Top Stocks Poised to Gain from Ola and Ather Electric IPOs: An Investor's Guide

Potential Winners in the Wake of Ather and Ola Electric IPOs

The landscape of India's electric vehicle (EV) market is evolving rapidly. Ola Electric's groundbreaking move to launch an initial public offering (IPO) has set the stage for significant changes in the industry. Following its draft red herring prospectus (DRHP) submission on December 22, 2023, Ola Electric received approval from the Securities and Exchange Board of India (SEBI) on June 20, 2024. This IPO, set to include a fresh issuance of equity shares worth up to Rs 55 billion and an offer for sale of 95.2 million shares by promoters and investors, marks a historic milestone for India's EV sector.

Similarly, Ather Energy is also gearing up for its IPO, having already secured banking partners for the process. Ather ranks among India's top four electric scooter manufacturers, alongside Ola Electric, TVS, and Bajaj Auto, as of April 2024. The successful IPOs of these companies are expected to significantly boost investor confidence in the EV market, fostering further innovation and competition and aiding India’s transition towards an eco-friendly economy.

Investors should consider these four stocks, which are likely to benefit indirectly from the IPOs of Ola Electric and Ather Energy.

1. Hero MotoCorp

Hero MotoCorp, a pioneer in India's motorcycle industry since its inception in 1984 in collaboration with Honda, is the world's largest manufacturer of two-wheelers in terms of unit volumes sold annually for over two decades. The company offers renowned brands such as Splendor, Passion, and Glamour in the motorcycle segment, and Pleasure and Maestro in the scooter segment.

Hero MotoCorp's foray into the electric scooter market with the Vida brand, offering a real-world range of 110 km per charge, underscores its commitment to the EV revolution. With a robust network spanning over 100 cities, featuring 850+ stations and 2,000+ charging points, Hero boasts the largest charging infrastructure for two-wheelers in India.

Hero MotoCorp holds a 39.7% stake in Ather Energy and recently increased its stake by an additional 2.2% for Rs 1.3 billion, valuing Ather at approximately Rs 56.4 billion. Consequently, Hero MotoCorp's stake in Ather now stands at Rs 22.4 billion, against its own market capitalization of Rs 1.1 trillion, positioning it to benefit significantly from Ather’s public listing.

2. Sona BLW Precision Forgings

Sona BLW Precision Forgings, an automotive technology company based in India, is a notable supplier to both Ola Electric and Hero Electric. The company specializes in mechanical and electrical hardware systems, components, and software solutions for automotive applications, including differential assemblies, gears, motors, and EV traction motors.

Approximately 28% of Sona BLW's revenue is derived from the battery electric vehicle segment, with an impressive portfolio of 53 EV programs across 30 customers. As of FY24, its order book stood at Rs 226 billion, with 79% attributed to the EV segment. Key clients include industry leaders like Ashok Leyland, Daimler, Mahindra & Mahindra, Volvo, and Ola Electric.

In FY24, Sona BLW secured a significant order worth Rs 3.5 billion for integrated motor controllers from a new customer in the electric two-wheeler space, further solidifying its position in the market.

3. Fiem Industries

Fiem Industries has established itself as a leading supplier of automotive lighting and signaling equipment, notably becoming the exclusive provider of headlamps, tail lamps, indicators, rear fender assemblies, and mirrors to Ola Electric in 2022. The company’s market share in the two-wheeler lighting segment is substantial, and it was among the first in India to introduce LED lights for two-wheelers.

Generating around 96.7% of its revenue from the two-wheeler category, with motorcycles accounting for 70% and scooters 30%, Fiem Industries serves 28 EV original equipment manufacturers (OEMs), including Ola Electric, Hero Electric, and TVS Motors. The company's early entry into the EV market and strong partnerships position it well to capitalize on the sector's growth.

4. Minda Corporation

Minda Corporation, part of the Spark Minda group, is a prominent manufacturer of automotive components, catering to various EV customers, including Ola Electric and Ather Energy. It commands a strong market presence in two-wheeler lock sets, wiring harnesses, and other components, holding a market share of around 40%.

Recognizing the shift towards electric mobility, Minda Corporation has expanded its product offerings to include DC-DC converters, battery chargers, HV wiring harnesses, and EV telematics. The company’s EV clientele includes 22 Motors, Ampere, Hero Electric, Revolt, Vinfast, and Sun Mobility.

By FY24, Minda Corporation's total order book was valued at Rs 100 billion, with 30% stemming from the EV segment. The company aims to increase its EV kit value per vehicle significantly, enhancing its revenue prospects as the market evolves.

In Conclusion, The amendments to the FAME-II scheme, effective June 1, 2023, have provided additional incentives for electric two-wheelers, further accelerating EV adoption in India. The government aims for EVs to constitute 30% of private cars, 70% of commercial vehicles, and 80% of two- and three-wheelers by 2030.

Despite the promising outlook, several challenges remain, including high upfront costs, limited model availability, inadequate charging infrastructure, long charging times, safety concerns, and regulatory uncertainties. Investors should weigh these challenges carefully before investing in the stocks mentioned.

Nonetheless, the IPOs of Ola Electric and Ather Energy signify a transformative period for India's EV sector, offering substantial opportunities for investors poised to capitalize on the industry's growth.