Unlisted Shares

Dominant player of Indian 2-wheeler EV Industry: In the month of December 2023, Ola Electric secured a 40.1% market share, demonstrating a continuous rise from 6% in FY22, 21% in FY23, and an overall 33% in FY24 (up to December 2023). As of December 15, 2023, Ola scooters collectively covered a distance of 300 crore kilometres, resulting in an avoidance of 8.7 crore kilograms of emissions and a savings of ₹704 crores as an alternative to fuel costs.

Revenue Growth: The company has witnessed a significant increase in revenue, escalating from ₹373.4 Crore in FY22 to ₹2,630.9 Crore in FY23, reflecting a growth rate of 604.5%. 

Strong emphasis on R&D and Vertical Integration: The company emphasizes building an in-house R&D team, and operates R&D facilities in India, the UK, and the US, including the Battery Innovation Centre focusing on cutting-edge cell and battery technology. 

Currently, Ola Electric produces core electric vehicle (EV) components like battery packs, motors, and vehicle frames in its Future Factory. The battery pack, constituting 35-40% of the electric two-wheeler (E2W) vehicle cost, is a crucial component.

While the company presently sources cells from suppliers, it is working on developing cell technologies and manufacturing processes. Ola Cell Technologies (a wholly owned subsidiary of Ola Electric) has created the '4680', a 46x80 mm cylindrical cell expected to replace the 21x70 mm cell. This larger cell offers higher energy density, increasing the vehicle's driving range, a faster charging rate, improved heat dissipation performance, and reduced production costs.

India’s largest company-owned network of experience canters: The Company operates their direct-to-customer (“D2C”) omnichannel distribution network comprising 935 experience centres and 414 service centres (of which 410 service centres are located within experience centres) situated across 24 states in India. 

Ola Electric aims to further expand its network of experience centres (ECs) and plans to invest in establishing 300 new ECs in India in FY26.  As of October 31, 2023, the charging network comprises 224 hypercharger guns across 17 states in India, and the company plans to add approximately 900 hypercharger guns over FY25 and FY26.

Backed by established Automotive players: Hyundai Motor Company and KIA Motors are notable investors with ownership stakes of 2.8% and 0.7%, respectively.

Investment Thesis: 

​Pros: 

• Vertical Integration: The management is focused on having control of the supply chain, involving the manufacturing of necessary components like battery packs, motors, vehicle frames, self-owned experience centres, charging stations, software capabilities and its own financial services platform for scooter financing.  The company is working on a cell technology that offers higher energy density, increasing the vehicle's driving range, a faster charging rate, improved heat dissipation performance, and reduced production costs. Overall, with a focus on vertical integration, the margins of the company will eventually improve.  
• ​Improved cash burn: The approach of vertical integration has somehow helped the company to improve its margin to date. As of FY23, after considering all the operating costs for selling one scooter, the company was burning approximately ₹70k per sale of scooters but this figure has decreased to a burn of ₹24k as on the first quarter of FY23.
  
• Strong Brand Presence: Ola's robust brand influence has played a crucial role in the company's rapid ascent in the electric two-wheeler industry, allowing it to secure a market leadership position within just one year of launching its initial product. As of December 2023, the company commands a 40.1% market share achieved within the first 1.5 years of its introduction.
  
• After-Sale Service and Improved product quality: The company has built the largest self-owned EV experience centre comprising 935 centres and 414 service centres. The company has also improved its product quality which is significant in its financials. As of FY23, warranty expenses per scooter were approximately ₹7.6k which has decreased to ₹4.1k as of the first quarter of FY24. Moreover, vehicle repair services have decreased from ₹5.4k in FY23 to ₹2.4k in Q1 FY24.
  

Cons:

• No signs of profitability in the near term: Due to high capital expenditure requirements for vertical integration, the introduction of new products, and the strategic expansion into the global automotive market the management does not see profitability shortly.
• High Debt: The company carried a total debt of ₹1,664 Crore, and given the current profit margins, this poses a significant concern. While the debt-to-equity ratio stands at a seemingly manageable 0.4, it's crucial to highlight that the company's equity hasn't expanded due to accrued profits or reserves but rather through the issuance of compulsory convertible Preference Shares (CCPS). With a cash reserve of ₹1,140 Crore and current mutual fund investments totalling ₹242 Crore, the adjusted net debt is ₹282.1 Crore. 
• The company does not own the trademark for the brand name 'Ola' 
• Runway of less than 12 months: The company incurs a monthly burn of approximately ₹108 Crore, comprising ₹34 Crore in fixed costs and ₹74 Crore in variable costs linked to vehicle sales. Assuming a continued sales volume of 30,303 units (as of December 2023), the company has a cash runway of 11 months before exhausting its current cash.
  
• Battery Manufacturing: An additional risk noticed is Ola's plan to vertically integrate the EV supply chain and enter into battery manufacturing. However, the availability of raw materials and the success of R&D initiatives are critical aspects to monitor in Ola's battery manufacturing venture. ​
• Valuation: Based on the most recent funding round, Ola Electric was valued at approximately ₹50,000 Crore, reflecting a revenue multiple of 19x. This valuation significantly exceeds the industry average, which typically ranges from 3x to 5x. The company is considered to be highly overvalued in comparison to industry standards.

Conclusion: The industry as a whole encountered difficulties following the reduction of the FAME subsidy in June 2023. Nevertheless, Ola Electric has showcased remarkable performance, not only sustaining but also expanding its market share. In contrast, all other players witnessed a decline in their market shares over the past three months (Oct 23, Nov 23, Dec 23), except for Ola Electric. The company is gearing up to launch a new model, the Ola S1X, anticipated to be priced at ₹90,000. This offering aims to capture a significant untapped market segment of customers seeking purchases below ₹1 Lakh. Considering the potential for vertical integration and a strong emphasis on research and development, the company appears to be a promising investment, especially within the price range of ₹40 to ₹70 per share.