Ola down round will worry India's IPO hopefuls

Fsn E-Commerce Ventures

30/07/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Shritama Bose
       MUMBAI, July 30(Reuters Breakingviews) - Indian equities
are trading at eye-popping premiums, but a bit of caution is
creeping into one corner of the market. SoftBank-backed  9984.T 
e-scooter maker Ola Electric on Monday launched its initial
public offering, seeking a valuation of up to $4 billion. That's
a quarter lower than its previous funding round in September, a
sign that investor patience for unprofitable tech stars is
running thin. It sends a warning to other upstarts eyeing a
stock market debut.
It took Ola just three years to become the largest manufacturer
of battery-run scooters in the world’s second-biggest market for
two-wheelers, accounting for more than a third of sales during
the year to the end of March. And its share is still growing.
    It helps that the company founded by Bhavish Aggarwal has
benefitted from New Delhi’s production-linked subsidies for
making electric vehicles and the cells to fuel them. It expects
to power its bikes with its own lithium batteries, starting next
year. 
Such stellar growth is appealing. Fidelity and Nomura are likely
to be anchor investors, Reuters reported on Monday, citing
unnamed sources with direct knowledge. Yet, the insistence on a
down-round signals they want Ola’s valuation to hew closer to
those of its listed competitors. 
At the top end of its IPO price band, Ola’s enterprise value
works out to $4.3 billion after accounting for outstanding debt
and lease liabilities worth $325 million, according to
Breakingviews calculations based on the company’s prospectus.
That implies a multiple of 7 times its $600 million revenue for
2023 to 2024, higher than closest rival TVS Motor’s  TVSM.NS 
4.5 times and Bajaj Auto’s  BAJA.NS  6 times. Both firms
currently sell more gas guzzlers than EVs.    
Profitability is front of mind for investors singed by the
post-listing performance of India’s former tech poster children.
Beauty retailer Nykaa’s parent FSN E-commerce  FSNE.NS  is
trading at one-sixth its 2021 IPO price and Paytm owner One97
Communications’ PAYT.NS  losses are widening after regulators
ordered its banking unit to wind down.
    Aggarwal is betting on sales growth to drive margin gains.
Using its own cells may also help Ola cut spending on a
component constituting one-third of the overall cost of making
an e-scooter, he said on Monday. 
    Investors are less willing to pay upfront for those gains.
That’s a message for food delivery giant Swiggy, which has filed
confidentially for a $1.3 billion float and whose bigger rival
Zomato  ZOMT.NS  turned profitable in the last financial year.
    Scale is still a big selling point in India, but it’s no
longer an adequate one.
Follow @ShritamaBose on X
     
    CONTEXT NEWS
SoftBank-backed Indian e-scooter maker Ola Electric will offer
shares in a price band of 72-76 rupees ($0.86-$0.91) in its
initial public offering, which will open on Aug. 2, the company
said on July 29.  
    The offer is set to draw investor bids from Fidelity, Nomura
and Norway's Norges Bank, as well as several Indian mutual
funds, Reuters reported separately on the same day, citing two
sources with direct knowledge.
     

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Graphic: Ola bags a multiple higher than peers    https://reut.rs/3yubFBn
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 (Editing by Antony Currie and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  BOSE/ mailto:shritama.bose@thomsonreuters.com))