Olectra Greentech - Electric Bus Opportunity

Stock Opportunities Untested - but worth a good look
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Indeed, the results are good and near the E-Bus numbers estimate.

The company has guided for 100-110 E-Buses delivery in Q3 FY22 as per Nov 21 ICRA rating report and delivered 103 E-Buses as per the below article. The price per E-Bus is turning to be ~1.8 Cr.

The ICRA report also mentioned that Olectra is planning to deliver 200-300 E-Buses in Q4 FY22. So, the revenue will be double than Q3 FY22. So, the overall sales for FY 22 will reach ~531 Cr without considering the Q4 insular division(will be minimal) revenue for ~332 E-Buses(considering 200 E-buses delivery for Q4). The company is planning to deliver some e-3 wheelers in Q4 FY22 but we are not sure how many they will deliver.

With the current market cap as ~6500 Cr, this works out to be Price/Sales of ~12 which is optically expensive but the demand pick up has started just now.

Supply Side

The current facilities of E-Buses cater to a maximum of 1000 buses per year. Olectra’s new capacity addition of 10k E-buses per year will be operational in 1.5 years time by which we will have more clarity on their Electric Truck sales as well.

All the competitors, JBM Auto, Tata Motors, PMI Foton and Ashok Leyland are getting orders and also delivering. However, as there is huge opportunity, it seems the underlying infrastructure is also set up properly.

Here are the details of all E-Bus and E-Omni Bus delivered till date. PMI Foton has delivered 326 E-Buses this FY and going strong. The advantage I see for PMI Foton is, the charging completes in less than 30 minutes for 170 kms range. It is not listed.

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Demand Side

Now, coming to the demand side, apart from rest of India where there is already traction, Delhi and Mumbai are aggressively planning to ramp up their E-Buses.

https://indianexpress.com/article/cities/delhi/on-board-delhis-first-electric-bus-noise-free-easy-to-drive-futuristic-7730785/

So, apart from aggregator CESL which is 5580 E-Buses, there is more demand individually from big cities, like in the case of Mumbai, they would like to have only E-Buses in its fleet by FY27. As of now, they have ~4000 buses.

Brihanmumbai Electric Supply and Transportation (BEST) will have only electric buses in its fleet by 2027, and plans to procure 2,100 electric buses, provide dedicated services to corporate houses and business hubs, and set up 55 electric vehicle charging stations in the city.

The reason for all this aggressive push seems to be availability of green funds which are ready to disburse the loans, like in the case of Tamil Nadu, German kfw development bank is ready to fund 1600 crores and Green Cell co-funding PMI Foton E-Buses in UP.

The narrative is about value migration from ICE to EV(ESG funds support), Optimal capacity utilisation(STUs to private) and Capex(Upfront cost) to Opex(Gross Cost Contract) along with the tailwind in the form of government push of EV policy and active engagement of regulator.

Risks

  1. Olectra mentioned that they are partnering with a new E-Truck maker and no longer dependent on BYD. This gives the key risk that whether BYD will continue partnership with Olectra within E-Bus segment as well. Based on scuttlebutt, as of now the technical tie-up with BYD is for 3 years. If BYD backs out, that is the end of thesis to invest in Olectra

  2. Evey Trans(Another subsidiary of promoter) is currently paying Olectra and then running the buses on Gross Cost Contract. The key challenge here is, Evey has to collect the money from government STUs in majority of the cases. In case of any delay from STUs, it can impact the payment to Olectra as receivables will be very high. Most probably, Evey Trans gets the funding from green funds for a long tenure with less interest rate of ~2%. With promoters already deeply entrenched in government projects, they may know a thing or two on getting the receivables. However, having political connections is a double edged sword.

  3. PMI Foton, competitor of Olectra is aggressively delivering E-Buses - 384 till date Vs 383 for Olectra. Apart from that, their technology partner Foton has started on hydrogen buses. So, whether there will be disruption to electric buses is yet to be seen. Preliminary investigation says that both hydrogen and electric buses will co-exist. Also, based on the Electric Buses adoption time estimate, it will be at least 3 years for hydrogen bus to come into picture.

  1. There is a high chance that bureaucracy favours some vendors only irrespective of quality of the product or price. For example, I am almost sure only JBM Auto will secure orders in Delhi. PMI Foton will secure orders in Haryana, Olectra in Telangana and AP. So, if the number of orders doesn’t come in large numbers, the valuation for Olectra will take a hit and the thesis will go for a toss

  2. There is a funding side risk associated with BYD as technology partner but so far it has happened only within US. In Europe, there are no issues. It’s just that China border issue can affect the bus contracts as well.

https://www.washingtonpost.com/transportation/2021/12/17/electric-buses-federal-funding/

  1. NMC slaps 17L fine to Olectra due to alleged delay of electric buses. Initially I thought, can it be due to chip shortage but as per the article, Olectra did not deliver the prototype bus as well. This seems strange as at least they can send one prototype bus as they delivered 103 E-Buses in Q3 FY22.

I found this link but not sure about the authenticity.

  1. There is a chance that Olectra may lose out some contracts in the case of vendor consolidation as Olectra delivers only E-Buses whereas its competitors delivers Diesel and CNG as well.

Discl - Invested, transactions in last week, 7% of PF

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