Ola Electric: Rs 57-crore provision reversal makes investors jittery

Shares of Ola Electric Mobility Ltd, which are down 44% from their 52-week high, are a sell, according to brokerages Citi and Kotak Institutional Equities. The 'sell' calls on the Ola Electric stock come amid statutory auditor concerns over a Rs 57 crore penalty provision reversal, a 45% year-on-year fall in operating revenue to Rs 455 crore and continous cash burn worries flagged by brokerages such as Goldman Sachs.

Loss in Q1 narrowed to Rs 336 crore for April-June quarter compared with Rs 428 crore a year earlier. 

Without the reversal, the loss would have been nearly Rs 393 crore.

Penalty provision reversal 

Between FY24 and FY26, Ola Cell Technologies Private Limited (OCTPL), a subsidiary of Ola Electric’s holding company, had recognised a provision of Rs 57 crore as of March 31, 2026. The provision was made towards liquidated damages arising from non-compliance with an investment milestone prescribed by the Ministry of Heavy Industries (MHI) under the applicable incentive scheme.

During the quarter ended June 30, 2026, OCTPL reversed the entire Rs 57 crore provision and recorded the corresponding amount as a credit under other expenses in its unaudited consolidated financial statements.

The company said the reversal was based on its request to the MHI seeking an extension to meet the stipulated investment milestone and a waiver of the associated liquidated damages. However, as of June 30, 2026, OCTPL had not yet received approval from the ministry for either request.

Consequently, no provision towards the liquidated damages was recognised for the June quarter.   "In the absence of approval from MHI granting the requested extension and waiver, we were unable  to obtain sufficient appropriate audit evidence in relation to the reversal of the aforesaid provision and non-recognition of additional provision for the quarter ended 30 June 2026. Consequently, we were unable to determine whether any adjustments to these amounts were necessary. Our conclusion on the Statement is qualified because of the possible effect of this matter," said B S R & Co. LLP, auditor appointed by Ola Electric. 

The above provision reversal led to negative sentiment among investors and brokerages. Ola stock sinked 5% intra day in the previous trading session despite the company narrowing its Q1 loss from the year ago period. 

Kotak on Ola Electric 

Kotak retained its "Sell" rating on Ola Electric and set a target price of Rs 20, nearly half the current market price of Rs 39.64 The brokerage said achieving meaningful volume growth remains the company’s biggest challenge, while the adjusted EBITDA margin for Q1 FY27 came in below expectations, primarily due to lower average selling prices (ASPs).

Although Ola Electric recorded a sequential improvement in volumes, Kotak said the recovery needs to accelerate significantly for the company to establish a sustainable growth trajectory. The brokerage also highlighted continued free cash flow (FCF) outflows as a key concern. It cautioned that if volumes fail to improve at the current pace, Ola Electric may need to raise additional capital.

Citi on Ola Electric 

Citi maintained its 'Sell' call on Ola Electric with a target price of Rs 26. According to the brokerage, weaker sales volumes and pressure on gross margins more than offset the benefits from cost-control measures and the reversal of the PLI-related penalty.

While Ola Electric’s losses were lower than Citi’s estimates, the brokerage pointed to subdued volumes and weak ASPs as ongoing concerns. It also highlighted intensifying competition in the electric two-wheeler market.

Citi said the benefits of Ola Electric’s transition to a dealership-led sales model remain uncertain at this stage. The brokerage added that Ola’s operating performance continues to look relatively weaker compared with established players, many of whom have also been delivering stronger performances.

Goldman Sachs

On the other hand, Goldman Sachs retained its Neutral rating on Ola Electric but raised its target price to Rs 40 from  Rs 38.90. The brokerage described the June quarter as weak, with revenue declining 45% year-on-year and EBITDA loss standing at Rs 165 crore.

Goldman Sachs also noted that margins remained under pressure, with the reported margin at Rs 30.9%, highlighting the continued challenges facing Ola Electric amid subdued demand and a highly competitive electric two-wheeler market.