Greaves Cotton, which transformed from a diesel engine manufacturer into a comprehensive mobility solutions provider, is set to file the Draft Red Herring Prospectus (DRHP) for its electric mobility division, Greaves Electric Mobility (GEM), next week, most likely on December 23, according to a source. The board, on December 11, had approved the OFS of "certain equity shares" in the proposed IPO.

The Saudi Arabia-based Abdul Latif Jameel, a family-owned business venture, had in 2022 invested $150 million [₹1,160 crore] for a 35.6% stake in Greaves Electric Mobility, making it the company’s second-largest shareholder and valuing the company at ₹3,258 crore.

This move marks a significant milestone for the company as it seeks to unlock value in its growing EV business. However, crucial questions remain unanswered about the structure of the IPO: will it bring fresh capital into the company, or will it largely comprise an offer for sale (OFS) by existing shareholders?

Growth pangs

GEM has demonstrated remarkable growth, becoming a key player in India’s EV market. The company operates in both the electric two-wheeler (e2W) and three-wheeler (e3W) segments, with popular brands like Ampere in its portfolio. Its revenue surged from ₹136 crore in FY20 to ₹1,124 crore in FY23, reflecting its upward trajectory. However, challenges such as the reduction in subsidies under the FAME-II policy have dampened recent performance. Revenue declined to ₹612 crore in FY24, and e2W sales dropped significantly from 108,710 units in FY23 to 47,818 units in FY24. Despite these setbacks, the e3W segment showed resilience with a 97% year-on-year (YoY) increase in sales volume in FY24. In H1 FY25, the company recorded ₹302 crore in revenue but reported a net loss of ₹92 crore, underlining the urgent need for fresh capital to sustain growth and address profitability challenges.

The issue size of Ola Electric, which got listed in August, was ₹6,145.56 crore, which included a fresh issue of 72.37 crore shares aggregating to ₹5,500.00 crore, and an offer for sale of 8.49 crore shares worth ₹645.56 crore.

If GEM’s IPO is entirely an OFS, it means no new funds will flow into the business, limiting its ability to invest in R&D, capacity expansion, and dealer network enhancements. On the other hand, a fresh issuance of shares would provide much-needed capital to fuel growth initiatives and strengthen its competitive position.

OLA's dominance

Greaves Electric Mobility’s IPO comes at a time when the EV market is witnessing fierce competition. OLA Electric, with a market cap of over ₹41,000 crore, has maintained its market leadership with a 33% market share as of September 2024, thanks to aggressive pricing and product innovation. OLA’s share, priced at ₹76, is now trading at ₹93.67, highlighting investor confidence despite the company reporting losses of ₹842 crore on revenues of ₹3,032 crore in H1 FY25.

Greaves Electric Mobility faces the dual challenge of scaling its operations while addressing profitability. Market share erosion—from 12% in FY22 to about 3% currently in combined e2W and e3W segments—raises concerns about its ability to fend off competition, particularly in regions like Tamil Nadu, where rivals have gained ground.

The company has already taken steps to enhance its product portfolio, such as launching the high-performance Nexus scooter, and optimising costs by reducing Bill-of-Material (BOM) expenses by 7%-12% across models in H1 FY25. These initiatives, combined with a robust dealer network and strategic partnerships with financiers, aim to position Greaves Electric Mobility for long-term growth.

Greaves Electric Mobility IPO

Exclusive: Greaves Cotton may file Electric Mobility’s DRHP next week