Ola Electric Mobility Limited (OLAELEC) Earnings Call Transcript & Summary

Hi, everyone. Good day, and welcome to Ola Electric Q1 FY '27. [Operator Instructions] Please note this is being recorded. Before we begin, announce reflects our outlook for the future or which could be construed as a forward-looking statement may involve risks and uncertainties. Such statements or comments are not guarantees of future performance and actual results may differ from those statements. Now I would like to request Bhavish Aggarwal, Chairman and Managing Director; and Shri CFO, [indiscernible]. To begin, first, I would request Deepak [indiscernible] to now.

Good afternoon, everyone, and thank you for joining for Ola Electric Q1 '27 earnings call. As you are aware that Q1 marks an important point in the evolution of our business. Last year, which is financial year '26 was a year which actually took some difficult decisions and necessary actions. We reset the operating model, streamlined the organization, tightened execution and materially optimized our cost structure. Q1 '27 was the first full quarter operating on that reset base, and the results give us confidence that these changes are beginning to translate into business performance. For the quarter, we returned to growth, gained market share, maintained strong gross margins and did so on a significantly lower leaner operating base. Deliveries increased to approximately 39,200 units, nearly doubling quarter-on-quarter, while orders increased approximately 44,000. Automotive revenue grew 72% sequentially to INR 455 crores with gross profit of INR 139 crores. Our growth materially outpaced the industry with a broader electric 2-wheeler market grew approximately 17% quarter-on-quarter. Ola registrations grew 97%, taking our market share from 5.1% to 8.4%. This growth was broad-based with sequential improvement across every region of the country, giving us a diversified base from which to scale. The second important point is the quality of the growth. Despite a challenging commodity environment, we sustained automotive gross margins at 30.5%, reflecting the underlying strength of our product economics. At the same time, we continue to optimize cost of our business, right? Consolidated operating expenses declined 22% quarter-on-quarter to INR 333 crores, and we remain focused on moving towards a steady-state operating cost base. As a result, consolidated adjusted operating EBITDA improved from negative INR 326 crores in Q4 of last year to negative INR 195 crores of this quarter '27. Our objective is to grow on the leaner operating base and progressively translate incremental revenues and gross profit into operating leverage, taking us towards breakeven and sustainable profitability. The balance sheet has strengthened during the quarter through the successful completion of INR 780 crores QIP giving us greater financial flexibility as we constitute the next phase of our growth. Beyond the immediate financial performance, there are a few structural drivers that are increasingly important to our medium-term economics. 4680 v1 cell is already commercially deployed, while 46100 LFP cell is now BIS certified and vehicle ready. As LFP is progressively integrated into our portfolio, we expect battery cost optimization to become an additional lever for product economy. More broadly, owning the cell road map gives us greater control over cost, supply and product development. The second is monetization beyond the initial vehicle sale. We now have an installed base of more than 1 million customers. As this base matures, service can increasingly develop into a recurring high-margin revenue stream with our road map targeting service revenues of approximately INR 400 crores to INR 500 crores by 2027, '28. We are increasingly using AI as an operating productivity layer across sales, registration, fulfillment, service and R&D. The objective is simple: improve customer experience and execution while allowing the organization to scale without proportionately scaling up. Finally, on the cell business, we are moving towards capability creation from capability creation towards commercial deployment. The Gigafactory is expected to be operational at 6 gigawatt hour by September, supporting greater own cell integration in our vehicles as well as opportunities across energy storage and other applications. As we look ahead, our priorities are clear scale volumes with leaner cost base, drive operating leverage, deepen vertical integration, broader distribution and life cycle monetization and remain disciplined on capital and cash. The external environment remains supportive with electric 2-wheeler penetration in India crossing 10% for the first time in June of this year. The external environment remains supportive with electric 2-wheeler penetration in India crossing 10% for the first time in June of this year. For us, however, the focus remains firmly on execution. Q1 is the encouraging first proof point after the reset, we have demonstrated that Ola can grow significantly faster than the market while operating with a materially lower cost structure. The task is to compound that progress and translate higher scale, stronger product economics and deeper technology ownership into improved margins, lower cash burn and ultimately sustainable profitability. With that, I would actually stop here, and I will seek comments and questions from the group. Thank you so much.

[Operator Instructions].

