The competition in the electric bus industry is increasing all of a sudden. Tata Motors is a huge giant which has the capacity to win big tenders even at a loss to capture market share.
Also the huge Fame 2 subsidy which is almost Rs 50 to Rs 60 lakhs on a 2 crore bus (25% to 30% discount) is going to end around March 2024. There might be slower growth for the next 2 to 3 years, after which due to economies of scale and reduction in prices of lithium on batteries, there might be pickup in sales again from 2026 or 2027 onwards.
Also in cities especially like Delhi where Metro trains are growing at breakneck speed, I can already some slowdown in the number of buses deployed on various routes. In future, many more cities will be covered by metro trains, hence the demand of electric buses although robust will not be skyrocketing.
Most big electric bus tenders are very competitive and will offer maximum 5%-10% PAT margins for manufacturers due to high competition. Also under the per KM operation scheme, there is a risk of late payments from government owned STUs to the electric bus manufacturers.
Taking into consideration the above factors, I would be very cautious paying 100-200 PE price for any electric bus manufacturers like Olectra Greentech. Remember the promoters didn’t covert their warrants into shares at a price of just Rs 175 and forfeited the 25% prepaid price.
I might look at this company as an investment at a more realistic PE band of around 30-40 or even less.
Thanks and Regards,