Is the Ola Electric stock ready to break out after Q1 results?

Ola Electric was one of the best-performing stocks last week. After listing, the stock price rallied over 70%.

The company also crossed the market cap of ₹50,000 crore just days after listing.

Investors looking to optimize their returns by investing in EV stocks compared to other financial investment opportunities weren’t disappointed.

One of the major reasons why Ola is gaining traction is because it’s one of the best stocks to ride the EV opportunity.

However, the company is still a loss-making entity and has a long way to go before it becomes profitable.

The stock is expected to remain in focus this week as it has reported Q1 earnings.

Ola Electric Q1 Results

The electric scooter maker on Wednesday reported a 32% jump in revenue for the first quarter of fiscal year 2025.

Revenue came in at ₹1,644 crore, while its net loss widened to ₹350 crore from a loss of ₹270 crore in the year ago period.

The firm's automotive division saw total income jump 34% to ₹1,720 crore, while loss after tax for the segment widened to ₹230 crore.

Ola Electric’s battery division reported an income of ₹5 crore for the quarter, with a loss after tax of ₹37 crore.

During the quarter, it delivered over 1.2 lakh scooters, representing a 77% growth over the previous year. The company recently launched a line of electric motorcycles on 15 August.

What next?

It recently launched a new motorcycle portfolio, targeting premium and mass-market categories. This is expected to provide a boost to the topline in the current quarter.

Ola Electric is planning to improve margins through the introduction of the Gen 2 platform, which has led to reduced manufacturing costs.

As far as its cell manufacturing gigafactory is concerned, the first phase was completed by March 2024 with a capacity of 1.4 GWh, producing over 30,000 cells since then.

It’s now planning to expand capacity by ramping it up to 5 GWh, with additional investments expected from IPO proceeds for further expansion.

On the FAME subsidy, while the government has decreased some benefits, Ola’s management has indicated that the industry is evolving and can sustain growth with reduced subsidies.

Equitymaster's take on Ola Electric

Rahul Shah, co-head of research at Equitymaster, says:

Charlie Munger once commented that both he and Buffett have three file organisers on their desks. They have labelled them 'Yes', 'No' and 'Too hard'.

If anyone sends them a business or a stock to analyse, it goes into one of these organisers. Any guesses where the highest number of companies end up? Well, they end up in the 'Too hard' basket. That's right.

Buffett and Munger know nothing or very little about a large number of companies in the US and hence, they label them 'too hard' straightaway and don't waste a lot of time digging deeper into them.

This way, they can focus their time and attention on the limited number of companies they understand and where they believe they have an edge over others.

Put it another way, they have a very good understanding of their circle of competence and rarely venture outside of the same.

Ola Electric, with its issue price of ₹76 per share, has seen losses for consecutive years.

Losses in one or two years out of the last 10 is something that we can understand. However, if the company is consistently loss-making and has a lot of red ink against its name in the past, then I consider it as outside my circle of competence and toss it away into the 'too hard' pile.

Therefore, when I looked at the P&L statement of the company, I saw losses in all the three years till FY23 and this is something I was not comfortable with.

Ola Electric may have a significant market share and a huge topline as well. But if it is has not figured out how to turn those revenues into profitability as well as cash flows, then it is a big red flag according to me and I tend to give such companies a miss.

Hence, Ola Electric falls into the 'too hard' pile.

Of course, it is quite possible that the stock may turn out to be a great long-term investment. However, this is investing and not Olympics. You don't get any extra points for trying to attempt the more difficult jump.

If the same returns can be had from a simple and easy to understand investment, why go after the more difficult one.

For more on Ola Electric, you can check out Tanushree Banerjee’s editorial where she talks about the implications of Map wars on Ola.

How Ola Electric share has performed recently

Ola Electric floated its IPO at an issue price of ₹76. On day one, 9 August 2024, the stock price ended at ₹91.2.

In the next four days, the stock price rallied and it currently trades at ₹133 per share.

Here’s a table comparing Ola with its peers –

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com