Delhivery, Nazara Tech among top internet stocks picks ahead of earnings season. Buy, sell or add?

The third quarter (October-December) of FY23 was a difficult quarter for most B2C e-commerce companies and investors were expecting recovery in Q4 of FY23. However, domestic brokerage and research firm ICICI Securities said that B2C growth may underwhelm expectations.

The brokerage notes signs of consumption fatigue across online food ordering and BPC e-commerce. This is in contrast to the buoyancy in some offline discretionary categories such as travel and hospitality.

ICICI Securities believes this is due to wallet share recalibration among different consumption baskets and sustained trend of online-to-offline migration first seen in Q2 of FY23.

"In our view, B2B e-commerce is likely to continue on a strong growth trajectory in Q4FY23E led by penetration increase as small businesses explore means of increasing their digital footprint both on supply and demand sides," the note stated.

Based on research, ICICI Securities' analysts have listed four new-age tech stocks as its top picks: Delhivery, IndiaMart, Just Dial and Nazara Technologies.

ICICI Securities' overall stock picks -

IndiaMart InterMesh (BUY), Target Price ₹6,000

Just Dial (BUY), Target Price ₹750

Delhivery (BUY), Target Price ₹425

Zomato (BUY), Target Price ₹65

Matrimony (HOLD), Target Price ₹575

Nazara (BUY), Target Price ₹700

Nykaa (ADD), Target Price ₹165

What to expect from Q4FY23 results -

Zomato: The brokerage estimates adjusted revenue growth of 9.5% QoQ and 68% YoY and flattish consolidated EBITDA QoQ in Q4FY23E, indicating sustainable growth in new businesses.

Nykaa: Q4 is historically a weak quarter for Nykaa. Q4FY23E also experienced online consumption fatigue. Overall, the brokerage estimates revenue growth of 31.3% YoY in Q4FY23. It said that cost control measures may aid EBITDA margin expansion of 120bps YoY (flat QoQ). The brokerage estimates EBITDA to grow 73% YoY and PAT to grow 4% YoY.

Delhivery: The brokerage estimates Delhivery's revenue to grow 5.8% QoQ (-6.8% YoY) in Q4FY23E. It said that Delhivery is likely to deliver positive adjusted EBITDA in Q4FY23 for the first time since listing. This, as per the brokerage, could be a positive trigger for the stock.

Nazara: The brokerage estimates EBITDA margin to decline to 5.2% in Q4FY23E (historically weak margin quarter) vs 9.7% in Q3FY23 and overall EBITDA to remain flattish YoY.

IndiaMART: The brokerage estimates EBITDA margin may decline by 280bps QoQ (-330bps YoY) due to lumpy other expenses in Q4FY23E. Overall, it said EBITDA is likely to grow 14.7% YoY and PAT to be flattish YoY in Q4FY23.

Just Dial: The brokerage believes Just Dial’s B2B revenue is likely to grow faster (10.1% QoQ, 63.7% YoY) during Q4FY23E. EBITDA margin is likely to remain stable sequentially at 12.3%, though with an improvement of 16pps YoY. “We estimate EBITDA to grow by 6% sequentially to Rs312mn in Q4FY23E vs loss of Rs8mn in Q4FY22,” it said.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.