The company has won PLI for couple of its top selling models and also for its battery manufacturing unit. This shall assist Ola to improve their profitability in the ensuing years. Array of new launches along with EV bike launches next year should enable the company to retain market share (45 per cent by end of Q1 against 39 per cent at the end of Q4). Higher volumes are expected to bring in operating leverage thus reducing losses, which we believe can happen in mid-term," it said.

InCred Equities said the cut in IPO valuation to $4 billion eased valuation risk: 6.8 times FY24 sales for Ola Electric against global EV peers at 3-8 times CY23F. In 2023, Ola Electric commanded a value of $5.4 billion when it raised $140 million in a round led by Singapore’s Temasek.

"We believe Ola Electric’s EV market share of CY24TD is not sustainable, given peers have yet to ramp up their product portfolio and distribution network. Ola’s EV market share in rural states such as Uttar Pradesh, Bihar, and Haryana was 50 per cent-plus as on CY24 as per Vahan data where incumbents  EV products distribution network is sub-par currently. However, in states like  Maharashtra, Karnataka, Kerala Ola’s market share is just 30-35 per cent," said Elara Securities. 

"Further, the investment in cell manufacturing is a double-edged sword because to claim advanced  chemistry cell (ACC) PLI, it will have to ramp-up capacity to 20GWh by FY28 while captive demand could be much lower. Hence, if Ola Electric does not get OEM customers for its cell manufacturing, it would present a challenge," it said.