Sell Ola Electric Mobility Ltd for the Target Rs 30 by Emkay Global Financial Services Ltd
Ola logged a mixed 1QFY27, with weak topline (down 45% yoy amid a 43% yoy drop in volume and 11% qoq lower ASPs, mainly on an unfavorable mix) but improving margins. Reported gross margin (GM) declined by 816bps qoq to 30.3% amid elevated commodity costs (industry RM costs up 11% qoq; expects commodity pressure to keep margin range-bound for another 1-2 quarters). EBITDAM loss narrowed to -36% (-106% in 4QFY26), aided by lower opex and one-time Rs550mn penalty provision reversal related to the cell business. While Ola’s volume rose 93% qoq to 39.2k units (4QFY26: 20.2k units; down 43% yoy), we maintain a cautious stance wrt to sustainability of this recovery and see volume/share trends as monitorable, given that i) Ola’s E-2W market share rise to 8.3% in 1Q (5% in 4QFY26) is seeing a reversal to ~6.5% in Jul-26TD as incumbents (TVS, Bajaj, HMCL) are ramping up capacities; ii) competition to intensify as Ather’s AURIC plant comes online in 3Q. While Ola is adopting measures to improve execution, cut costs/conserve cash (guides to Rs3bn quarterly opex; Rs3.8bn in Q4FY26), and improve brand perception (servicerelated issues now resolving). We believe this could be a difficult, long-drawnout process, due to greater focus by incumbents + scale-up at Ather. The 13% change in FY27E-28E EPS mainly reflects lower opex/depreciation. We retain SELL/TP of Rs30 at 3.5x EV/S (Auto business) and opt to play the E-2W theme via Ather and TVSL (Yet another mega shift in motion; Ather the frontrunner).
Weak topline; margins under pressure
Revenue fell ~45% yoy, due to decline in volume by 43% yoy and drop in ASPs by 11% qoq. Reported GM declined by 816bps qoq to 30.3%. EBITDAM improved to -36% from -106% in 4QFY26. Net loss stood at Rs3,360mn.
Earnings call KTAs
1) Deliveries rose ~97% qoq to ~39k units; market share moved from 5% in 4QFY26 to 8.3% in 1QFY27 (though this is off a depressed base following the prior reset) and dipped again to ~6.9% in Jul-26. Management did not commit to a specific volume trajectory beyond steady-to-growing.
2) Auto GM upheld at ~30%, but Mgmt flagged that commodity cost pressure will keep margins range-bound for another 1-2 quarters before any improvement.
3) Reduction in EBITDAM loss was aided by a one-time penalty-related provision reversal of Rs550mn; opex is expected to reduce to ~Rs3-3.25bn/quarter.
4) ASP fell sharply qoq; ~90% of this is attributed to product mix; Mgmt expects it to gradually settle at the Rs0.13mn (+/-5%) range .
5) On cells, 6GWh capacity is expected by Sep-26, and scale-up to 20GWh would be via fresh capital only.
6) Only 3 of the 9-10 SKUs currently use 4,680 in-house cells. Ola is facing a production backlog as it stopped production for ~2-3M to expand capacity.
7) Ola is transitioning from a COCO model to a dealer-led distribution one; while dealer confidence in EVs was initially low, it has now changed materially with dealers mow comprehending local nuances well; first set of dealership stores will go live by Sep-26; Management expects meaningful scale-up before the festive season.
8) Cell-side revenue contribution is not expected to show up till 3Q/4Q, implying near-term financials still lean heavily on the legacy auto business.
9) Capex guidance is ~Rs500mn, barring capex for expansion of cell plant capacity.
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