Ola Electric DRHP: Promoter's conflict of interest, mounting losses, soaring attrition among 7 things to watch out for

The IPO comprises a fresh issue  of Rs 5,500 crore and an offer for sale (OFS) of Rs 1,750 crore totalling Rs 7,250 crore. Existing shareholders will sell 95.19 million shares in the OFS.
Ola Electric’s founder Bhavish Aggarwal will be selling 47.3 million shares. The firm’s initial investors — AlphaWave, Alpine, DIG Investment, Matrix, and others will also be selling 47.89 million shares via the OFS

The firm is also looking at a re-IPO placement of shares worth Rs 1,100 crore. If this happens, the size of the fresh issue will be reduced to that extent.

Utilising the funds raised: focus on R&D

The firm says the  monies raised will be utilised for capex, repaying debt, and research and development (R&D). The firm will use around Rs 1,226 crore for capex, and Rs 800 crore to repay debt. It will spend the most, about Rs 1,600 crore, on R&D, and Rs 350 crore on inorganic growth.

The company says that R&D is one of its biggest expenses.

“Our R&D spend in the three-months ended June 30, 2023, and fiscal years 2023, 2022, and 2021 amounted to Rs 93.5 crore, Rs 50.7 crore, Rs 17.5 crore, and Rs 43.6 crore, respectively, which was 7.32 percent, 18.25 percent, 38.54 percent, and 41.11 percent of our total income for the respective periods,” the firm said in its DRHP.

As of October 31, 2023, around 974 on and off-roll employees were engaged in its R&D activities, including scientists and engineers, of which 60 were Ph D holders.

Standout internal risk factors

While the company has said that investment in R&D is a priority for its growth, there is no assured returns on such investments.

“We have heavily invested in and plan to continue investing in R&D and technology, including developing our cell manufacturing capabilities through Ola's battery innovation centre, However, there is no assurance that we will realise returns on such investments,” it said, highlighting  it as one of the internal risks affecting business continuity.

The DRHP lists various risk factors, including internal and external risks, and risks related to the IPO that could materially affect the company’s operations and even continuity in the long run.

One of the risks is the reduction or elimination of the Faster Adoption and Manufacturing of Electric Vehicles (FAME) subsidy.

“Any reduction or elimination of government incentives such as the FAME subsidy, benefits under the production linked incentive (PLI) scheme for the automobile and auto component industry, the PLI scheme for the National Programme on Advanced Chemistry Cell Battery Storage, goods and services tax concessions available to our customers, or the ineligibility of any of our electric vehicles for such subsidies would increase the purchase cost of our electric vehicles and could adversely affect customer demand for our electric vehicles,” the statement said.

In fact, the government had reduced the FAME subsidy for electric two-wheelers from 40  to 15 percent in  May 2023 . The DRHP said that this had resulted in a price hike.

“As a result of the reduced subsidy, our customers faced an increase in the retail price of our EV scooters, of ₹22,784 for the Ola S1, and ₹37,106 for the Ola S1 Pro. We experienced a 58.14 percent decline in orders in June 2023 compared to May 2023,” the DRHP said.

Another internal risk was the firm’s promoter and chairman Bhavish Aggarwal’s focus on multiple other businesses.

“We are highly dependent on the services and reputation of Bhavish Aggarwal, our Founder, Chairman and Managing Director, who has significant influence on our business. He is also the Chairman and Managing Director of ANI Technologies Private Limited, and has recently founded a startup, Krutrim SI Designs Private Limited. His involvement with ANI Technologies and Krutrim SI Designs may detract from the time that he is able to dedicate to our company,” the statement highlighted.

Aggarwal is also a shareholder of Tork Motors Private Limited, which is in the same line of business as Ola Electric. The DRHP said that there may thus be a conflict of interest, and the resolution of such conflict  may have an adverse effect on its business.

The firm also mentioned the shortage of technical talent, and added that it requires adequate talent in areas such as software development.

“Our employee attrition rate was 42.06  and 47.48 percent in the seven-month period ended October 31, 2023 (annualised) and fiscal 2022-23, respectively,” the firm said.

Talking of profitability risks, the firm said that expansion in Indian and international markets may mean that it continues to report operating losses.

“We may continue to incur operating losses in the near term as we invest in our business and expand our product portfolio, build capacity, and scale our operations,” the DRHP said.

Board members and their remuneration 

Per the DRHP, the board comprises six Directors, including one Executive Director, two Non-Executive Directors, and three Independent Directors (including one woman Director).

Aggarwal will be the Chairman and Managing Director. The firm’s Non-Executive Directors include Krishnamurthy Venugopala Tenneti  and Arun Sarin, who are both on the board of ANI Technologies. Sarin is also on the board  of  other firms like Accenture.