So while we wait, I just want to underline some of the comments Deepak said. It's been an important quarter in Q1. Margins were steady still industry-leading above 30% despite the commodities. And we do forecast margins to be in this range as over the next quarter or 2, commodities come down and margins will further improve again. I think the highlight of this quarter was obviously the top line recovery, strong top line recovery as well as operating cost reduction. I think Deepak highlighted it in his comments, but almost on 2x volumes Q4 versus Q1 sequentially, our OpEx has actually come down meaningfully. OpEx in Q4 was, I think, INR 428 crores. This is total OpEx, including leases. Q1 was INR 303 crores. In this, there was a onetime reversal of the [indiscernible] penalties that we were taking every quarter, about INR 55 crores or so, there was a reversal. So even if you remove that, the OpEx was about INR 380-odd crores, which is meaningfully lower than the OpEx of Q4 on almost a doubling of volume. On OpEx, we continue to structurally improve our cost structure. I think over the next couple of quarters, this OpEx will come down into the INR 300 crores to INR 325 crores range, which is where our target is. And while we are doing this, we are going to keep gross margins steady to slightly growing and volumes also steady to slightly. So I feel from some of the challenging quarters in the past, we've now gotten a good balance in the business between growth as well as margin -- gross margin steadiness as well as operating cost improvements. So overall, management feels very, very confident of the path ahead. We have some very exciting stuff coming up on 15th August. I hope you all will be tuned to that just about a week from now. A couple of other things that happened in the last few days also I want to highlight, and I'm sure it will come into your questions also. Firstly, we opened our -- we signed our first MOU called the [indiscernible] product, which is the scale [indiscernible]. That will be a very meaningful growth driver for the company in the coming years. And you can see from that MOU that it's high-quality renewable platforms, utilities. Everybody is now engaging with us to get access to our [indiscernible] product as it comes online [indiscernible]. We will keep announcing more demand pipeline of [indiscernible] as it comes online. This one was 20 gigawatt hour to the next 5 to 6 years. And I feel very confident that more and more demand pipeline will get announced. Actually, we are just speaking to everybody. So demand pipeline is building soon. Sorry about that. That's not us. So continuing with the cell business, like Deepak also mentioned, 6 gigawatt hour will get fully commissioned in this quarter. So that's again a good exciting thing to look forward to. We are -- we've also been talking to companies across the spectrum to use our cell in their products. And I can say that we've had very encouraging responses from global OEMs also as well as Indian companies, especially in sectors like drones, et cetera. We will be announcing more in the coming few days, but very strong. Many, many companies are testing our cell. Finally, just yesterday, we also announced that we have evolved our auto distribution strategy to a multichannel strategy from a single channel company approach. And I think this is also going to be meaningfully enhancing the company's growth going forward in the near term. I want to share a little bit of anecdote there before we open up. From almost the time we started this company 5 years ago, we've had a lot of people call in and ask for being our dealers. Now in the early days, just going by a dealership would have been a slower rate of growth. And our company-owned strategy allowed the brand to interact directly with the customers, whereas back in the day 4, 5 years ago, the whole dealer ecosystem was still a little early on automotive, on EVs. Their confidence on EVs was low. But that has materially changed to a large extent. Our scale has evolved as well as the whole industry has grown. So now as soon as last month or so, we've been engaging -- I have personally been engaging with dealers across the country. And their inputs and feedback has been quite unanimous and ambiguous you guys have the best products and the product portfolio, the fact that we have scooters, motorbikes and [indiscernible]. And the dealers obviously understand the local nuances of auto retail. So they feel very, very confident. So we will actually be announcing the first set of dealerships go live with shops already set up on [indiscernible], which is early next month and looking forward to having meaningful scale before the [indiscernible] season hits. I feel very confident that, that will bring a lot of increased top line growth into -- from where Q1 basis further ahead, we are a very strong uplift from getting the best dealers to work with the company. Those are my comments on what Deepak said, just underlying summarizing that a good quarter, good bounce back from Q4. Gross margins for us are targeting around the 30%, 32% mark, which is where we wanted to be and OpEx continues to improve structurally. So with that, I'll open up for questions.

We'll take the first question from Mr. Rishi Vora from Kotak Securities.

Just a couple of questions on the results and the strategy going forward. Just first on the results, why there was a very sharp decline in the ASP on a sequential basis? So is it a product mix or something else that?

It is largely product mix. [indiscernible].

And so going forward, this is where it should be? Or you think there can be an improvement as the motorcycle portfolio kind of ramps up?

So actually, we are seeing the improvement in the product mix already from what we saw in Q1. So our premium business is also starting to grow again as overall the brand has grown from where Q4 was. And motorcycle is also starting to grow in the [indiscernible] So I don't want to [indiscernible] on product mix. But overall, I just want to say that it will be in the plus/minus 5% is well.

And in terms of volumes, right, in 1Q, we did roughly 40,000, 45,000. So is there any guidance you would like to share for full year like sequentially, you are talking about improvement. So like how do you want to exit at least going into the fourth quarter with dealership onboarding and, let's say, maturing of the products which you have already launched?

So Rishi, we will not give a guidance or a forecast, but I'll tell you what approach we are coming. So our focus is to keep growing from here on a disciplined level. Our gross margins are best in the industry and our operating cost structure, especially for a vertically integrated business model has become quite competitive now. So our focus is to keep from where we are, keep growing in a disciplined way. Now how much will that result in quarter-on-quarter? I don't want to hazard a guidance. But I do feel confident that there will be steady growth looking.

