Ola Electric’s IPO: A Mixed Bag of Fortunes for Pre-IPO Investors

The upcoming Initial Public Offering (IPO) of Ola Electric is causing a stir among its pre-IPO investors. Uncharacteristically, the price band for the public issue has been set lower than the average acquisition price for several of these investors, potentially leading to significant losses. This is a rare situation for tech IPOs in recent years, which have generally seen robust post-listing performance. While early investors like Tiger Global and Matrix Partners stand to make substantial gains, others are facing potential downturns.

The Price Band and Its Implications

Ola Electric, under the leadership of Bhavish Aggarwal, has established a price band of Rs 72-76 per share for its IPO. This has diverse implications for different pre-IPO investors. Some of these investors, such as Alpine Opportunity Fund VI LP and Tekne Private Ventures XV Ltd, who bought their shares at an average price of Rs 111.51 and Rs 113.12 respectively, are likely to incur losses exceeding 30% based on the upper price band of Rs 76 per share.

To illustrate, Alpine Opportunity Fund’s 21.42 million shares, valued at Rs 238 crore at their acquisition price, would drop to Rs 163 crore at the IPO’s upper price band. Similarly, Tekne Private Ventures XV’s 36.32 million shares, initially worth Rs 410 crore, would decrease to Rs 276 crore. Both funds plan to sell a portion of their stakes through the Offer for Sale (OFS).

Flat Returns and Moderate Gains

For some investors, the returns will be flat or marginal. MacRitchie Investments Pte, backed by Temasek, purchased shares at an average price of Rs 75.11. This investment is projected to break even, given the current price band. MacRitchie holds 46.03 million shares, or a 1.25% stake in the company, valued at Rs 350 crore.

Ashna Advisors LLP, with an average acquisition price of Rs 71.15, holds 6.01 lakh shares, equating to a 0.02% stake. This fund will realize a modest 7% return, valuing its stake at Rs 4.58 crore at the upper price band.

Notable Gains for Strategic Investors

Other investors are positioned for substantial gains. Alpha Wave Ventures II LP and SVF II Ostrich DE LLC (a SoftBank arm) will see returns of approximately 22% and 48%, respectively. Alpha Wave Ventures acquired 128.50 million shares at an average price of Rs 62.38, valued at Rs 976 crore. SoftBank’s SVF II Ostrich DE LLC holds 810.43 million shares, purchased at Rs 51.37 each, with a current valuation of Rs 6,159 crore.

Tiger Global’s Internet Fund III Pte Ltd and Matrix Partners India Investments III are set to achieve extraordinary returns of 550% and 824%, respectively. Tiger Global acquired 222.44 million shares at Rs 11.7 each, now valued at Rs 1,690 crore. Matrix Partners, with an acquisition price of Rs 8.22 per share for 126.62 million shares, sees its stake valued at Rs 962 crore.

Promoter’s Stake and Market Valuation

Bhavish Aggarwal, Ola Electric’s promoter, holds a substantial 1.36 billion shares, representing a 36.94% stake. Based on the price band, this stake is valued at Rs 10,350 crore. According to the Draft Red Herring Prospectus (DRHP), Aggarwal acquired this stake at a negligible cost.

At the upper price band, Ola Electric’s market capitalization is approximately $4 billion. This marks a 25.8% decrease from its $5.4 billion valuation in September 2023, a reduction driven by a global tech valuation correction and Ola’s strategic approach to boost participation in the IPO. This offering comes at a time when Indian stock markets are trading at record highs.

In Conclusion, Ola Electric’s IPO presents a mixed bag of outcomes for its pre-IPO investors. While early backers like Tiger Global and Matrix Partners will reap substantial rewards, others such as Alpine Opportunity Fund and Tekne Private Ventures face significant potential losses. The company’s valuation adjustment reflects broader market trends and strategic decisions aimed at ensuring successful public participation. Investors are advised to consider these dynamics carefully and consult certified experts before making investment decisions.

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