The company has appointed former Airtel CEO Manoj Kohli, Mensa Brands founder Anant Sankaranarayana, and YourStory Media’s founder Shradha Sharma as its Independent Directors.

In a pre-IPO rejig, the firm appointed Harish Abhichandani as the Chief Financial Officer (CFO) of Ola Electric. Anshul Khandelwal continues to be the Chief Marketing Officer (CMO), N Balachandar is the Chief People Officer (CPO), Suvonil Chatterjee is the company’s Chief Technology Officer (CTO), and Shaun William Calvert is the Chief Operating Officer (COO).

Aggarwal, will be receiving a base salary of Rs 6 crore per annum, with a variable pay of Rs 3 crore per annum. The remuneration of Non-Executive and Independent Directors will be Rs 0.5 crore per annum, along with a sitting fee of Rs 1 lakh.

Per meeting sitting fees are paid to directors for attending board meetings, and meetings of board committees.

Pending litigation 

The f Enforcement Directorate has issued summons to Aggarwal under section 50 of the Prevention of Money Laundering Act, 2002. The section grants the Directorate the power to ask for documents.

The summons relate to a complaint filed by a firm called Lahari Recording Company against ANI Technologies’ Promoter Aggarwal and Ankit Bhati (co-founder of Ola who has left the firm to start his own venture).

Per the DRHP, The  complaint  accuses the firm of copyright infringement as it  plays music on ‘Ola Play’ devices in its taxis without a valid licence. However, pursuant to a settlement agreement dated August 20, 2022, between the complainant, Aggarwal,  and ANI Technologies, the parties have settled the matter.

The ED was seeking certain information and documents pertaining to the copyright licence obtained by ANI Technologies from entities who had acquired rights for downloading and displaying film songs, and details of the settlement with Lahari.

“Our promoter is currently in the process of providing the information sought by the Directorate, in accordance with the timelines prescribed therein,” the DRHP said.

As of December 2023, Ola Electric has around 189 pending legal proceedings before various consumer dispute redressal commissions, amounting to a total claim of Rs 4 crore.

These cases are regarding non-delivery of vehicles after full payment; cancellation of the purchase order and loan application without the customer’s consent; delivery of vehicles that are defective or unable to meet advertised standards;  improper servicing of vehicles; display of erroneous charge levels, and break-down of scooters.

Key financial metrics: losses mount

Ola Electric has reported consolidated revenues of Rs 2,782 crore, up nearly 510 percent, in the financial year ended March 2023,  even as its net loss widened to Rs 1,472 crore due to increased  expenses.

For Q1 2023-24, Ola Electric has reported a total income of Rs 1,272 crore, and  losses of  Rs 267 crore. The company had a net worth of Rs 2,111 crore as of June 30, 2023.

The company’s operating losses stood at Rs 1,197 crore in FY22-23, as against Rs 715 crore in FY21-22.
The company’s employee benefits expenses increased to Rs 426.7 crore in FY22-23, from Rs 282.4 crore in FY21-22 due to an increase in the size of the workforce and the salaries paid to employees, in addition to ESOPs (employee stock options) granted to certain employees, the DRHP said.  The firm has more than 3,000 employees at present.

As of June 30, 2023, Ola Electric had Rs 231.7 crore in cash and cash equivalents, and Rs 908.4 crore as bank balances. The firm also had total borrowings of Rs 1,616 crore, comprising both non-current and current borrowings (borrowings that are due after / before 12 months) These loans were primarily used for setting up manufacturing facilities and to meet working capital requirements

Growth roadmap: EV hub and gigafactory

The company is working on building its cell manufacturing gigafactory. In fact, part of the  funds raised via the IPO is meant for expansion of the gigafactory.

“We are constructing the Ola gigafactory for cell manufacturing in Krishnagiri district in Tamil Nadu. Phase I of the factory is expected to be operational by March 31, 2024, at which time it will have a production capacity of 1.4 GWh. We expect to complete phase 1 (b)  and expand the production capacity to 5 GWh by October 2024.

``The firm is also building an EV hub in Tamil Nadu, comprising our Ola Future Factory for EV manufacturing, the upcoming  gigafactory,  and co-located suppliers,’’ the DRHP stated.

Suppliers are integral for the EV maker to ensure just-in-time manufacturing and control over its supply chain.

“Three of our direct and indirect suppliers are co-located in our EV hub in Krishnagiri district, and we are in discussions with others to co-locate in our hub,” the firm added.

Ola Electric has said that it will start deliveries of its Ola S1 X e-scooter (3 kWh) by the first half of fiscal 2024-25, and the new motorcycle models unveiled this year will be available in the first half of fiscal 2025-26.