Share price rises in Paytm, Nykaa, Zomato, PB Fintech & Delhivery may see major shareholders cash out – BofA

• Analysts at BofA Global Research believe that large shareholders may sell their stake in these internet companies after the end of the lock-in period for investors prior to the IPO last year.
• These shares increased significantly over the past month and may lead to some profit booking from shareholders.
• Jack Ma-backed Ant Group is considering selling some of its shares in Paytm, according to reports.
• BofA Global Research says it sees earnings growth momentum for PB Fintech and Paytm in the near term.

As fledgling companies like Paytm, Nykaa and PB Fintech chart a stronger path to profitability, their stocks have performed well in the past month. This increase may lead to some shareholders leaving them before the initial public offering, and there is still an overhang on the share prices, analysts at BofA Global Research believe.

“After locking in 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 indicate that there is still sufficient supply, leading to a continued overhang on these names, the brokerage report said.

Source: NSE as on 27 February

Time to book profits?
The fact that most of these stocks have rallied significantly over the past month has heightened concerns that this could lead to some profit booking.

An example 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, a subsidiary of Alibaba Group, is also considering selling some of its shares in Paytm to keep its stake within a required threshold.

“Ironically, outperforming stocks may see blockages //(deals)// as these investors look to make money where demand is high. The data indicates there is further room for potential stake sales, which could impact the share price, BofA said, adding that Softbank, Alibaba/Ant, Tencent etc still have significant stakes in these companies.

Decline in consumption affects Zomato and more
BofA believes that over the next three-six months, consumer technology companies such as Zomato, Nykaa, MakeMyTrip and even Delhivery will witness slightly lower growth on the back of a slowdown in spending and as they reduce discounts/spending to focus on profitability .

Also, Zomato and Nykaa did not deliver overall improvement in finance unlike their fintech peers in the third quarter either. Still, analysts see a ray of optimism as they believe a long-term bet on them is worthwhile despite several roadblocks.

“The long-term growth potential of these companies is immense and despite the short-term challenges, these stocks therefore have buyers, especially after the sharp correction from the peak prices of the listing,” said VK Vijayakumar, investment strategist at Geojit Financial Services.

Source: BofA Global Research “See Revenue Momentum in PB Fintech & Paytm”
BofA is a bit more optimistic about fintech. In the third quarter, Paytm and PB Fintech narrowed their losses, beating analysts’ expectations.

Paytm’s December quarter results were a positive surprise as it posted its first ever quarterly operating result. The growth was driven by an increase in subscription income for sellers and lending 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, also benefits from lower competition in the fintech space given tighter RBI (Reserve Bank of India) regulations, funding of the winter and increasing interest rate environment, says the BofA report.

The December quarter result of PB Fintech, the parent company of Policybazaar and Paisabazaar, was another surprise for investors as it narrowed its losses significantly. Insurance premiums increased by 70.3% to INR 30.3 billion driven by a strong showing across segments.

“For PB Fintech, according to management, the renewal business should generate ₹4-4.5 billion revenue in FY24 (from ₹3 billion in FY23). The core business is already positive, and losses from new initiatives are decreasing. Management has also guided for FY27 net income of ₹10 billion – improving net income visibility,” BofA added.

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