Ola Electric’s soaring share price leaves analysts and investors puzzled

Stock gains 92% from its issue price of Rs76

MUMBAI: The dramatic rise in Ola Electric’s share price has left analysts and investors both surprised and intrigued.

Despite the remarkable increase, experts recommend holding onto the stock as it appears to be driven by momentum.

Since its listing on August 9, Ola Electric’s stock has soared by 92 per cent (as of August 19) from its issue price of Rs76, boosting its market capitalization to just over Rs63,000 crore.

The initial public offering (IPO) was heavily oversubscribed, with a subscription rate of 4.45 times.

Lukewarm debut on market

An independent market analyst, commented, “It is surprising that, despite the initial pessimism surrounding the IPO and a lukewarm debut, the stock has gained significant momentum. The fundamentals haven’t changed much in the past two weeks, so the reason for this sharp increase is unclear. However, traders and investors may chase this momentum but should use strict stop-losses.”

On August 19, Ola Electric’s share price hit the 10 per cent upper circuit limit, reaching an all-time high of Rs146.03 per share on the BSE. In contrast, the BSE benchmark Sensex closed down by 12 points or 0.02 per cent.

Circuit limit reduced

The circuit limit for Ola Electric was reduced from 20 per cent to 10 per cent on August 16, following an extraordinary rally in just five sessions. A prominent EV market analyst attributes the recent buying frenzy to substantial liquidity flows and institutional investors increasing their exposure to new stocks.

The analyst noted, “The stock’s current valuations seem to reflect most developments and appear somewhat stretched. Investors who acquired shares at the IPO price might consider booking partial profits and potentially re-entering at a lower price.”

According to Ola Electric’s Red Herring Prospectus (RHP), approximately 17 per cent of the stock is freely traded, while 82.74 per cent remains locked in.

Despite the recent rally, analysts continue to scrutinize the stock’s fundamentals.

Loss-making company

As a loss-making company with high valuations, any broad market correction could lead to a more significant decline in Ola Electric’s stock price.

“The stock may still find support and rebound if the market corrects by up to 5 per cent. However, if there is a sharp market correction, the reaction of momentum investors could be crucial, as confidence in fundamentals plays a key role in liquidity,” cautions Baliga.

Financially, Ola Electric reported a net loss of Rs347 crore for the April-July quarter of the current fiscal year (Q1FY25), compared to an Rs267 crore loss in the same period last year.

Revenue from operations rose by 32.3 per cent year-on-year to Rs1,644 crore, with the automotive segment’s EBITDA margin improving to -1.97 per cent, up 632 basis points year-on-year.

Pre-IPO evaluations indicated that the company sought an EV/Sales multiple of 6.3x at the issue price of Rs76, which was a significant premium compared to the peer average of 3.1x.

Global brokerage HSBC highlights that Ola Electric’s future growth may not be as rapid as anticipated.

May face challenges in market

The company has projected electric two-wheeler (e2W) penetration of 41-56 per cent by FY28, while HSBC forecasts only 20 per cent by FY28 and 30 per cent by FY30.

Additionally, Ola Electric may face challenges in gaining market share as competitors become more aggressive, regulatory support could diminish, and entering the battery manufacturing sector poses risks related to quality and yield.

Despite exceeding HSBC’s target price of Rs140, Ola Electric has reported its highest-ever vehicle deliveries of 125,198 units in Q1FY25, up from 70,575 units in the same period last year.

“Although the e2W segment is expected to grow significantly and Ola Electric’s control over battery components is promising, most positives seem to be already factored into the stock price. Nevertheless, there might still be some momentum left as institutions continue to invest in this emerging industry,” says the head of a stock market research firm.