Foreign brokerage HSBC has initiated coverage on Ola Electric Mobility with a 'buy' rating and a target price of Rs 140. The target implies a potential upside of 5.5 per cent in the recently listed stock, as of August 16. The costs involved in manufacturing electric vehicles are set to fall significantly by FY27/28, while those for internal combustion engine (ICE)-powered scooters may go up due to emission standards, according to the brokerage. 

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HSBC also expects Ola's battery venture to be a success, and believes the stock is worth investing given the available sustained regulatory support to the segment.

"Ola’s go-to market and localisation efforts are noteworthy and should attract investors looking to play the electrification theme in India. Admittedly, there are many concerns too – first among those is EV penetration remains slow and gradual. Competition also looks set to remain intense, especially from incumbents, while the outlook for regulatory support is uncertain and there are battery manufacturing risks," analysts at HSBC wrote in a research report dated August 15. 

HSBC expects a positive risk reward in Ola Electric Mobility citing three reasons: 

  • EV manufacturing costs to fall significantly: Existing regulatory support is likely to stay for 2-3 years, and by then, the cost to manufacture (BOM) an e2W 
    may come down by Rs 30,000-40,000 to Rs 70,000-75,000, according to the brokerage. "This would make EVs competitive with traditional internal combustion engine (ICE) scooters even without subsidies which we assume will fall from INR40K to INR10K over the same period," it said
  • Barriers to electric two-wheelers switching may fall: Customers, in time, will overcome their "inhibitions around range-anxiety", charging infrastructure, and the re-sale value, according to the brokerage. A focus on sales by states provides confidence for this view, it noted.
  • Battery venture may be a success: The success of the company's battery business can enable it to "at least make batteries at the same price of imported batteries", according to HSBC, which believes that Ola will be "able to manufacture batteries at a global quality and yield level that cost around $15-20 lower per KWH" in a blue-sky scenario.  

HSBC analysts value Ola Electric Mobility shares at a price-to-sales multiple of 2.8 times and at an EV-to-EBITDA multiple of 39 times the FY28 estimates. 

The brokerage sees multiple headwinds to the business as a key risk to upside. 

Newly-listed Ola Electric Mobility shares

Ola Electric Mobility shares finished their first day in the listed space at a premium of 20 per cent over the upper end of their IPO's price range, after a lukewarm debut, and have since moved within a range of Rs 95.3-132.8 in intraday trade.

The company has announced a foray into the electric motorcycle segment, with the launch of three models and two more in the pipeline. 

Last week, Ola Electric Mobility reported its financial results for the quarter ended June 30, with a 32.3 per cent jump in revenue to Rs 1,644 crore on a year-on-year basis. It registered a net loss of Rs 347 crore for the first quarter of the current financial year, as against a net loss of Rs 267 crore for the corresponding period a year ago, according to a regulatory filing. 

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