Paytm, Zomato, PB Fintech narrowed losses in Q4; are they set to deliver robust returns on D-St?

Analysts on Dalal Street turned positive on new-age internet firms including One97 Communications (Paytm), Zomato and PB Fintech which managed to narrow down their losses substantially in the March quarter. Digital payments firm Paytm, which is down 67 per cent against its issue price, reported a loss of 168.40 crore in Q4FY23 against a loss of Rs 761.40 crore in the same quarter a year ago.

Brokerage ICICI Securities is positive on Paytm with a target price of Rs 1,055 mark, indicating an upside of 50 per cent against the market price of Rs 701.30 on May 30, 2023.

“Positive cycle of customer growth, retention and cross-sell playing out for the company is encouraging. Customer onboarding and an increase in use cases are helping growth,” ICICI Securities said in a report. Meanwhile, net sales of Paytm increased 51.50 per cent YoY to Rs 2334.50 crore during the quarter under review.

Likewise, PB Fintech, operator of insurance aggregator platform Policybazaar, reported a loss of Rs 8.95 crore for the quarter ended March 2023 against a loss of Rs 219.61 crore in the corresponding quarter a year ago. The net loss of food delivery platform Zomato declined to Rs 188.20 crore in Q4FY23 over a loss of Rs 359.70 crore in Q4FY22.

Shares of PB Fintech and Zomato have lost around 38 per cent and 12 per cent against their respective issue prices so far. Shares of Paytm, PB Fintech and Zomato got listed on bourses during the second half of 2021. Net sales of PB Fintech and Zomato jumped nearly 61 per cent and 70 per cent YoY to Rs 869.09 crore and Rs 2056 crore, respectively, in Q4FY23.

Brokerage JM Financial is positive on Zomato with a target price of Rs 105. Shares of the company traded at Rs 66.83 on May 30. The target price shows a potential upside of 57 per cent in the food delivery firm’s shares.

“Zomato’s core business (ex-Blinkit) turned adjusted EBITDA positive in Q4FY23, at the front end of management’s guidance of achieving it by Q2FY24. The cherry on the cake was its commitment to turn both adjusted EBITDA and PAT positive on a consolidated level (including Blinkit) by Q4FY24. The core business milestone was achieved mainly on the back of solid expansion in the food delivery contribution margin to 5.8 per cent vs 5.1 per cent in Q3. This was because profitability levers such as improvement in restaurant commissions and income, and lower discounts/variable cost offset the adverse impact of Gold launch,” JM Financial said.

It further believes that management commitment to profitability improvement can lead to a significant upside from the current market price. Zomato is JM Financial’s top pick in the listed internet space due to its conviction in Zomato’s long-term growth prospects and the management’s strong execution capabilities.

JM Financial is also bullish on PB Fintech with a target price of Rs 980. Shares of the company traded at Rs 599.35 on May 30, 2023. “The company is now the most dominant insurance distributor in the country with our estimates suggesting Policybazaar accounting for around 42 per cent of online insurance distribution while also becoming the largest PoSP player. We have maintained our revenue forecasts for the company and brought forward PAT level profitability to FY24 itself, resulting in a DCF-based TP of INR 980. However, our steady state profitability remains similar and earlier margin improvement implies a slower uptick in the later years,” the brokerage said.

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