Rs 57 crore provision reversal hits Ola Electric shares, brokerages wary

Ola Electric shares fell 5% intraday after its subsidiary Ola Cell Technologies reversed a Rs 57 crore penalty provision without ministry approval, inflating the company's reported loss reduction. Without the reversal, the quarterly loss would have been nearly Rs 393 crore, according to Business Today. Auditor B S R & Co. LLP issued a qualified opinion, saying it could not obtain sufficient audit evidence for the reversal.

The provision was originally made for liquidated damages under a Ministry of Heavy Industries incentive scheme. The subsidiary sought an extension and waiver but had not received ministry approval as of June 30. Brokerages reacted sharply. Kotak retained its 'Sell' with a Rs 20 target, nearly half the current price of Rs 39.64, citing weak volumes and free cash flow outflows. Citi also kept a 'Sell' call at Rs 26, pointing to subdued sales, pressure on gross margins, and intensifying competition. Goldman Sachs, however, maintained a 'Neutral' rating and raised its target to Rs 40, though it noted a weak quarter with revenue down 45% year-on-year.

Ola Electric has moved to a dealership-led sales model, but Citi said the benefits remain uncertain. Kotak warned that if volumes do not improve, the company may need to raise additional capital.