This note on Ola’s Q1 FY 27 financials uses a year-on-year comparison. That is how any responsible analyst would do it. However, if you are looking at doing a quarter-on-quarter analysis, like the company would like you to, then please head here to download Ola’s excellent shareholder newsletter.
With that, let’s get the numbers out of the way first.
The Numbers
In the quarter (Q1 FY27) gone by, Ola registered 43,921 units. This was a 28.8% decline from 61,684 units registered (Source: Vahan+Telangana registration data from GoI) in Q1 FY 26. For whatever reason, Ola does not want us to compare the Q1 FY26 numbers to the Q1 FY27 registration numbers. This is how it looks in the investor newsletter:
Against that, the company reported revenues of INR 4,550 million, a 45% decline from revenues of INR 8,280 million.
The velocity of fall in registrations is less than the velocity of fall in revenues. This indicates a substantial increase in discounting to manage sales.
This also comes through in the decline in Average Selling Price. Over the year, the average price has declined by INR 7,000. In comparison, Ather Energy, whose quarterly results we reported just a few days back, had reported an INR 12,000 improvement in ASP.
Gross margins have improved from 25.8% to 30.5%. This may look significantly better than Ather’s gross margin of 22.4%, but it is not, as this includes the PLI incentives that Ola gets and Ather does not. Take the PLI away, and the gross margin falls to 23.3%, not much better than Ather Energy.
Which begs the question: Does in-house cell manufacturing actually help in anything?
Operating expenses have declined to INR 3,330 million from INR 5,120 million a year back, a decline of 34.96%.
The velocity of decline in operating expenses does not match the velocity of decline in revenue. They are losing more revenue than saving on operating expenses.
Adjusted operating EBITDA has improved from (negative) INR 2,960 million in Q1 FY 26 to (negative) INR 1,950 million in Q1 FY 27, an improvement of 34.1%.
Again, the velocity of improvement in adjusted operating EBITDA (losses) does not match the velocity of decline in revenue. They are losing more revenue than what they manage to improve upon adjusted operating EBITDA.
At the bottom line level, Ola Electric reported a profit after tax (loss) of (negative) INR 3,360 million, a 21.5% improvement from a net loss of INR 4,280 million a year ago.
They have literally cut sales by 45% and yet managed to improve net losses by only 21.5%.
Free Cash Flow (FCF): The Biggest Worry
This was a really bad quarter with INR 3,510 million in (negative) free cash flow. In Q1 FY 26, the number stood at (negative) INR 2,820 million. Even the FCF at the automotive level has slipped into negative again at INR 1,230 million. Remember, last quarter the company had made a big deal of automotive FCF being positive.
For a business in Ola’s stage, one that is yet to make any money, the free cash flow is the more honest number that we would be looking at. A company burning INR 3.5 billion in a quarter should have investors worried.
Looking at the data at the very fundamental level, the company burnt INR 1,230 million (vehicle business in isolation) in the quarter to sell 43,921 scooters at an average price of INR 114,000. That’s a cash outflow of INR 28,000 per scooter.
This is an extremely worrying situation. If Ola could have, Ola would have charged more per scooter. Apparently, they can’t; sales collapse. That’s a very tight spot to wiggle out of.
As an illustration, we again pull this chart of the ASP here.
Since FY23, there is a massive fall in the average selling price of Ola scooters. This trend has deteriorated very badly in the last two quarters. The last two quarters were also the time when Ola hit bottom and then has been bouncing back. Notice that the ASP in Q3 FY 26 was at 144k, INR 30,000 more than it was in Q1 FY 27. That is roughly the negative cash flow per scooter that Ola suffers from right now.
Chew past the PR speak and this is a company burning money to sell scooters. It is the same vicious cycle of discounting to maintain sales numbers that we have seen in the past. Take the cash flow burn away and the sales bounce back story falls apart.
Change in Sales Network Strategy
A day before the financial results, Ola announced that it is now open to appointing dealers. Note that till date, Ola, like Tesla, has operated through Company-Owned, Company-Operated (COCO) outlets. With the latest announcement, Ola has changed track and is now open to appointing third-party dealers, just like every other player in the market does.
The problem, though, is that this is the most competitive time for E2W dealerships in India. Ather is continuously expanding, VinFast is making a move, River, after its monstrous fundraise, needs another 275 dealers in a few months, and even smaller players like Ultraviolette are expanding fast. Suzuki, if they can acquire someone, would also need EV-specific dealerships. In such a time, attracting first-grade dealer principals in small towns is going to be a challenge, especially in view of the hard-earned reputation and the baggage Ola carries.
However, Ola had this in the shareholder newsletter:
Like many other claims from Ola, there is no way to verify this, so we pick up the salt shaker and move on.
The Cell Story
Ola is now less about scooters and more about cells. At least that’s what the cover of the shareholder newsletter tells us.
At various places in the shareholder newsletter, Ola mentions the 46100 LFP cell. It has now received Bureau of Indian Standards (BIS) certification and is now “vehicle ready.”The company makes it sound like the cells are churning out of the assembly line, and the battery packs are being designed.
However, BIS certification is basic in nature, and a cell manufacturer has to submit anywhere between 50 and 500 cells to get the certificate, after due process. A BIS certification does not imply that the assembly line is now mass production ready and the yield rates have stabilized at a high level. Considering the LFP cell was first unveiled in April this year, we maintain that meaningful mass production should be possible only by 2028.
That’s why the recently announced deal with Axis Energy is good but only at the end of this decade. That’s what the press release also mentions:
Lifecycle Monetisation
Another thing that caught our eye in the Shareholder Newsletter was Ola’s plans for lifecycle monetization. On a non-jargon basis, it means making money out of service. Nothing wrong in that; everyone does that. However, for a company that has thousands of customers complaining loudly online about poor service and product failure, to set a target of 65% gross margin on service comes across as tone-deaf.
