Ola Electric’s recent IPO has taken the Indian equity market by storm, leaving many investors questioning their decision to pass on the opportunity. The stock’s rapid ascent has provided such staggering returns that those who missed out on applying for the IPO now feel like they’ve missed the golden goose.
A closer examination of Ola Electric’s financials uncovers a more intricate story that demands further scrutiny. In this write-up, we will get into a few financial figures of Ola Electric that may provide a clearer understanding of what is truly happening within the company and whether it is advisable for investors to place excessive trust in Ola Electric at this point.
A Rocketing IPO with Financial Complexities
Ola Electric’s success story on the stock market seems straightforward on the surface: an innovative company with a popular product offering, riding high on the electric vehicle (EV) wave, quickly becoming the darling of investors. However, as the dust settles and the initial excitement wears off, the financials paint a less rosy picture.
The company’s reserves and surplus have seen a concerning decline, deteriorating by more than 100% over the last year. Such a significant reduction raises questions about whether Ola Electric’s recent spending spree was a genuine investment into future growth or merely an attempt to polish its books before the IPO. The latter possibility, if true, would be a red flag for potential investors.
Cash Flow Concerns
Detailed scrutiny reveals troubling trends in Ola Electric’s cash flow. Over the past three years, the company has consistently reported negative net profit/loss before extraordinary items and tax. In March 2024, the company reported a net loss of ₹1,584.40 crore, following losses of ₹1,472.08 crore in March 2023 and ₹784.15 crore in March 2022.
Operational losses have risen from 1,252 crores to 1,267 crores in FY 24. This ongoing trend of losses suggests that the company is facing challenges in achieving profitability, despite its success in the market.
Operating cash flow has also been negative, with the company reporting a cash outflow of ₹633.09 crore in March 2024, compared to ₹1,507.27 crore in March 2023 and ₹884.95 crore in March 2022.
Negative cash flow from operations is a critical metric, as it indicates that the company is spending more money to run its business than it is earning. This is a significant concern for any business, particularly one that has just gone public.
Operating expenses have also risen from 3,883 crore rupees in FY23 to 6,277 crore rupees in FY24.
Investment activities have also drained Ola Electric’s coffers, with net cash used in investing activities amounting to ₹1,136.28 crore in March 2024. This is up from ₹318.55 crore in March 2023, though down from ₹1,321.83 crore in March 2022.
The spike in investment outflow could be indicative of the company’s efforts to expand its operations or improve its infrastructure, but it also raises questions about the effectiveness and timing of these investments.
Rising Liabilities and Contingent Risks
Ola Electric’s rising liabilities present another area of concern. The company’s long-term borrowing has nearly doubled, increasing from ₹700 crore to ₹1,318.60 crore. Similarly, trade payables have almost doubled, rising from ₹693 crore to ₹1,348 crore, and other current liabilities have surged from ₹632 crore to ₹1,416 crore.
These increases in liabilities suggest that Ola Electric is relying heavily on borrowed funds to finance its operations, which could pose risks if the company is unable to manage its debt effectively.
The complexity is further compounded by the company’s contingent liabilities, which are ₹2,455 crore, amounting to 50% of its FY24 turnover. The contingent liabilities were ₹2,001 crore in FY23 and ₹871 crore in FY22.
Contingent liabilities are potential obligations that depend on the outcome of future events.
The high level of contingent liabilities relative to turnover is troubling, as it suggests that the company may be exposed to significant risks that could materialise in the future. For investors, this adds another layer of uncertainty to the investment thesis.
Operational and External Challenges
Beyond the financials, Ola Electric faces several operational challenges that could impact its long-term prospects.
Reports of numerous complaints about their scooters, jam-packed service centres, and disgruntled customers paint a picture of a company struggling with quality control and customer satisfaction. High attrition rates, reportedly around 47%, also raise questions about the company’s internal stability and ability to retain talent.
Moreover, the owner’s tendency to quickly shift focus between various business ventures could lead to a lack of consistent direction and strategy, further complicating the company’s ability to navigate a challenging external environment.
The reduction in government subsidies for electric vehicles and increased competition from established traditional players only add to the challenges Ola Electric will need to overcome.
Investing in Ola Electric: A Cautious Approach
While Ola Electric’s IPO has undoubtedly been a market success, the financials tell a more cautionary tale. Investors should be wary of the company’s rising liabilities, negative cash flows, and contingent risks. The operational challenges and shifting focus of the company’s leadership only add to the uncertainty surrounding Ola Electric’s future.
For potential investors, it’s crucial to weigh these factors carefully before making a decision. While the promise of high returns can be enticing, the underlying financial health of the company suggests that a more cautious approach may be warranted.
Disclaimer: The opinions and investment advice given on TechStory belong to the individual authors and do not represent the views of the website or its management. TechStory recommends that users consult with qualified experts before making any investment choices.
