As the new year dawns, people are trying to crystal ball what's coming in 2022. The RBI and the US Congress have already outlined some possible threats: climate change (at the top of everyone's list), new Covid variants, and rising inflation. In addition, the RBI report mentions risks of slowing capital flows to India, a stronger US dollar, and additional stress and NPAs in consumer finance.
All of these are possible. On a positive note, many analysts expect India's corporate earnings growth to remain strong in 2022, which should support the current high valuation multiples in Indian stocks. However monetary policy tightening in the US and Europe may reduce foreign inflows into Indian equities, putting a ceiling on the upside.
In this week’s Analyticks, we look at:
- Zomato, Nykaa, Paytm, Nazara: What Trendlyne’s Forecaster says about the outlook for new-age tech in 2022
- Outperformers and underperformers of 2021
Let’s get into it:
We look at the forecasts for four recently listed Indian internet companies, starting with Zomato.
Zomato is moving beyond a duopoly play in foodtech
Zomato kicked off a listing spree of large loss-making Indian companies in July 2021. But it has also been in the news for investing its IPO proceeds in many unrelated businesses. These include investments in Curefit (fitness), Shiprocket (logistics), and Magicpin (vouchers).
Zomato's investing moves have spurred a change in SEBI regulations for IPOs, to limit the amount companies can raise from IPOs to invest in M&As. This is not a compliment for Zomato: being the reason for the regulator to change IPO rules. In addition, while companies like Paytm started regular monthly business updates post-listing, Zomato has shared updates on its business only with quarterly earnings.
Although Zomato’s losses are not expected to reduce anytime soon, Trendlyne’s Forecaster estimates show that analysts expect its losses to fall by nearly 30% in FY23 over the estimated loss for FY22.
Hopefully, this will keep investors interested in the company despite the red in its balance sheet.
Nykaa’s profitable e-commerce business keeps investors hooked
Nykaa (FSN E-commerce Ventures) is in a strong position. The company reported profits for consecutive quarters till September 2021 at the consolidated level. However its Q2FY22 profits fell by nearly 96%. Still, the stock continues to trade above the Rs 2,000 level after a brief dip below that level due to volatility in the markets.
Most analysts believe that the company is poised to benefit from the interest of beauty and personal care brands in advertising on the Nykaa platform. The company is also focused on building offline stores to improve its omni channel capability.
Average estimates from Trendlyne’s Forecaster show that the company’s profits may rise rapidly till FY23. This is mostly due to operating leverage kicking in, as a 50% rise in FY23 revenues over FY22 could lead to a 3.5X times rise in the company’s profits.
Paytm’s Super App ambitions for financial services
Yes, the listing was a flop. There is no getting around the fact that Paytm (One97 Communications) didn’t have the best post IPO experience. There was a report from brokerage Macquarie that pegged a target price of Rs 1,200 on the day the stock listed. Although the stock has recouped some of its listing day losses, it hasn’t touched its IPO issue price of Rs 2,150.
The company is creating a Super App, and wants to be present at every node of the financial services business where any payment is made. Analysts however, are unconvinced about Paytm’s ability to do this in the face of intense competition across the financial services space from more vertically specialized businesses. It's an ongoing argument that its founder and CEO is having with analysts, and he says that people don’t understand the company’s business.
Trendlyne’s Forecaster shows that while average revenue estimates signal an upward trend for FY23, the company’s losses won’t reduce in a hurry. This could be because the company will have to keep spending on marketing to onboard more customers. As Paytm itself says, the game has only just started.
Nazara Technologies is on an acquisition-led growth binge
While investors have focused on other newly listed platforms and internet businesses, Nazara Technologies has receded into the background. Nazara Technologies’ diversified gaming and sports media platform is focused on building esports, skill-based fantasy, and trivia games, It also has a freemium segment aimed at casual gamers. The company’s strategy to grow its business is built on acquiring adjacent businesses to build ‘Friends of Nazara’. These are essentially companies in which Nazara holds a majority stake.
The company’s profits have been volatile over the past few quarters, but its focus seems to be on growing revenues aggressively through acquisitions. In this context, it’s worth noting that its quarterly revenues hovered between Rs 123 crore to Rs 131 crore in the past four completed quarters (Rs 129.6 crore in Q2FY22).
The average revenue estimates of Trendlyne’s Forecaster shows that Nazara Technologies revenues in H2FY22 is expected to more than double from the Rs 261 crore in H1FY22.
You can use the Forecaster tab next to each stock overview page, to find the consensus estimates for companies in your watchlist and portfolio.
Year-end round up of best and worst performing stocks
As curtains fall on 2021, we bring you a list of stocks in the Nifty 500 that outperformed the benchmark Nifty 50, as well as those that underperformed the index. This screener shows there are 40 companies that outperformed the Nifty 50 by over 50% and also clocked an earnings growth of more than 20% on a TTM basis. This screener shows 53 companies that underperformed the Nifty 50 by over 15% in the past year.
IT firms rule the roost in 2021, textile companies spring a sweet surprise
Adani Total Gas, KPR Mill and Happiest Minds outperformed the Nifty50 by more than 250% in the year gone by. Consistent volume growth on the back of expansion in new geographic areas worked for Adani Total Gas.
When we look at the top 10 outperformers, IT services emerges as a clear winner in 2021. Acceleration in digital transformation and migration to cloud services by businesses worldwide drove multiple deal wins for companies like Persistent Systems, Mindtree and Tata Elxsi. This structural development boosted their topline and bottomline growth, leading to a stellar performance for their stocks.
Revival in government and private capital spending augured well for the industrial goods companies like Grindwell Norton, Solar Industries, and SKF India.
Textiles companies such as Welspun India and KPR Mill sprung a sweet surprise for investors in 2021. These companies’ exports got a fillip owing to the 'China + 1’ strategy adopted by global manufacturers post Q2FY21.
Specialty chemical players such as Balaji Amines witnessed high volume and value growth owing to China’s supply-side bottlenecks. Understandably, it was one of the top multibaggers for investors in 2021.
Pharma, FMCG and banks disappoint the most in 2021
Much to the dismay of investors, companies like Spandana Sphoorty Financial and Amara Raja Batteriesgrossly underperformed the Nifty 50 index.
Of the top underperformers, many belong to the pharmaceuticals space. While this sector did considerably well during 2020, factors such as the sharp rise in raw material cost, increasing competition, and pricing pressure in the US market weighed heavily on stocks like Alembic Pharmaceuticals.
Another sector that saw many companies underperform in 2021, was FMCG. Companies such as HUL, Britannia, Colgate-Palmolive, and Nestle suffered on account of slowdown in domestic consumption as well as spike in input costs.
The second Covid-19 wave in India added to the woes of leading banks and NBFCs such as Kotak Mahindra Bank and SBI Cards and Payments. Fall in collections led to a rise in NPAs and slippages, which ultimately impacted their earnings growth.
As we prepare to welcome 2022, brokerages such as Kotak Securities and Axis Securities are bullish on engineering, infrastructure, banking, technology, and the real estate sector for the next 2-3 years. Sustained economic revival and impact of Covid are key factors to watch out for in the near term.