Understood. And just on the cell piece, so have we started using our own cells in our vehicles? What would be the -- if yes, what would be the penetration? And also if you could comment on Ola [ Shakti ], where we are in terms of revenues or any scale up that has happened on the Ola Shakti?

So our cells are already in our products, Rishi. A few thousand of them are on the roads already. Around -- in Q1, we decided to pause cell production to get the next phase installation complete, which is from 2.5 to 6. So 2.5 is already installed. We produced a few hundred thousand cells, which are in production in our vehicles on the [indiscernible]. We have a backlog of our own cell production needed to go into Shakti well as our auto products, which is where we need about 2 to 3 months of production time to finish the installation of the remainder of the capacity, which is now getting done sometime this month, most likely in a week days it will be largely done. And then we will ramp up production of our cells again. So the forecast going forward is that 3 of our vehicle products out of, I think, about 9 or 10 SKUs have the 4680 cell in them. They will continue to get scale as we start ramping up production with the full [indiscernible]. And on Shakti -- Shakti also, we will be announcing the Shakti Gen 2 on 15th August, which will be with LFP cells. Shakti Gen 1 was with NMC cells. And with NMC, we decided that we just wanted to put out enough so that we learn about the category, but not really scale too much because as you can understand, NMC is cost than LFP and gross margins on that Shakti were not to the target level. With Shakti Gen 2, which is with LFP cells, our gross margins are going to be actually even healthier than our auto segment. And that gets announced on 15th August. So on 15th August, actually, we'll be sharing more details about [indiscernible] as well as other formats of Shakti, which will go into the C&I space, commercial and industrial space, including data centers, et cetera. So all of that gets rolled out starting this quarter.

But was there any meaningful contribution of Ola Shakti this quarter in terms of revenue because of [indiscernible].

No. Again, we delivered a few hundred, and then we decided not to scale up the [indiscernible]. And another good news in that direction was in this quarter, our LFP cell got BIS certification also. So our LFP program proceeds very, very well.

Understood. And just last 2 questions. One is what is the CapEx plan for this year? How much we have incurred in 1Q? And secondly, why depreciation also was down on a sequential basis? So like was there any write-off which we had taken, which led to this decline in depreciation?

So Rishi, our CapEx is -- if you can see in our auto business, there's hardly any you can see in this quarter also our free cash flow and operating cash flow is pretty much -- there's no gap, right? So auto does not need any CapEx for the foreseeable years because our factory is scaled up to 1 million units a year already and not just million units, but it's a vertically integrated factory. So we can really produce for a while. Our cell factory is finishing its CapEx cycle this quarter with 6 gigawatt hours. We don't foresee any more CapEx after that. And that CapEx is all funded through that. The equity is largely done. So no more CapEx for the foreseeable future is my guidance to you guys. On depreciation. Depreciation, we have evolved a little bit of our depreciation policy in sync with the industry standards. There were some areas where we were depreciating aggressive brought that to [indiscernible]. So that's [indiscernible].

Again, just clarification on the CapEx, there would be also some bit of R&D you would be capitalizing, right? So any R&D targets which you will be sharing?

No targets, Rishi, we capitalize the minority of our R&D spend, not a large part.

In the interest of time, we'll be taking questions from [indiscernible]. We'll take the next question from Mr. [indiscernible] from [indiscernible].

Congratulation on lowering the cost. Bhavish, what I wanted to understand more is on the sell side. So I wanted to understand what would be the LFP side of the business? What would be towards the NMC? Is there any clearance like we decided for this?

[ Akshay ], good question. As we see ahead, a large part of our business will be LFP. Almost all of Ola Electric's auto business will move to LFP soon enough. Again, hold on until the end of the month, we will have some good announcements there. And NMC in our auto business, about 20% of our portfolio will be NMC, which will be higher performance or higher -- the top end of the range will be NMC. All of [indiscernible] energy storage business will be will also be relevant for some niche categories like, et cetera, where people have a lot of interest in and many of them are out and we will talk about that soon.

Okay. Yes. And then we had plans of scaling the capacity up to 20 gigawatts. So just want to confirm, is it still on the cards or what are you thinking on those?

So the plan there is 6 gigawatt hour will be cylindrical capacity [indiscernible] cell is already underway, and we expect to complete by end of this year. And that's why we will aim to scale from 6 to 20 but only getting the i[indiscernible]. We will not need any [indiscernible] equity to go around 6 to 20 [indiscernible].

Okay. And we plan to do in '28, '29? Any...

O No. In '27. In '27 [indiscernible].

Okay. And could you also throw some light on what yields we saw on the capacity when we actually brought it down, we stopped it for a period. What yields that we saw because what I believe is commerciable if we can produce at 90% or higher yields?

Akshay, our yields are in the, let's say, high 70s or 80% range when we bought it. There is a clear road map to go from there to 90-plus within [indiscernible] which is then later this month, we will restart after the install.

And we can see numbers from battery business from Q3 onwards -- that's what you're saying, right?