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Accelerating ahead for next gen-transport system

Olectra Greentech Ltd. (OGL), is a subsidiary of Megha Engineering and Infrastructures Ltd. (MEIL). The company is primarily engaged in the manufacturing of electric buses and composite polymer insulators

• EV adoption in buses is likely to speed up in the current year, and the center announced procurement of 17,000 buses through FAME 2 and PM e-seva service (PPP model).

• OGL currently holds 9,000 electric bus orders from both State and Central contracts. The company is diligently working towards its new Greenfield EV manufacturing facility, which is expected to operational by Q4, with an annual capacity outlay of 5,000 vehicles.

• Q2FY24 revenue grew by 73%YoY (42%QoQ). This was largely driven by superior product mix and better realization per vehicle.

• With the formation of a JV with BYD (Build Your Design) China for electric buses, the company is expanding its product line in the emobility segment with electric truck tippers and Hydrogen bus project.

• We value OGL at 45x FY25E EPS and recommend Accumulate rating, considering capacity expansion & strong earnings growth.

EV adoption in buses likely to speed up

Given the government intention towards electrification of Buses, Niti Aayog has directed Convergence Energy Services Limited (CESL) to solicit bids for the purchase of more than 50,000 electric buses in the upcoming years. The electric vehicle market for buses is significantly higher and 50 thousand are fewer than 10% of the total buses running. The company has bagged some of the biggest order from various STUs in India in the last financial year, which includes, 550 buss from Telangana State Road Transport Corporation (TSTRC), 2100 electric buses from Brihanmumbai Electric Supply and Transport Undertaking (BEST), 5150 electric buses from Maharashtra State Corporation (MSRTC). In addition, OGL is also eyeing PM e-Bus program's tender for 10,000 buses which is likely to open tender by next month, which the Govt. of India has recently announced. Currently, the company holds 27% of the market share in this segment. Q2FY24 revenue grew by 73%YoY (42%QoQ). This was largely driven by superior product mix and better realization per vehicle.

Technological tie-up to hold key for the company

With the formation of a JV with BYD (Build Your Design) China (BYD is the largest EV manufacturer in the world), and after leading in the commercial run of electric buses, the company is expanding its product line in the e-mobility segment for 3- wheeler electric autos and electric truck tippers. Surge in the demand for electric tippers to grow going forward as the success strong in the bus likely to create impetus for E-tucks. The technical partnership between Olectra and Reliance on the Hydrogen Bus project will open the Indian market to a cutting-edge transportation system. The system consists of Type-4 hydrogen cylinders installed on the top of the bus.

Robust capex plan and strong order book

There are a few more tenders in pipeline in which the company has participated in the bidding and is hope to bag more of such orders. OGL currently holds 9,000 electric bus orders with the same to be delivered in the next 12-24 months. As a result, the company is diligently working towards its new Greenfield EV manufacturing facility in Telangana with an initial capacity of 5000 vehicles per year and extendable to 10,000 vehicles per year. This facility is to be operational by Q4FY24. The company already operates 40 electric buses for BEST in Mumbai, in addition to several STUs like Pune, Hyderabad, Goa, Dehradun, Surat, Ahmedabad, Silvassa, and Nagpur.

Valuation & Outlook:

We expect the government intention for carbon free emission and technological capability, coupled with strong association with STUs, to drive future growth for the company. Given the strong order book and capacity expansion and scalability of multiple powertrain. we recommend OGL at 45x FY25E EPS, factoring in strong earnings growth with an anticipation of executing the order book on time. While, delay can poses near term risk to valuation. Hence, we recommend Accumulate rating at CMP.

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