Stock price run up in Paytm, Nykaa, Zomato, PB Fintech & Delhivery could see large shareholders cashing out - BofA

• Analysts at BofA Global Research believe large shareholders could sell their stake in these internet companies post expiry of the lock-in period for pre-IPO investors last year.
• These stocks gained significantly in the last one month and could result in some profit booking by shareholders.
• Jack Ma-backed Ant Group is considering selling some of its shares in Paytm, according to reports.
• BofA Global Research says that it sees revenue growth momentum for PB Fintech and Paytm in the near term.

As new-age companies like Paytm, Nykaa and PB Fintech chart a stronger path to profitability, their stocks have been performing well in the last one month. This uptick may result in some pre-IPO (initial public offering) shareholders exiting them and that remains an overhang on the stock prices, opine analysts at BofA Global Research.

“Post lock-in expiry for pre-IPO investors in names like Nykaa, Delhivery, Paytm and PB Fintech, we have seen increased volatility as a few early investors exited. However, the latest shareholdings of these companies indicates that there is adequate supply still, leading to a continued overhang on these names,” said the brokerage report.
Source: NSE as on February 27

Time to book profits?
The fact that most of these stocks gained significantly in the last one month has deepened concerns that this could result in some profit booking.

A case in point is a block deal in Paytm on February 10 by China’s Alibaba Group, which sold its remaining stake for about $167 million. According to reports, Jack Ma-backed Ant Group, an affiliate of Alibaba Group, is also considering selling some of its shares in Paytm to keep its holding within a required threshold.

“Ironically, better-performing stocks may see blocks //(deals)// as these investors would like to cash-in where demand is high. The data indicates that there is further room for potential stake sales, which could affect the share price,” BofA said, adding that Softbank, Alibaba/Ant, Tencent etc continue to hold significant stakes in these companies.

Consumption slowdown to affect Zomato & more
BofA believes that in the next three-six months, consumer tech companies like Zomato, Nykaa, MakeMyTrip and even Delhivery will witness slightly slower growth on the back of consumption slowdown, and as they curtail discounts/expenses to focus on profitability.

Moreover, Zomato and Nykaa did not deliver overall improvement in financials unlike their fintech peers in the third quarter either. Yet, analysts see a ray of optimism as they believe that a long-term bet on them is worth it despite several roadblocks.

“The long-term growth potential of these companies is huge and, therefore, in spite of the short-term challenges, these stocks have buyers, particularly after the sharp correction from their listing peak prices,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
Source: BofA Global Research

‘See revenue momentum in PB Fintech & Paytm’
BofA is a tad more optimistic about fintechs. In the third quarter, Paytm and PB Fintech narrowed their losses, trumping analyst expectations.

Paytm’s December-quarter performance was a positive surprise as it posted its first ever quarterly operating profit. The growth was driven by a pick up in merchant subscription revenues and loan distribution.

Analysts at BofA Global Research say they see revenue growth momentum for PB Fintech and Paytm in the near term.

“For Paytm, we expect momentum in its lending business to remain strong as its personal loans and merchant loans scale up. Paytm, in our view, is also benefiting from lower competition in the fintech space given tighter RBI (Reserve Bank of India) regulations, funding winter and rising interest rate environment,” said the BofA report.

The December-quarter performance of PB Fintech, the parent company of Policybazaar and Paisabazaar, was another surprise for investors as it narrowed losses significantly. Its insurance premiums jumped 70.3% on year to ₹30.3 billion driven by a strong showing across segments.

“For PB Fintech, as per management, its renewal business should generate ₹4-4.5 billion revenues in FY24 (from ₹3 billion in FY23). Its core business is already positive and losses from new initiatives are coming down. Management has also guided for FY27 net income of ₹10 billion – improving net income visibility,” BofA added.


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