Bhavish Aggarwal set to offload 3.48% stake as part of Ola Electric's IPO

Ola Electric founder Bhavish Aggarwal will sell 47.4 million shares in the SoftBank-backed firm, contributing almost half of the OFS

Bhavish Aggarwal, 38, the founder of Ola Electric, is set to offload 3.48 per cent of shares in an individual capacity (he has 1.36 billion) as part of the e-vehicle maker’s initial public offering (IPO).

Aggarwal will sell around 47.4 million in the SoftBank-backed company, ahead of the firm’s IPO, contributing almost half the offer for sale (OFS) shares, according to the analysis of the 440-page draft red herring prospectus (DRHP).

His pre-IPO shareholding in the company is 36.94 per cent.

This is the first time that Aggarwal, a serial entrepreneur, is taking a company public. The firm is targeting a valuation in the range of $7-8 billion by early 2024, according to industry sources.

The company filed its DRHP on December 22 with the Securities and Exchange Board of India (Sebi). This is a fresh issue of equity shares of up to Rs 5,500 crore and an OFS of more than 95 million equity shares at a face value of Rs 10.

The other selling shareholders include Indus Trust, Alpha Wave Ventures Alpine Opportunity Fund, DIG Investment, Internet Fund III (Tiger Global), MacRitchie Investments, Matrix Partners, SoftBank Vision Fund, and Tekne Private Ventures.

SoftBank is selling 23.8 million equity shares.

The company may consider a pre-IPO placement of equity shares for cash consideration aggregating up to Rs 1,100 crore. If it is undertaken, the fresh issue size will be reduced accordingly.

The firm will utilise the capital raised via IPO for capital expenditure (capex), repayment of debt, and research and development (R&D). Out of the total capital raised, the firm would invest Rs 1,226 crore towards capex and Rs 800 crore for repaying the debt. It would also utilise the net proceeds of Rs 1,600 crore on R&D and Rs 350 crore on organic growth initiatives.

In the DRHP, the company said its R&D spend in the three months ended June 30, 2023, and Fiscals 2023, 2022, and 2021 amounted to Rs 93.5 crore, Rs 507.7 crore, Rs 175.8 crore, and Rs 43.6 crore, respectively, comprising 7.32 per cent, 18.25 per cent, 38.54 per cent, and 41.11 per cent of the total income for such periods.

“We have heavily invested in and plan to continue investing in R&D and technology, including developing our cell manufacturing capabilities through the BIC (Battery Innovation Centre). There is no assurance that we will realise returns on such investments. We had 974 on-roll and off-roll employees engaged in R&D activities, including scientists and engineers, of which 60 are PhD holders as of October 31, 2023,” said Ola Electric in the DRHP.

In the DRHP, the company has identified about 77 risk factors associated with the public offer. 

The company said there is a limited historical basis on which it can make judgments regarding its ability to develop, manufacture, and deliver EVs or their components or future results of operations. This includes the ability to achieve profitability in the future.

The company also said it has incurred losses and negative cash flows from operations. Ola Electric’s net loss doubled to about Rs 1,472 crore in FY23 from Rs 784.1 crore in the previous financial year. “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,” said the company. “We cannot assure you that we will be able to manage costs effectively to sell our products at favourable margins or that our expansion into international markets will prove to be profitable. Failure to become profitable would materially and adversely affect the value of your investment in our company.”

Another risk is the reduction, elimination, non-receipt, or delay in receiving incentives and subsidies from the government. This would reduce the demand for EVs and cause the firm to become less price competitive in comparison to conventional ICE (internal combustion engine) vehicles which are currently lower-priced. This includes any reduction or elimination of government incentives such as the Faster Adoption and Manufacturing of Electric (FAME) subsidy, benefits under the production-linked incentive (PLI) scheme for Automobile and Auto Component Industry (Automobile PLI Scheme), other such schemes include PLI Scheme for National Programme on Advanced Chemistry Cell Battery Storage (Cell PLI Scheme) (together PLI Schemes), subsidies from the government of Tamil Nadu, and goods and services tax concessions available to the customers. Also, the ineligibility of any of the electric vehicles for such subsidy would increase the purchase cost of EVs and could adversely affect customer demand.

The company further said an internal risk for the company arises from the dependence on services and reputation of the company founder and chairman Bhavish Aggarwal and his focus on other businesses. Aggarwal has a significant influence on the company’s business plan. But he is also the chairman and managing director of ANI Technologies Private Limited and has recently founded a new startup, Krutrim SI Designs Private Limited.

“His involvement with ANI Technologies and Krutrim SI Designs Private Limited may detract from the time that he can dedicate to our company,” said the DHRP. “If any of our KMP (key managerial personnel) or senior management joins a competitor or forms a competing company, we may lose customers, know-how, and key professionals and staff members.”

Aggarwal is also a shareholder of Tork Motors Private Limited which is involved in the same line of business as that of Ola Electric. “Any conflict of interest which may occur as a result could adversely affect our business, prospects, results of operations and financial condition,” said the company.

The employee attrition rate was 42.06 per cent and 47.48 per cent in the seven months ended October 31, 2023 (on an annualised basis) and FY23, respectively.

The board has decided to pay a total remuneration of Rs 9 crore per annum, which includes a base salary of Rs 6 crore, to Bhavish Aggarwal. He has been redesignated as chairman and managing director of the company. Also, many board members, including Amit Anchal, Sumer Juneja (SoftBank), Subbu Venkata Rama Behara, Jaime Ardila Gomez and Prabhakar Bapusaheb Patil, resigned in the last few weeks, the company noted.

It has been alleged that the company had mispriced the ex-factory price of its EV scooters, to avail subsidies under the  Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) scheme. For this, the firm has also received a show-cause notice from IFCI (Industrial Finance Corporation of India) in 2023. The subsidy claim was also put on hold until FAME compliance was established. The firm has processed a total refund of Rs 142 crore as of June 2023.

There are pending litigations against the company, promoter, subsidiaries, and certain directors. Any adverse decision in such proceedings may render them liable to penalties and may adversely affect the business, cash flows, and reputation. The Directorate of Enforcement, issued summons, to the promoter under the Prevention of Money Laundering Act (PMLA), which was received on December 2, 2023. It sought certain information and documents about copyright licence obtained by ANI from entities who had copyright ownership for downloading and displaying songs of movies; movable and immovable properties; and details of settlement made with Lahari Recording Company (Lahari) pursuant to FIR registered by Lahari. The Directorate has issued a summons dated December 18, 2023 under PMLA.

The company’s material Subsidiary, Ola Electric Technologies (OET) has availed loans from banks and other financial institutions. These loans are not repayable under any agreed repayment schedule and may be recalled on demand. Failure to repay such loans in a timely manner may have a material adverse effect on the business, results of operation, financial condition, and cash flow of OET.

“We will face risks associated with potential international operations, including unfavourable regulatory, political, currency, tax, and labour conditions, which could harm our business, prospects, financial condition, results of operations, and cash flows.”

The other risk factors include changes in regulations in India, tax laws, and political aspects altering government policies.