Electric Bus Manufacturer Will Ramp Up Production To 10,000 Units With Blade Battery Tech

Key Takeaways

• Technological advancements and increased production capacity position Olectra Greentech for future revenue growth in the electric bus market.
  
• Diversification into BESS and operational efficiencies could boost long-term earnings and improve margins.
  
• Reliance on debt and execution risks could strain finances and hamper growth amid competitive pressures and supply chain challenges.

Catalysts

Manufactures and sells electrical buses and trucks in India.

• Olectra Greentech's significant order book of 10,224 electric buses, combined with their technological advancements such as the blade battery technology, positions the company for future revenue growth by capitalizing on increased demand for electric buses.
  
• The company's focus on ramping up production capacity to 5,000 buses annually and eventually to 10,000 suggests potential revenue growth as they increase their ability to meet demand.
  
• The introduction of automated robotic systems in their production facilities is expected to enhance operational efficiency, which could improve net margins as production costs decrease.
  
• Olectra Greentech's ambition to diversify into battery energy storage systems (BESS) and other related EV businesses could create new revenue streams and improve long-term earnings potential.
  
• The expected stability of margins around 15% in the near term, bolstered by increased volumes and economies of scale, suggests potential improvements in earnings before an eventual stabilization at approximately 12% as the company scales up operations further.

Olectra Greentech Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Olectra Greentech's revenue will grow by 66.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 9.2% in 3 years time.
• Analysts expect earnings to reach ₹7.0 billion (and earnings per share of ₹84.96) by about February 2028, up from ₹1.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.2x on those 2028 earnings, down from 90.6x today. This future PE is lower than the current PE for the IN Electrical industry at 44.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.31%, as per the Simply Wall St company report.

Olectra Greentech Future Earnings Per Share Growth

Risks

• The company's reliance on increasing debt of ₹500 crores for capital expenditure could strain financial resources, potentially impacting net margins and increasing interest expenses.
  
• Execution risks are present given the reliance on timely completion of new manufacturing facilities and production scaling, potentially affecting revenue projections if delays occur.
  
• Competitive pressures may challenge Olectra's market position, as highlighted by missed opportunities in recent tenders, which could impact future revenue growth.
  
• Dependence on partner arrangements like EVEY Trans SPVs entails financial closures that, if not appropriately managed, could lead to delays in order fulfillment and reduced earnings.
  
• Potential supply chain risks, particularly in battery procurement, could impact manufacturing timelines and costs, affecting both revenue and profitability if not adequately addressed.

Valuation

• The analysts have a consensus price target of ₹2086.0 for Olectra Greentech based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹76.0 billion, earnings will come to ₹7.0 billion, and it would be trading on a PE ratio of 36.2x, assuming you use a discount rate of 14.3%.
  
• Given the current share price of ₹1452.25, the analyst's price target of ₹2086.0 is 30.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.