Zomato, Paytm, PB Fintech 'optically inexpensive', profits & preserving moat is key: N Jayakumar

New-age stocks like Paytm, PB Fintech, Zomato have seen a strong revival in the recent time, rallying up to 95 percent in the last one year.

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Zomato, Paytm and Policybazaar (PB Fintech) are leading the revival in the new-age tech stocks pack, by turning profits, preserving moats and offering cheap valuations, said noted market experts at Moneycontrol Diwali Party. Several of these new-age stocks have rallied up to 95 percent in the last one year, rebounding from up to 80 percent fall post-listing.

Earlier, high valuation concerns and global economic slowdown took a toll on most of the so-called new-age tech stocks listed in 15 months through May 2022.

Zomato, Paytm and PB Fintech have remained committed to their original strategies, said N Jayakumar, MD & CEO, Prime Securities. Their financial performance including EBITDA improved, leading to a recovery in stock prices, said Jayakumar. The market has evaluated and rewarded these companies for their improved financial performance, he added.

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Improving financial performance, profitability helping share price revival

While Zomato has been turning a net profit for the last two quarters, Amit Jeswani, Founder of Stallion Asset Private Ltd, expects Paytm and PB Fintech to turn profitable this quarter.

Companies such as Zomato, Paytm and PB Fintech, which fell up to 80 percent from their IPO prices, became optically inexpensive for investors to buy, said Jayakumar.

Mutual funds boosting exposure to these companies is one of the reasons behind the sharp revival. Shareholding patterns of new-age firms like Zomato, Paytm, PB Fintech show that mutual funds have increased their holdings in several slowly but significantly over the last four quarters.

While companies like Zomato or Paytm stuck to their knittings -- also known as single business strategy -- Nykaa on the other hand opened up the beauty and personal care moat and moved into other areas like fashion etc, where money is being burnt by most companies.

Zomato

Zomato has been PAT-positive for the last two quarters. In the quarter gone by, Zomato recorded a net profit of Rs 36 crore, and its revenue from operations jumped 71 percent on-year to Rs 2,848 crore. Zomato share price has surged more than 100 percent so far in 2023, doubling investor's money. The company, with its last two results, has shown that growth remains its top priority, according to analysts.

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Paytm

Meanwhile, Paytm narrowed its losses for the quarter ended September 2023 to Rs 290 crore. Its revenue from operations jumped 32 percent on-year (YoY) to Rs 2,519 crore. Analysts believe that consistent improvement in Paytm's contribution margin and operating leverage will continue to drive operating profitability.

Amit Jeswani expects that Paytm will also achieve PAT-positive status over the next two quarters. Paytm's profit, excluding ESOP costs, will be around Rs 1,000 crores in FY24 as long as the growth continues, he said. So far this year, Paytm stock has rallied around 70 percent.

PB Fintech

Meanwhile, PB Fintech has also reduced its net losses. In the quarter ended September 2023, it cut its consolidated net loss to Rs 21 crore. Jeswani expects the new-age tech company to become PAT-positive in the December quarter due to a decrease in ESOP costs by Rs 40 crore. PB Fintech shares have zoomed nearly 100 percent in the last one year.

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When an entire sector achieves PAT positivity, it indicates that the supply has been mostly absorbed, and there is a high growth potential of up to 40 percent. So, Zomato, PB Fintech, and Paytm collectively are expected to achieve significant PAT positivity next year.

With improved financial indicators and a positive trajectory towards achieving PAT positivity, these companies are poised to play a role in shaping the future of the new-age tech sector. As they continue to leverage market trends and capitalise on growth opportunities, investors are keeping a close watch on their performance, anticipating continued upward momentum in the coming quarters.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.