New-age tech stocks were indeed the biggest movers of recent market major shifts, as Paytm, CE Info Systems, and Ola Electric all showed sharp declines in its share prices. Now, in this week, the sensex and nifty 50 have achieved an all-time high, thanks to good global cues. Amid this, some new-age tech stocks lost their wining streaks while others remained successful on the basis of strong buying interest. Let’s go through how some of the leaders in the sector have performed and what their future prospects and target prices are.
Zomato: Target Price ₹315
A leading new-age tech stock, food delivery giant Zomato is continuing to grow with subsidiary Blinkit rapidly expanding into new cities as part of a strategy to acquire first-time users and optimize the use of mother warehouses. The acquisitions are accompanied by a range of new initiatives to grow customer wallet share. This includes:
It has been considering a pilot in product returns primarily on branded apparels. Product returns are important since it can help improve the satisfaction of customers and ease of shopping which plays a critical role in the very competitive food and grocery delivery business.
Dark Stores & Split Shipments: The company has also opened larger dark stores or warehouses meant for order fulfilment with a high inventory handle, and splitting shipments. More such moves should lead to delivery times reducing in most of the regions where they are growing strongly.
The company is introducing new product categories, which may even extend to non-food and grocery essentials. Through such diversification, the company can tap into the wallet share of customers for increased engagement.
The competitive landscape of the food delivery and quick-commerce space is quite intense, with selective cities hosting probable price competition. With these pioneering initiatives along with aggressive expansion, Zomato is poised for long-term growth. Analysts have upgraded the GMV (gross merchandise value) CAGR (compound annual growth rate) for FY2024-27 of Blinkit to 81%. The target price of Zomato has gone up from ₹270 to ₹315 with a buy recommendation.
Target Price ₹ 190
FSN E-commerce ventures or Nykaa, as it is more popularly known, has emerged as the leader in beauty, personal care and fashion e-retail in India. In fact, the company portfolio is truly unique to that of third-party products through a range of owned brand products. However, challenges continue lurking in, especially related to fulfillment costs.
Nykaa’s efforts to expand more cities with same or next day delivery led to an uptick in its fulfillment costs as a percentage of Net Sales Value. These are indeed expansion plans that will add to its long-term strategy but are likely to weigh on the company’s profitability in the near term. Analysts have since downscaled estimates for both of its segments: BPC (Beauty and Personal Care) and eB2B (business-to-business); these, in turn, have cut EPS (Earnings Per Share) estimates by 7-11% for FY2025-27.
Stock-wise, the stock has rallied sharply by 34% in the past three months, on largely positive market sentiment. However, this sharp run-up has gone down working for a reduction of its rating from ADD to SELL as analysts feel that the stock is now seriously overvalued at its current levels. In fact, the fair value of the stock has been reduced from ₹205 to ₹190, on caution over near-term profitability challenges.
Target Price- ₹560 Delhivery
Delhivery is a leading logistic player, which boasts a solid performance of its stock price backed by a robust business model and expansive service offerings. The firm offers an entire gamut of logistics services encompassing express parcel delivery, freight, warehousing, and cross border solution. To an extent, the business model in Delhivery is uniquely positioned by taking away cost advantages at both new-age and traditional logistics competitors’ costs from the interplay of various services it offers.
Delhivery has performed extremely well in the first quarter of FY2024 and has been able to outdo market expectations. This was despite Valmo, one of the large logistics companies in India, having provided stiff competition and thereby affecting the revenue growth and profitability in the industry. The strategy pursued by Delhivery while using its integrated and interoperable network has helped the company outperform competitors. This network enables the firm to drive cost optimization and time compression while ensuring increased customer satisfaction on delivery completion.
The conservative approach to skip an opportunity which doesn’t align with its core strengths further helps the company strengthen the business. Delhivery is focusing on opportunities where it can fully utilize its network moats, avoiding areas where its competitive advantage might be diluted. This selective expansion strategy should drive further margin improvement.
These factors have led analysts to hike margins for Delhivery by 60-100 basis points, given the expectations of continued cost efficiency along with revenue growth. On the same lines, the FV of Delhivery’s stock has been revised upwards from ₹545 to ₹560, and the stock continues to be a strong BUY.
New-age tech stocks : Broader Market Trends and Outlook
The new-age tech stocks well reflect the overall trends in the Indian market. With Sensex and Nifty 50 at all-time highs, the investors are searching for technology-driven companies that are sure to revolutionize the traditional sectors. That is how food delivery and e-commerce, logistics, and transportation are going to shape up in the future.
However, the issues are sizable enough that none of these companies has quite entered into a high growth trajectory. These companies still are in a serious growth phase by investing heavily into expansion at all costs, thereby their profitability has been expected to fluctuate. If one has to take a call on these companies, he needs to weigh the long-term potential against the near-term risks posed by such aggressive expansion strategies.
For example, the scale-up of Zomato’s Blinkit is a classic example of the willingness of a company to suffer short-term losses in order to gain market share. The quick-commerce business is highly competitive, and the likes of Swiggy and Dunzo are other firms fighting for share. Price competition will become a significant factor in the quarters ahead.
Once again, the cost of order fulfillment will be higher for Nykaa, and this is one of the problems in scaling an e-commerce company across more product categories. Even with a strong brand and a strong customer base, the increased cost of delivery and logistics will weigh on profitability. Investors will be keen to understand how the management executes these costs because the same-day and next-day deliveries are going to grow further.
Another flavor of the new-age tech stock, Delhivery is logistics and supply chain management. The integrated network and focused expansion are quite unique in the industry as well, which keeps it cost-leadership for the firm. Logistics is an industry in constant change, with every new player and efforts from mainstream firms.
Conclusion
All new-age tech stocks-including Zomato, Nykaa, and Delhivery-are at the centre of innovation. While each of them poses its set of problems, they are all well-positioned for long-term growth. Investor interest in stocks must be gauged on parameters such as competitive intensity, cost management, and scale-up of market share. The sectors mentioned will, most probably, remain in the limelight on the Indian stock market owing to the latest surges hitting fresh heights. These are both investment opportunities and risks.