Investors around the world have recently shied away from loss-making companies in a deteriorating macroeconomic environment. Domestic brokerage firm JM Financial said in a note that this response has been well received by corporate management and that Indian internet companies are not only prioritizing profitability but also clearly pointing the way forward.
JM Financial said One 97 Communications (Paytm), PB Fintech and Zomato delivered profitability from adjusted EBITDA levels between Q4FY23 and Q2FY24. It added that Delhivery should also be able to resolve spoton integration issues and turn a profit by the fourth quarter of FY2023.
Nykaa, it said, takes a disciplined approach to its investments in the fashion and eB2B segments, while CarTrade points to higher operating leverage in its business.
“We believe that demonstrating profitable growth is the need of the hour, but at the same time, companies must take a conscious approach to planting the seeds for non-linear growth in the future. We believe that investors can focus on the potential profitability and confidence in the timeline can lead to a reassessment.” In the case of these companies, profit margins are expected to grow rapidly after break-even,” the company said.
PB Fintech | Target: Rs 910
JM Financial said PB Fintech is perhaps where management has been most vocal about its estimated Q4FY23 adjusted EBITDA breakeven. As of Q2FY23, the company has already achieved Ebitda-level adjusted profitability in its core online insurance business, which Paisabazaar expects to become profitable in Q4FY23.
JM Financial said the company has already shown a favorable trend with an adjusted EBITDA margin of minus 9 EPR in Q2 FY2023. It expects PB Fintech to turn profitable in Q4 FY2023 as Q4 is a very strong quarter for insurance in terms of weather. “However, we expect another loss in H1FY24, with enough profit in H2FY24 to ensure the company generates,” it said.
Najaka | Target: Rs 280
The domestic brokerage said that while Nykaa’s beauty and personal care (BPC) segment is doing well, its contribution margin is expected to rise to 24.1 percent in Q2FY23 given the company’s investments in fashion and other segments. Yes, questions are asked about that.
While fashion is a positive contributor, the company suffered a loss of Rs 71.40 crore on EBITDA level in this segment while the other segment also suffered a loss of Rs 44.70 crore. The company expects its BPC Ebitda margin to improve 200-250 bps year-over-year from 8.3 percent in FY22 and expects the fashion segment to break even in FY25.
“We expect BPC to positively surprise with an EBITDA margin of 11 percent in FY23 with potential further room for improvement, but fashion EBITDA will break even in FY25 and other segments may turn positive.
Only Ebitda through FY27. JM Financial said this margin improvement in BPC will be a result of the operating profit on personnel costs and the rationalization of marketing costs, with Nykaa becoming a household name for online BPC purchasing.
The brokerage estimates that the company will achieve growth of 40 percent in GMV, 38 percent in revenue and 82 percent in Ebitda in FY2022-25.
Pay | Target: Rs 600
JM Financial said it expects Paytm’s revenue to grow at a robust CAGR of 32 percent in FY22-26, helped largely by the financial services industry. This is even when considering the risk of current withdrawal rates. The brokerage has set a target of Rs 600 on Paytm shares.
“While financial services is relatively new to Paytm, we see strong growth going forward given the large untapped opportunity. In addition, we believe that the incremental path to profitability will primarily depend on the continued improvement of total sales. Dependent, which is related to reduction in marketing and cashback expenses and ESOP costs for Paytm,” it said.
JM Financial said payment processing fees have eased in the recent past, which has improved profitability, adding that it expects an incremental reduction in payment processing fees to be difficult.
“We like management’s vision to improve efficiency and focus on profitability and expect Paytm’s EBITDA to break even by FY26E. We also expect adjusted EBITDA to break even by FY24 as indicated by management.” We forecast GMV and revenue CAGR of 34 percent and 32 percent over FY22-26E,” it said.
Delhiwari | Purpose: not rated
JM Financial said Delhivery managed a strong and successful IPO in May 2022 at a time when most internet stocks struggled to raise money. JM Financial said a key driver for the successful listing was that the company showed pro forma profitability for FY22, while also seeing a 63 percent increase in revenue.
However, SpotOn has not been a smooth integration and has led the company to report an adjusted EBITDA loss of Rs 342 crore in H1FY23 versus a profit of Rs 7.2 crore in FY2012. With the company claiming that the integration is now complete and has an incremental gross margin on sales of 50 percent, JM Financial expects Delhivery to be profitable by the end of the current fiscal year.
“However, we expect margin improvement as the company can benefit from fixed cost amortization,” the company said.
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