New-age tech firms have been seeing some renewed interest after their third-quarter earnings announcements on hopes of an improved outlook.
Shares of One97 Communications (Paytm) surged over 21 percent in February so far after a muted January. PB Fintech (PolicyBazaar) also rallied 19 percent in February so fa after an around 5 percent fall in January and December combined.
Meanwhile, shares of Delhivery rose over 5 percent after 4 straight months of losses. Between October and January, the stock had shed 46 percent. Nykaa also advanced nearly 5 percent in Feb after 10 straight months of losses. It lost almost half of its investor wealth between May 2022 and January 2023.
Zomato was also in the green, but up just 1 percent in Feb after a 16 percent and 9 percent fall in January and December, respectively.
However, analysts are mixed regarding the sustenance of this rise in their stock prices. The rise mainly comes after better-than-expected numbers in the December quarter.
Q3 Earnings
The December quarter was a mixed bag for new-age companies. While Paytm and PB Fintech witnessed a narrowing of their losses, Zomato and Delhivery's net losses widened. Nykaa also reported a decline in its net profit. However, most new-age firms reported a jump in their revenues.
Paytm reported a net loss of ₹392 crore for the third quarter of the current financial year, as against a net loss of ₹778.4 crore for the same period a year ago. Its revenue surged 41 percent on-year in the October-December period to ₹2,062 crore, aided by a rise in merchant subscriptions to payment devices and loan disbursals. The firm also beat its own guidance turning EBITDA-positive in Q3FY23. Its EBITDA before ESOP cost stood at ₹31 crore with the EBITDA (before ESOP) margin at 2 percent of revenues.
Meanwhile, PB Fintech's consolidated loss for the December quarter of the financial year 2022-23 narrowed to ₹87 crore from ₹298 crore in the same quarter of the previous year. Its revenue from operations was up 66 percent year on year at ₹610 crore. The company said it remained confident of being adjusted EBITDA positive by the fourth quarter of the current financial year and delivering the first full year of positive PAT in 2023-24.
On the other hand, Zomato’s consolidated net loss widened to ₹347 crore from ₹63 crore in the year-ago period. However, consolidated revenue from operations surged 75 percent year-on-year (YoY) to ₹1,948 crore. Similarly, Nykaa’s net profit plunged 71 percent YoY to ₹8.5 crore in Q3FY23 from ₹29 crore in Q3FY22, but revenues jumped 33 percent YoY to ₹1,463 crore.
Delhivery's net loss also widened to ₹195.7 crore for the third quarter ended December 2022 as compared to a loss of ₹127 crore in the year-ago quarter. This was the only new-age stock whose revenue also declined around 9 percent to ₹1,823 crore as against ₹2,019 crore in the same quarter last year.
What do experts say?
Brokerages remain mixed on new-age stocks.
S Ranganathan, Head of Research at LKP Securities, believes that pricey valuations coupled with a lack of earnings visibility continue to plague several new-age stocks across segments and investors are not yet enthused with their quarterly earnings trajectory.
Meanwhile, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, believes that when India’s underperformance changes, new-age digital companies also will start performing. Some results from this segment are very good like Paytm's. Zomato also has done reasonably well, but Nykaa’s results came below expectations, he said.
The long-term growth potential of these companies is huge and, therefore, in spite of the short-term challenges, these stocks have buyers, particularly after the sharp correction from their listing peak prices, he added.
Post the Q3 earnings, Macquarie Capital Securities (India) Pvt Ltd has ‘double’ upgraded Paytm's parent One97 Communications Ltd's stock to 'outperform' from 'underperform'. The brokerage has also raised the target price by 78 percent to ₹800.
Brokerages have also maintained their bullish calls on Zomato even after its loss widened in Q3. Brokerage Nuvama Wealth Management Ltd stated in its report that the company posted better-than-expected Q3FY23 revenues. Brokerage firms also expect that the company's relaunch of its gold membership program to further aid the business.
Similarly, brokerages have also retained bullish calls on Nykaa, PB Fintech and Delhivery on hopes of a strong outlook.
Domestic brokerage house ICICI Securities upgraded Nykaa from ‘hold’ to ‘add’. However, it reduced Nykaa's target price to ₹145 from ₹175 earlier. The new target price implies a potential upside of 16 percent for the stock.
The brokerage said that it has always liked Nykaa's business model, however, post its listing on the Indian bourses, it has been staying on the sidelines due to valuations beyond its ability to comprehend (at peak stock price, revenue CAGR requirement over the next 20 years was 23 percent).
