Ola Electric Mobility Ltd's recent financial reporting has drawn significant attention for its accounting treatment of certain costs. The electric vehicle (EV) maker's decision to classify a substantial portion of its expenses as "unallocated" played a key role in allowing its two-wheeler business to report its first operational profit.
The Mechanics of the Unallocated Expenses
In the July-September quarter, Ola Electric clubbed approximately 12% of its total costs, amounting to ₹106 crore, as unallocated expenses. This figure is double the 6% (₹99 crore) recorded in the same quarter of the previous fiscal year. These expenses refer to spending that the company's management states could not be allocated to its core businesses: electric scooters and bikes, and EV battery cells.
This accounting practice is valid under Indian standards and is reflected in consolidated accounts. A company spokesperson explained that these costs relate to shared resources, general corporate activities, and occasional one-off items like events, Employee Stock Ownership Plans (Esops), or consulting projects. They emphasized that this is a standard reporting practice for multi-segment firms.
Impact on Reported Profitability and Investor Reaction
The classification had a direct impact on the perceived health of Ola Electric's auto segment. While the company reported a consolidated Ebitda (Earnings Before Interest, Tax, Depreciation, and Amortization) loss of ₹137 crore, it did not assign the ₹106 crore unallocated loss to any specific business line.
As a result, Ola Electric's two-wheeler business showed a slim Ebitda profit of ₹2 crore, with a 0.3% margin, allowing founder Bhavish Aggarwal to announce it as the country's first operationally profitable EV two-wheeler business. The cell business reported an operating loss of ₹27 crore. However, the company's overall net loss narrowed to ₹418 crore from ₹495 crore a year ago.
Investors, however, were not impressed. Since the results were announced on 6 November, Ola Electric's stock fell 19% on the NSE through the first week of December, starkly underperforming the Nifty Auto index, which rose 4% in the same period. The stock hit a low of ₹38.02, its lowest since its IPO in August 2024.
Expert Scrutiny and Peer Comparison
Financial experts and governance advisors have raised concerns about the high proportion of unallocated costs. Abhishek Banerjee, founder of LotusDew Wealth, noted that such expenses typically should not exceed 5% of total costs. A level of 12% "will definitely raise eyebrows," he stated, suggesting the costs likely include items like unallocated Esops, group-level IT infrastructure, and top executive remuneration.
Paras Savla, partner at KPB & Associates, acknowledged that unallocated expenses can cover genuine corporate-level costs like strategic management or central R&D. He added that a higher proportion can sometimes reflect a fast-growing company centralizing investments in future technology and brand building.
What stands out is the peer comparison. None of Ola Electric's direct rivals, including Ather Energy, TVS Motor Company, or Hero MotoCorp, report any unallocated expenses in their financial statements. This discrepancy has led to questions about transparency. A Bengaluru-based board member and a former CFO expressed surprise that Ola Electric did not spell out the precise nature of these costs, especially when it details how IPO proceeds are allocated.
Ola Electric defended its position, stating that the rise in unallocated expenses as a percentage is driven mainly by lower revenue, not a material increase in the costs themselves. The spokesperson asserted that consolidated operating expenses have been falling and denied that the classification masks segment-level costs.
