SUMMARY
- Tiger Global and Matrix Partners are set to make almost 6.5X and 9.2X returns respectively on their initial investments in Ola Electric with the two-wheeler EV giant’s public listing on Friday, August 9.
- The EV maker will undertake an equity raise of almost Rs 6,156.6 crore at the upper end of the price band, i.e, Rs 76 per equity share.
- Ola Electric is valuing itself at $4 billion when it goes public while being subscribed relatively low compared to the IPO response other businesses have received with an overall subscription ratio of 4.27X.
With Ola Electric’s awaited public offering on Friday, August 9, Tiger Global and Matrix Partners, the two leading global investors who invested initially in Bhavish Aggarwal’s business, are set to make almost 6.5X and 9.2X returns respectively.
Matrix Partners (rebranded as Z47) invested in the company at a weighted average price of Rs 8.21 per equity share through Matrix Partners India Investment III LLC with 12.66 crore of the total shares of the company. During the IPO where the fund is participating in the offer-for-sale (OFS) term, the fund is selling 37.27 lakh shares worth Rs 28.33 crore, earning it 9.2X returns.
While analyzing the ownership it is crucial to recall that the Matrix Partners India III AIF Trust – being an integral part of Matrix Partner – holds 30.2 lakh shares in the EV company. The Ola Electric Mobil IPO also had an OFS share of 8.49 crore apart from a fresh issue of shares worth Rs 5,500 crore.
The price range for each equity share that the business had opted was 72 to 76. The EV maker will undertake an equity raise of almost Rs 6,156.6 crore at the upper end of the price band.
As part of the OFS, Tiger Global will also offload nearly 63.61 lakh shares worth Rs 48.34 crore via its Internet Fund III Pte Ltd. The fund used to buy these Ola Electric shares were Rs 7.44 crore and it would now earn 6.5X upon them.
The EV startup first received funding from Matrix Partners India and Tiger Global in 2019 at $56 million (Rs 400 crore), as such it turned into a unicorn in the same year having SoftBank invest $250 million in its Series B round.
Bhavish Aggarwal, the CEO, founder and promoter of Ola Electric, is one of the other selling stockholders in the IPO. By selling 3.79 crore shares, he is set to make Rs 288.15 crore. Following the listing, Aggarwal would still own 135.8 crore of the company’s equity shares. Aggarwal owned a majority 36.94% of the company prior to the offer.
The majority of selling shareholders are content with meagre returns, while a small number are profiting handsomely from the sale of portions of their startup stakes. In fact, some investors are certain to lose money.
SoftBank sold 2.38 crore equity shares of the 81.04 crore shares it held through SVF II Ostrich (DE) LLC. With a 1.5X return, the selling shares were valued at roughly Rs 181.31 crore compared to the Rs 122.55 crore investment made to purchase them. However, by selling shares valued at Rs 28.75 crore, Alpha Wave Venture is expected to receive a 1.22X return on its investment.
The projected returns on investments made by MacRitchie Investments (Temasek) and Ashna Advisors in Ola Electric are 1.01X and 1.07X, respectively. Alpine Opportunity Fund sold the shares for a 31.8% loss, while Tekne Private Ventures is expected to profit 32.8% from its investment in the firm. Shares of Ola Electric were purchased by Tekne and Alpine for a weighted average of Rs 113.12 and Rs 111.51, respectively.
Notably, Ola Electric is valuing itself at $4 billion when it goes public, a significant 25% lower than when it was valued at $5.4 billion at its most recent funding round in September 2023.
Reports have cited that the company had initially eyed an IPO price that could have been slightly over $10 billion, a price range that was considered to be unachievable. Ola Electric recently considered a $7 billion valuation which is a huge downgrade from the current one as well.
Ola Electric has priced its public offering ‘attractively’, as founder Bhavish Aggarwal said in the company’s IPO meeting last week, in order to get the investor community of the country on board, as this company which has massive opportunities to expand, has reportedly cut its valuation to placate its investors.
Qualified Institutional Buyers (QIBs) exhibited a lot of interest in buying Ola Electric’s public issue. The quota for retail investors was received with 3.92X subscription while the portion for Qualified Institutional Buyers was subscribed 5.31X.
The portion of Non Institutional Investors (NIIs) was subscribed 2.4X. Thus, making it relatively low compared to the IPO response other businesses have received soon after listing on the exchanges, having the overall subscription ratio of 4.27X. Such examples include travel tech giant ixigo being oversubscribed with 98.34X, coworking company Awfis receiving 11.4X subscription, and Go Digit insurtech unicorn being oversubscribed 9.6X.
Prashanth Tapse, senior VP (research) at Mehta Equities, noted that the “much-hyped” IPO had less demand than the Street anticipated. He added that it’s possible that shares of Ola Electric list at the issue price or at a discount of 5–10%. “Discounted listing would be warranted due to the company’s poor financial performance and the possibility of both past and future negative net cash flows.”
According to Tapse, allocated investors need to be aware of the possibility of both past and future negative net cash flows, which could have a negative effect on the company’s consolidated financial situation after listing. Tapse stated, “Considering all the factors, we advise only risk-taking investors to continue to hold with a minimum holding period of two-three years.”
“The long-term story is intact but we may see a lot of ups and downs in the short term,” he further added.
While the public market is not ready to invest its money in loss-making companies, Ola Electric is gearing up for a listing with major operational losses and no sign of when they will be able to return to profitability.
Many issues, such as changing legislation that affects the availability of subsidies for the company’s e-scooters, the changing preferences of consumers, and increasing investment, are still relevant.
While Ola electric stock price may not go too high due to policy uncertainty and the risk of getting a penalty for delaying EV cell facility construction, InCred Equities has claimed that it has positive outlook for the IPO. Overall, LKP Securities gave ‘subscription’ rating to the public offering from a long-term perspective.
