Ola Electric | Ola Electric share price: Ola Electric shares rise after listing on liquidity, not fundamentals: Deven Choksey

Deven ChokseyDoctor of Medicine, Financial Service of the Democratic People’s Republic of Korea Limited CompanyHe says that Ola Electric’s underlying fundamental story and outlook may remain as it was at the time of IPO. On the contrary, the more they sell EVs, the more they will have to create the visibility of making profits because as things stand, they are losing around Rs 24,000 per vehicle. If they are going to expand the volume base, how much they could save as far as losses are concerned is something one will have to ask the company at some point.What is happening? When the price was Rs 75, no one wanted to buy Ola, the subscription for the IPO was barely possible and now it is at Rs 140. What has changed? Why did the issue not get such a strong response and why did investors respond so strongly after the listing?
Deven Choksey: I think it has more to do with the liquidity available with fund managers and the obligation to add new ideas to the briefcaseIn case of existing ideas, the exposure limits have been reached and given the kind of inflow of money they are getting, they have to look for new ideas to buy into the portfolio. I guess Ola falls into this category where the stock was probably quoted at the IPO price and thereafter, buying happened in the respective markets, respective funds, including portfolios.

So now it’s more about liquidity and less about fundamentals.

The underlying fundamental story and outlook may remain as it was at the time of IPO. On the contrary, the more they try to sell EVs, the more they will have to create the visibility of making profits because as things stand, they are losing around Rs 24,000 per vehicle. Now, if they are going to expand the volume base, how much they could save as far as losses are concerned is something one will have to ask the company at some point and that is where it will be tested in the subsequent quarters when the results come out. But overall, it is largely due to the push to include the stock in the portfolio. Other fundamental outlooks remain the same, I must say. But I guess the company will have to show the earnings picture to investors at some point.

What do you think of the wire and cable segment now? It has already performed quite well. I am not questioning the question like in the case of investment, but the valuation is higher there. Would you be comfortable investing 45-50 times or would you stick with what you bought earlier or would you not touch it now?
Deven Choksey: I think the important thing is that this year has started with a high base effect. Last year and the year before, the base effects were quite low. Today we are seeing that the base effect is recovering, which means that on the current basis of earnings that the company has produced, unless it shows relatively higher growth in the business, the premium valuation of last year would probably not be justified in the markets.

This would be true for most companies, because most of them have price-earnings (PE) ratios of 40, 50, 60 or even 100, based on the assumption that their growth rate is 30%, 40% or 50%. Today, the situation is that the growth rate has come down to normal levels, with no correlation with economic growth.

If the nominal growth rate of the economy is around 11-12%, then this company has started assuming growth of around 15-20% and that is where the premium valuation would be adjusted and there is nothing wrong with the business situation. Companies like Polycab have a significant amount of business opportunities here because of the segment they operate in, that construction materials segment they operate in has a phenomenal amount of runway ahead and that is probably the point where nobody can argue with the business situation.

However, the ratings They are likely to adjust and that will be true for most mid-market and smaller companies where a valuation rationalisation exercise is likely to take place in the coming quarters in our markets.

What are some stocks that you tell your clients to book profits on? I mean, booking profits and selling is something that Deven Choksey never talks about. But now we can talk about it at these levels.
Deven Choksey: We have been quite cautious of late on some of the companies where valuations have reached premium levels and it is in those companies that we have been divesting some of our investments in PMS portfolios and where some of the companies have reached PE multiples of 60, 70, 80 and on the other hand, the earnings growth is somewhere in the mid-20s to mid-30s. So, to some extent, there is a case for doing some earnings booking in those companies.

Now, if we look at individual companies and make an observation about them, the answer is no. Many times you make profits and then you also have to see how the market recovers. For example, we end up buying companies like Zomato In our portfolio we had a very high price before time. After that, it fell and we had to buy again in the fall, in double digits it fell below 50. Then, when it touched over 100, we thought we had made enough money. I think today it is 100% above that particular price.

So, there is the situation where you end up buying something at lower levels, end up making profits at slightly higher levels and then you see the market giving a different kind of dimension to the stock price, but that doesn’t eliminate the opportunity to get a share of the profits in the respective companies. That’s what we need to do to make the portfolios perform better.