Zomato, Paytm shares: JPMorgan remains bullish, sees ’improving profitability’

Global brokerage JPMorgan has said that India Internet companies are up 12 per cent as against Nifty +2 per cent since early February due to two primary trends emerging post their third quarter results.

"Profitability across contribution margins (CM) and Adj. Ebitda improved for all, as companies shifted focus to profit over growth, and platform economics to an extent have begun playing out," the global brokerage said in a note.

Paytm's print, JPMorgan said, was the pick of the season as Adjusted Ebitda profitability achieved three quarters ahead of schedule, while Zomato highlighted that its core business achieved Adjusted Ebitda break even in the month of January.

GMV and revenue growth slowed down on-year basis for all the players as a result of the online-to-offline shift in spends and moderation in discretionary spends, the brokerage said.

"We expect this to enter the base over CY23 as companies show ability to monetize core cohorts better. The market cheered the profitability trend at Paytm, with the stock up 12% post earnings (vs Nifty -1%). Continued improvement in profits can drive investor confidence in the business models, driving a a re-rating, given the underperformance India Internet names (down 36%) saw over CY22 vs Nifty (underperforming by 42%)," JPMorgan said.

The brokerage added, "We stay bullish on the sector and prefer prefer bottomup stories such as PAYTM, ZOMATO and MMYT, and expect them to graduate from revenue to profit multiples."

On Tuesday, Paytm's shares plunged 5.50 per cent to settle at ₹600.20 apiece, which shares of Zomato fell 0.47 per cent to close at ₹53.35.