Stocks of Zomato and Nykaa defy market fall ₹

NIKITA VASHISHT 
New Delhi, 27 March

The carnage in the mid and small cap space has engulfed scores of stocks over the last month. However, stocks of companies such as Zomato and Nykaa have largely bucked the trend, rallying up to 11 per cent during the period. Data from ACE Equity shows that shares of Zomato, Nykaa (FSN-e Commerce), and PB Fintech have surged in the range of 4.6 per cent to 114 per cent in one month, as against up to 6.3 per cent decline in the Nifty Midcap, and Small cap indices. Paytm, however, has tumbled 7.3 per cent amid regulatory action by the Reserve Bank of India (RBI) against Paytm Payments Bank, and logistics firm Delhi very has dipped 0.3 per cent during the period. 

The Nifty 50 and Nifty 500 indices have slipped 0.5 per cent and 1.2 per cent, respectively. According to analysts, this resilience is an offshoot of the U-shaped trajectory the pack has been witnessing since 2021. And the upside may have more legs, albeit in selective stocks. 

“Starting with Zomato, new-age stocks experienced blockbuster listings in calendar year 2021, which fizzled out in CY22. Later, in 2023, the stocks went into a consolidation and bottoming-out phase, which now seems to be reaping returns for investors who have held on to these stocks,” said Sach in Shah, fund manager at Emkay Investment Managers. These companies in 2024 could not only focus on getting their top line in order, but also focus on managing expense rate numbers, generating sustainable profits, and getting their business models tighter, he said.

Financial stability seeping in 

At the fundamental level, new age companies have been turning the corner steadily. Zomato, for instance, almost quadrupled its net profit quarter-on-quarter (Q-0-Q) to ₹138 crore in the October-to December quarter (Q3FY24), from ₹36 crore, on the back of improved performance by Blin kit, higher revenue from food delivery business, and better ad monetization. 

The company reported a loss of ₹347 crore during the corresponding period last year (Q3FY23). Similarly, Nykaa clocked a consolidated net profit of ₹17.5 crore, up 106 per cent year on year (Y-o-Y) and 124.3 per cent Q-0-Q, owing to higher sales volume amid the festive season rush. PB Fintech, the parent of online insurance aggregator Policy bazaar, also turned profitable for the first time since listing. It posted a consolidated net profit of ₹38.05 crore for Q3FY24, as against a loss of ₹87.3 crore a year ago, on the back of higher premium income. 

“India’s internet penetration is less than 10 per cent, which leaves a large headroom for growth. We, thus, believe it is still ‘Day 1’ in India’s internet market where opportunities remain large and attractive,” said analysts at Bernstein in their latest sector report. 

The brokerage has a ‘Market-perform 'rating on Nykaa (target: X165), ‘Out-perform’ each on Info Edge (target: ₹6,000) and Zomato (target:₹200). 

Time to buy? 

Analysts believe the pack remains a “high-risk, long-term” bet. They, thus, suggest accumulating the stocks, selectively, on dips. They also advise investors to bet on businesses that prioritise sustainable growth over top line figures, and are conscious about their expense ratios and investments that will give a sustainable franchise model. 

“These stocks are only suitable for high-risk appetite investors. Stocks such as Zomato, Nykaa, and PB Fintech, thus, could be accumulated on dips for long-term. Paytm, however, could be avoided till the time regulatory overhang is behind us,” suggested Kranthi Bathini, director-equity, Wealth Mills Securities. ICICI Securities, in its March 26 note, reiterated the ‘buy’ rating on Zomato and increased its target price to ₹300 from ₹182 on improved visibility on a sustained growth trajectory and profitability metrics. 

“The upside risks include food delivery adjusted Ebitda margin crossing 4 per cent of gross order value (GOV) in 3- 4 months; market share gains in food delivery in Hindi heartland states given the ‘veg only’ delivery fleet in 3-4 months; quick commerce turning profitable at the adjusted Ebitda level in 3-6 months; and Fed rate cuts triggering large FII inflows into the stock in 6-12 months,” it said.