Will investors greet Ola IPO at lower valuation?

livemint.com:

opens on Fridayat a scaled-down valuation. The initial public offering (IPO) pricing values India’s largest electric scooter maker at $4 billion, about 25% discount to the valuation based on the last private funding round in September. In fact, the valuation is also sharply lower from as much as $7 billion that news reports had said the company’s founder was initially aiming at, but had received investor pushback.

“Cut in IPO valuation to $4 billion eases valuation risk at 6.8 times FY24 sales versus global EV peers at 3-8 times CY23," according to Incred Research Services. This makes Ola’s valuation closer to the higher end of global peer range. That said, investors need to evaluate the drop in valuation in the context of continuing policy uncertainties in the sector and the relative valuation gap with Hero MotoCorp Ltd.

For Ola, policy uncertainty is a key worry. Currently, there is a subsidy of up to Rs10,000 for electric two-wheeler scooter as per EMPS 2024 till September. If the subsidy is not extended, we might again see a sudden drop in sales as was witnessed twice in the past, once in June 2023 and then April onwards.

Also Read: Ola Electric’s IPO: For Bhavish Aggarwal and top employees more riches in store Recall that in May 2023, adjustments were made to the incentives provided under the FAME II programme, reducing them to ₹10,000 per kilowatt-hour (kwh) and capping them at 15% of an electric two-wheeler's ex-factory price (earlier it was: ₹15,000 per kwh with the cap at 40% of ex-showroom price). Ola’s retail sales volume, as per Vahan, in May 2023 were 28,742 vehicles and it took six months to regain this level after sales dropped sharply in June 2023. Ola’s sales peaked in March at 53,320 units as FAME II