Ola Electric IPO: Here are 10 key risk factors from DRHP investors should know

Ola Electric, the electric two-wheeler company, submitted draft papers to securities regulator SEBI on Friday for an initial public offering (IPO).

Ola Electric's S1 Air e-scooters are pictured inside its manufacturing facility in Pochampalli in the southern state of Tamil Nadu, August 15, 2023.(REUTERS)
Ola Electric’s S1 Air e-scooters are pictured inside its manufacturing facility in Pochampalli in the southern state of Tamil Nadu, August 15, 2023.(REUTERS)

The proposed IPO involves a fresh issue of equity shares amounting to 5,500 crore and an offer for sale (OFS) of 9.52 crore equity shares by promoters and investors, as outlined in the draft red herring prospectus (DRHP).

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Also read: Ola Electric files draft papers with SEBI to raise 5,500 crore via IPO

Prior to considering investment in the Ola Electric IPO, investors should familiarise themselves with comprehensive details about the company, including the risk factors outlined in the DRHP. Here are 10 pivotal risk factors associated with the Ola Electric IPO:

Ola Electric IPO: Key risk factors

• Ola Electric, with a limited operating history, delivered its first electric vehicle scooter in December 2021, facing losses and negative cash flows until June 30, 2023, and fiscal years 2023, 2022, and 2021.

• The firm relies solely on revenue from limited electric vehicle scooter models. If these are not well-received, their business could be adversely affected.

• Possible defects, quality issues, or disruptions in the supply chain could lead to increased material costs, impacting manufacturing and delivery timelines.

• Reduced or eliminated government incentives and subsidies, including those under the FAME subsidy, PLI schemes, subsidies from the government of Tamil Nadu, and GST concessions, could raise the purchase cost of electric vehicles, affecting customer demand.

• Inadequate access to public charging infrastructure may adversely affect electric vehicle demand.

• Potential international operations pose risks from unfavourable regulatory, political, currency, tax, and labour conditions, harming business, prospects, and financial condition.

• Compliance with motor vehicle standards set by the Automotive Research Association of India is crucial; any changes or failure to satisfy these standards could adversely affect business operations.

• The internet-led distribution model differs from traditional showroom distribution of automobiles, making it challenging to evaluate Ola Electric’s business, operating results, and future prospects.

• Ola Electric’s use of lithium-ion cells poses a risk of adverse publicity in case of fires or smoke, potentially harming the brand and overall business.

• Technology is critical to operations and growth. Any failure, including errors, bugs, vulnerabilities, or design defects, could cause delays and harm business operations, reputation, and growth prospects.

According to the draft papers, the funds generated from the fresh issue will be allocated to capital expenditure for the Ola Gigafactory project by the subsidiary, OCT, debt repayment by subsidiary OET, investment in research and product development, expenses related to organic growth initiatives, and general corporate purposes..

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