Ola Electric share price rise: Madness beyond fundamentals, say analysts

Ola Electric share price strategy: The meteoric rise of Ola Electric share price has left analysts and investors bewildered.

Yet, they suggest investors hold on to the stock as it remains a pure "momentum" play.

Since its listing on August 9, the stock has surged 92 per cent (till August 19) over its issue price of Rs 76, taking its market capitalisation to a little over Rs 63,000 crore.

The issue was subscribed 4.45 times.

"It is surprising that despite the pessimism during the IPO and a tepid listing, the stock has managed to move sharply and has gathered good momentum.

"The fundamentals haven't changed in the last fortnight, so the logic for such a sharp run up is hard to find.

"As a strategy, however, traders or investors can chase the momentum but with strict stop-losses," Ambareesh Baliga, an independent market analyst.

On Monday, August 19, Ola Electric share price hit 10 per cent upper circuit to notch an all-time high of Rs 146.03 per share on the BSE.

By comparison, the BSE benchmark, Sensex, ended 12 points (0.02 per cent) lower.

Ola Electric's circuit limit was revised downwards from 20 per cent to 10 per cent last Friday (August 16) after a spectacular rally in mere five sessions.

What's fueling the rally?

A large part of buying in Ola Electric stock in the last few sessions, according to Deven Choksey, managing director at DRChoksey FinServ, is attributable to massive liquidity flows in the markets and institutions adding exposure to new stocks on the block.

"The stock's current valuations seem to be factoring in most of the developments and they appear slightly stretched in our view.

"Investors, who bought the shares at IPO price, may book partial profit and enter at a lower price later," he said.

According to Ola Electric's Red Herring Prospectus (RHP), the stock has a free-float of around 17 per cent, whereas 82.74 per cent outstanding is locked-in.

That said, analysts believe the stock's fundamentals remain under the scanner as the company is a loss-making entity with expensive valuations.

Thus, while any correction seems unlikely for now due to supportive market sentiment, any reversal in the broad market trend may trigger a sharper selling in the stock.

"The stock can still find support and manage to bounce back in case the markets correct, say up to 5 per cent.

"One, however, needs to see how these momentum seekers react if there is a sharp correction in the market, since confidence (in fundamentals) is the key to liquidity." Baliga cautions.

Financially, Ola Electric Mobility reported a net loss of Rs 347 crore in the April-July quarter of the current financial year (Q1FY25) as compared to Rs 267 crore net loss reported in Q1FY24.

Revenue from operations, however, increased 32.3 per cent year-on-year (Y-o-Y) to Rs 1,644 crore with the automotive segment Ebitda margin at -1.97 per cent, up 632 basis points Y-o-Y.

Notably, pre-IPO notes by brokerages said the company demanded an EV/Sales multiple of 6.3x at the issue price of Rs 76, which was a significant premium to the peer average of 3.1x.

Ola's growth outlook

Global brokerage HSBC points out that Ola Electric's future growth will unlikely be linear as the rate of electric vehicle (EV) penetration may be a lot more gradual than what the company expects.

"The company said it expected electric two-wheeler (e2W) penetration to reach 41-56 per cent in the financial year 2027-28 (FY28), while we expect it to be just 20 per cent by FY28 and 30 per cent by FY30," the brokerage said in a recent note.

That apart, Ola Electric, HSBC said, may not gain market share as incumbents are now equally aggressive; regulatory support via subsidies may decline eventually; and a foray into battery manufacturing may be risky as a failure to compete with global players on quality and yield may impact its competitive positioning and balance sheet strength.

The stock has already surpassed the brokerage's target price of Rs 140.

Ola Electric also witnessed the highest-ever vehicle deliveries at 1,25,198 units in Q1FY25 against 70,575 units delivered in the same period last year.

"Despite a unanimous belief that the e2W segment is set to grow multifold, coupled with Ola's promise to gain in-house control on the battery component, most positives seem to be aggressively priced-in.

"Nonetheless, there could be some steam left in the stock in terms of momentum, as more institutions stock up on the shares to bulk their exposure to the sunrise industry," said Nirav Karkera, head of research, Fisdom.