HDFC Securities lists 5 top internet stocks to buy

Pranati Deva
Updated: 21 Jul 2022, 12:42 PM IST
TL;DR.

India internet has been a theme in focus in recent times. According to HDFC Securities, most internet companies have strong growth visibility but more investments will be required to sustain the momentum. The latest buzzword in the Indian startup ecosystem is not technology and disruptive business model but “profitability”, which can be driven by the decline in funding activity and fall in valuations, HDFC stated. The brokerage likes high-quality and profitable franchises in this space. Let's take a look at its top 5 picks.

InfoEdge: As per HDFC, the hiring activity in the IT sector is strong, demand for non-IT talent is also witnessing traction and sectors like BFSI, retail, travel and transportation are showing strength. It added that Naukri will grow at 15-20 percent CAGR and the EBITDA margin range will be 55-58 percent. Meanwhile, 99acres and Shiksha will do well while Jeevansathi will witness a decline due to a change in strategy, noted HDFC. It has a BUY rating with a target price of ₹4,700, factoring in 21/18% revenue/EPS CAGR over FY22-24E.

IndiaMart: Higher investment in sales channel will boost growth for the firm, targeting over 15% growth in paid suppliers, said HDFC Sec. It added that the churn has reduced and the quality of suppliers improving. Network effect and greater traffic will also improve the return on investment (RoI) for a seller. As per HDFC, the firm's margins will be in the range of 30-35% vs 25% pre-pandemic. It likes the quality of the franchise/platform and have a target price of ₹5,700.

Tanla Platforms: The brokerage noted that the A2P messaging is witnessing strong growth; enterprise business has a 30% share and will clock 15-20% volume growth. Platform growth will be driven by Wisely and Trubloq while margins for both enterprise and platform will be under pressure due to more competition and telcos demanding higher revenue share, it added. It has a BUY rating, with a target of ₹1,350, based on 26x FY24E.

Route Mobile: Growth guidance for FY23E is robust at ~45-50%, driven by new client acquisitions and integration of four acquisitions, noted HDFC. It added that the focus is to improve market share in the domestic market, while contracts are long term, with 88% recurring revenue.

Matrimony: Matrimony is the market leader in a hyper-competitive market, highlighted HDFC. It noted that Matrimony/Jeevansathi spend 37/171% of its revenue on promotions. Jeevansathi has now started offering entry-level packages for free, intensifying competition, but Matrimony is not going to slash prices, said the brokerage. It has 5 million active profiles with 18% that pay for services. Its market share in the south is at 80%, noted HDFC.

First Published: 21 Jul 2022, 12:42 PM IST