Analysts cautiously positive on new age stocks despite improved Q4 metrics

Nykaa, Paytm and others need to do more despite a rise in Q4 metrics, say experts

Despite a firm improvement in the operational metrics of new-age companies during the January-March quarter (Q4FY23), analysts remain cautiously optimistic about their outlook.  

This is because the shares of these firms are still not risk free, as per analysts, given the companies are yet to make profits.

Kranthi Bathini, Director-equity strategy at WealthMills Securities says that while the sentiment around these stocks, which includes Paytm and Zomato, has turned positive, it remains to be seen how soon these firms turn profitable and improve margins.

He is of the view that only those investors with a high-risk appetite can consider accumulating these stocks, but only on declines. "There should not be a rush to add the stocks at current levels," he said. 

Individually, in Q4FY23, Zomato delivered adjusted ebitda breakeven earlier than expected and said it aims to turn profit and Ebitda positive (including Blinkit) by Q4FY24.

Meanwhile, Paytm narrowed its net loss by 78 per cent year-on-year (YoY) and delivered operational profitability for a second quarter. 

Policybazaar operator PB Fintech also turned adjusted Ebitda positive (Rs 28 crore) in Q4FY23 and narrowed its losses by 96 per cent YoY. Growth was led by core insurance and credit businesses, and lower losses in new initiatives.

Beauty and fashion e-retailer Nykaa’s Q4FY23 profit, on the contrary, slumped 72 per cent YoY on high expenses and weakness in the fashion business.

But it reported sequential improvement in Ebitda margin (5.4 per cent) for the first time in Q4 driven by a 36 per cent YoY gross merchandise value growth

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On the bourses, shares of Zomato, Paytm, Delhivery and Nykaa have gained up to 34 per cent so far this year, but they still remain 16-89 per cent below their listing prices.

Analysts attribute the recent recovery to improving cash flows and margins over the last two quarters, and easing valuations.

Investment strategy

Post the Q4 numbers, analysts at BofA Securities have upgraded Zomato to 'buy' from 'neutral', while Macquaire has downgraded the stock to 'underperform' given the halt in the quarterly growth of its food delivery business.

Nomura, too, has cut the target price on the stock to Rs 45, lowering its food delivery gross order value growth assumptions to 17 per cent from 20 per cent.

  

As regards Paytm, Goldman Sachs, Citi and Macquarie have maintained their bullish calls with upside of up to 61 per cent.

The resolution of regulatory issues like the ban on Paytm Payments Bank and online merchant onboarding are the next key catalysts for the stock, as per Goldman Sachs.

Morgan Stanley and JM Financial retained their buying calls on Policybazaar with expected upside of up to 57 per cent.

For Delhivery, analysts said sombre e-commerce growth expectations may weigh on the stock in the near-term, but it may turn Ebitda positive in FY24 due to improved capacity utilisation on part truck load (PTL) volume recovery.

As for Nykaa, JM Financial has lowered its gross merchandise value (GMV) estimate (5 per cent by FY25) as it saw net addition of just 0.4 million/0.1 million customers in beauty and personal care (BPC)/fashion segments.

The brokerage, however, sees limited downside with expected gains of 68 per cent on the stock.