Global brokerage firm HSBC, the first to initiate coverage on Ola Electric Mobility after its listing, has cut the stock’s target price to INR 110 from an earlier INR 140 due to the expectation of a slower-than-expected e2W (electric 2-wheeler) penetration and the ongoing service issues.
The global brokerage, however, has maintained its ‘buy’ rating on the stock.
“Penetration, which seemed to be picking up till September, has stagnated again and continues to hover around 6%. A large share of OLA’s growth forecasts is contingent on the continued rise in penetration,” says the HSBC report.
Since the IPO while the stock initially went up 100% from the IPO price, there has been a series of negative news.
Ola has struggled with quality issues in the past (Gen1 platform), but HSBC stated that it assumed a steep learning curve for the company and a much smoother quality curve.
“Admittedly, the company seems to be trying its best to improve, but there is a limit to which the Auto development cycle can be squeezed,” the report said.
Lastly, the competition has been a lot more aggressive in the past 3 months launching a series of low-cost variants – for instance, Chetak 2903 and iQube 2.2kWh. A significant share of Bajaj and TVS EV sales are now these low-cost variants. This has impacted OLA’s market share as well.
Further, HSBC revisited Ola service stations and noted a few positive changes. The service centers were less chaotic and the vehicle outflow is slightly better than inflow now. The backlog was also down by 20-30% MoM but still 5-7 times higher than it should be.
The number of technicians has also increased in both large and small service stations, but hiring is slower than expected due to shortage of labour with relevant capabilities. Additionally, the E&Y personnel were on the ground for the last 3 weeks helping to optimize the service process.
The company is also expanding its service network and scouting for space for large new service stations.
“Despite the share price fall the stock remains a high risk-reward stock proposition – where the upside is contingent on the success of EV bikes and in-house batteries. EV bikes from Ola are at least 2-3 years ahead of the competition and a successful battery venture will provide Ola with a sustainable competitive advantage,” said Yogesh Aggarwal, Head of Research at HSBC.
Meanwhile, the shares of Ola Electric were trading 2.13% higher at INR 78.97 on the BSE around 10:15 am.
