Shares of Ola Electric hit a six-month low after Goldman Sachs downgraded the stock to 'Sell' with a price target of Rs 23. The firm cited rising costs, operating losses, and a challenging revenue outlook. The news comes as the company seeks to raise Rs 1,000 crore via a rights issue while transitioning to a new dealer-led sales strategy.
Shares of Ola Electric Mobility fell more than 7 percent on Friday, October 23, hitting a six-month low on the National Stock Exchange. The sharp decline followed a rating downgrade from Goldman Sachs, which moved the stock from 'Neutral' to 'Sell'. The brokerage also reduced its price target for the stock to Rs 23, a level significantly lower than recent trading prices.
Financial Concerns and Revenue Growth
Goldman Sachs analysts expressed concern over the company’s path to generating positive cash flow, which is the money left over after a business meets its operating and capital spending requirements. The brokerage pointed to heavy capital requirements and a history of operating losses as major hurdles. A key concern for the analysts is the firm's growth trajectory, noting that revenue saw a 55 percent contraction between FY24 and FY26. Based on these trends, the brokerage lowered its revenue estimates for the next three financial years—FY27 through FY29—by 10 percent, suggesting that the company may face an uphill task in reaching the scale required to cover its interest and capital spending.
Operational Changes and Leadership
The brokerage also noted operational friction within the company's battery-cell division, citing the recent departure of the business head. This organizational change coincides with a significant shift in the company’s sales strategy. Ola Electric is currently moving from a direct-to-consumer approach to a dealer-led sales and service model. While this shift is intended to improve brand sentiment and service accessibility, it represents a major transition that has yet to show clear, long-term market results.
Rights Issue and Market Context
Amid these challenges, Ola Electric is proceeding with a rights issue to raise Rs 1,000 crore. The issue is priced at Rs 27 per share and is open for subscription until October 30. The pricing of this issue is at a discount to previous market valuations, reflecting the current volatility in the stock price. The company is competing in a crowded two-wheeler electric vehicle market where established players like TVS Motor and Bajaj Auto hold significant positions. Investors will be closely watching whether the proceeds from this rights issue can provide the necessary financial cushion while the company attempts to stabilize its business model. The success of the shift to the dealer-led network and the ability to control rising costs will be the most important factors for the company’s future financial health.