Ola garners only 35% IPO subscription on first day

• Retail portion of the IPO was subscribed 1.57 times, the non-institutional investor category saw a tepid 20% subscription, and qualified institutional bidders (QIBs) showed little interest.
• The current market sentiment is cautious due to global economic uncertainties and rising interest rates.

Ola Electric Mobility, the leading electric two-wheeler company in India, has encountered a muted response from investors in its initial public offering (IPO).

The Rs6,145 crore issue, the largest since LIC’s IPO in May 2022, has garnered only 35 per cent subscription on the first day, indicating a degree of investor hesitancy despite the company’s ambitious growth plans.

The IPO, open for subscription from August 2nd to August 6th, comprises a fresh issue of equity shares worth Rs5,500 crore and an offer for sale (OFS) of 8.49 crore equity shares worth Rs645.56 crore by promoters and investors.

This includes a significant 3.8 crore share sell-off by Ola Electric founder Bhavish Aggarwal. While the retail portion of the IPO was subscribed 1.57 times, the non-institutional investor category saw a tepid 20 per cent subscription, and qualified institutional bidders (QIBs) showed little interest.

Subdued response

The subdued response, despite the company’s strong brand recognition and the promise of growth in the electric vehicle market, can be attributed to several factors. The current market sentiment is cautious due to global economic uncertainties and rising interest rates.

Additionally, concerns over Ola’s profitability and its dependence on subsidies for growth have likely contributed to investor hesitancy.

While the company aims to utilise the proceeds for capacity expansion, research and development, and debt repayment, these plans are not yet translating into demonstrable financial stability, prompting investors to exercise caution.

However, the IPO’s success hinges on attracting substantial participation from institutional investors, a segment that has displayed significant disinterest.

Lack of strong bids from QIBs

The lack of strong bids from QIBs underscores the potential for a lower-than-expected final subscription rate. Hyundai Motor Company’s  $99 million investment, representing a 2.95 per cent stake, offers some reassurance regarding the company’s future prospects, but it remains to be seen whether this will be sufficient to sway larger institutional players.

Ola’s IPO is a crucial milestone in the company’s journey, as it seeks to solidify its position as a leader in the nascent electric vehicle market.

However, the initial lukewarm response from investors highlights the importance of building a robust business model that can navigate the challenges of a volatile market.

The company needs to demonstrate a clear path to profitability, reduce its reliance on subsidies, and effectively address investor concerns regarding its financial performance.

The next few days will be critical for Ola Electric Mobility as it seeks to attract enough subscriptions to ensure a successful IPO.

The company’s ability to overcome the current investor hesitancy and secure the necessary capital will determine its future trajectory and its ability to capitalise on the growing potential of the electric vehicle market.