Is Zaggle the New Tech Stock to Watch After This Week’s Surprising Performance?

New-Age Tech Stocks Witness Decline, Yet Zaggle Emerges Victorious

This week, Indian new-age tech stocks experienced a downturn amidst lackluster financial performances from select listed companies in Q4 FY24.

Of the 22 new-age tech stocks covered by Inc42, only four showed gains ranging from 0.15% to approximately 9%. Leading the pack was Zaggle, soaring 8.8% this week on the heels of a stellar financial showing in the last quarter of FY24. The fintech SaaS startup boasted a remarkable 153% surge in its profit after tax (PAT) to INR 19.2 Cr in Q4.

Joining Zaggle in the winners’ circle were Mamaearth, Fino Payments Bank, and ideaForge.

However, the majority of tech stocks, numbering 18, experienced declines ranging from 0.7% to 18.5% during the week. Notably, TAC Infosec suffered the most significant setback, with shares plummeting by 18.54% on the NSE.

In the midst of bearish market sentiments, the debut of insurance tech unicorn Go Digit also fell short of expectations. Although its shares were listed at a slight premium, brokerage firm Emkay initiated coverage with a ‘sell’ rating and a price target (PT) of INR 210.

Despite the subdued performance of new-age tech stocks, broader equity indices Sensex and Nifty50 witnessed gains of 1.8% and 2.1%, respectively, underscoring a contrasting market sentiment.

Vinod Nair, head of research at Geojit Financial Services, attributed domestic market gains to a sustained momentum in the short term, with notable rerating observed in the BSE PSU index.

It’s worth noting that the week commenced with bourses closed on Monday (May 20) due to the ongoing General Elections voting day in Mumbai.

Despite the downturn, the total market capitalization of the 22 new-age tech stocks increased to $59.56 Bn, compared to $51.35 Bn in the previous week.

Paytm’s Financial Woes Persist

This week witnessed a 3% dip in the shares of the fintech giant on the BSE, closing the final trading session at INR 340.95. The downturn follows the company’s recent disclosure of significant setbacks in its financial performance.

Highlighted News:

Paytm witnessed a significant over 3X increase in its net loss on a year-on-year (YoY) basis, reaching INR 550.5 Cr in Q4 FY24, up from INR 167.5 Cr in the previous year. Concurrently, its revenue from operations experienced a 2.9% YoY decline to INR 2,267.10 Cr, compared to INR 2,334 Cr in the corresponding period last year.

The company disclosed to the bourses that its merchant business faced elevated attrition in February and March due to the mandatory migration of merchants from its payments bank to other bank partners. Consequently, its active point of sale device base dwindled by 10 Lakh, despite a marginal uptick in the merchant base.

Acknowledging an industry-wide deterioration in asset quality, the Vijay Shekhar Sharma-led entity halted its small personal loans business and shuttered its Postpaid portfolio entirely. Furthermore, it registered a substantial 36% YoY and a steeper 50% sequential revenue decline in its financial service arm, which amounted to INR 304 Cr.

Despite the challenging market conditions, analysts hold mixed sentiments toward the startup’s shares. YES Securities, a brokerage firm, bestowed a ‘buy’ rating on the fintech major’s shares with a PT of INR 450, noting some resurgence in its payments business.

“Following a period of strain, the merchant payments business exhibited growth in April and May. Conversely, monthly transacting users, crucial for the consumer payments business, witnessed a 25% decline compared to January. While April marked the nadir for MTUs, the situation stabilized in May. MTU growth is anticipated post the TPAP commencement,” the firm remarked.

Conversely, Ganesh Dongre, senior manager of technical research at Anand Rathi, anticipates the startup’s stock to hover around the INR 328-INR 330 level in the near future.

“At present, we do not advocate purchasing this counter due to the possibility of shares declining from the current level,” he cautioned.

Mamaearth’s First Profitable Year Draws Investor Interest

Mamaearth’s parent company, Honasa Consumers, witnessed a surge of approximately 6% in its shares on the BSE this week, closing at INR 430.50 on Friday, buoyed by positive financial indicators.

In the fiscal year, Mamaearth reported a net profit of INR 110.5 Cr, a significant turnaround from the INR 150.96 Cr loss incurred in FY23. Moreover, operating revenue for the fiscal year ended March 2024 saw a robust 30% increase, reaching INR 1,919.6 Cr compared to FY23’s INR 1,492 Cr.

The company also demonstrated strong performance in Q4, posting a net profit of INR 30.47 Cr, marking a 17% sequential rise from the previous quarter’s INR 28.91 Cr.

Following the financial disclosure, brokerage firms expressed optimism towards the startup’s shares. JM Financials, Kotak Institutional Equities, and Emkay reiterated a ‘buy’ rating on the stock, setting price targets of INR 505, INR 450, and INR 500 respectively.

Brokerages anticipate that Mamaearth will leverage its “house of brands” strategy going forward. Kotak highlighted the potential for growth in Mamaearth’s younger brands, offsetting any deceleration in the flagship brand’s growth.

JM Financials commented, “Honasa would be able to replicate Mamaearth’s success with some of its other brands which should aid overall revenue performance, enable it to extract savings across lines and drive profitability.”

However, Anand Rathi’s Dongre expressed caution, refraining from recommending a buy on Mamaearth due to potential corrections towards the INR 390 level.

Nykaa’s Q4 Performance Disappoints Investors

In the closing quarter of FY24, Nykaa faced a lackluster performance, leading to a 4.87% drop in its share price, settling at INR 168.15 by week’s end.

The company’s consolidated net profit witnessed a significant 48% decline quarter-on-quarter (QoQ), plummeting to INR 9.07 Cr from Q3 FY24’s INR 17.45 Cr. Additionally, its operating revenue saw a 6% sequential decrease, falling to INR 1,667.9 Cr from the previous quarter’s INR 1,788.8 Cr.

Analysts at brokerage firms hold divergent views on Nykaa’s future prospects. JM Financial, reiterating its ‘buy’ rating, raised Nykaa’s target price to INR 220 from INR 210, emphasizing the company’s robust growth across various segments and strong operating metrics.

On the contrary, ICICI Securities downgraded Nykaa to a ‘hold’ status, expressing concerns over margins and increasing competition in the market. They maintained a price target of INR 175, highlighting subdued ad revenue growth and heightened competitive pressure.

Anand Rathi’s Dongre forecasts further correction in Nykaa’s stock, anticipating a decline to the INR 150 level.