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4 Internet-Based Service Stocks Showing Upside Potential Up To 81%, HDFC Securities Says Buy

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HDFC Securities is bullish on 4 stocks from the internet-based services space which include IndiaMart InterMESH, Tanla Platforms, Info Edge (India), and AGS Transact Technologies. The brokerage has picked these stocks in its Q3FY23E Results Preview report. These stocks are showing robust upside potential in 2023. The stocks have also given massive returns in the past 5 years. Here we have highlighted these stocks along with the potential upside and the brokerage's comments.

 

1. IndiaMart InterMESH Ltd. (IndiaMart)
 

1. IndiaMart InterMESH Ltd. (IndiaMart)

HDFC Securities has placed a buy on the stock of IndiaMart with a target price of Rs 5,500/share. The stock is likely to give up to 23% decent return if purchased at the current market price. The stock last traded at Rs 4,479.50/share on NSE.

The stock was listed on July 04, 2019, and since its listing, it has given 244.06%. However, it has fallen 30.14% in the last 1 year. Whereas, it has given 109.35% positive returns in past 3 years. It is a midcap stock with a market capitalisation of Rs 13,713.80 crore.

HDFC Securities ssaid, "IndiaMart will have a moderate quarter; we expect an addition of ~7.5K paid suppliers, which is slightly lower than the target range of 8-10K/quarter. Heavy lifting will be done in Q4. The churn has moderated for the monthly bracket while silver and platinum annual customers continue to remain sticky. We expect revenue to increase by 3.7% QoQ, led by supplier additions and flat ARPU. The EBITDA margin will remain flat at 28% in Q3 and non-linearity will boost margins in FY24E (the majority of sales investments are over)."

It added, "Revenue estimates are unchanged and there is a slight reduction in margin estimates, resulting in a ~2% cut in EPS estimate. Collections will remain muted in Q3 (INR 2,440mn, +10% YoY), while FY23E will clock ~19% YoY growth. We expect revenue/EPS CAGR of +24/11% over FY22-25E. Maintain BUY with a DCF-based target price of INR 5,500, implying EV/EBITDA of 33x Sep-24E."

2. Tanla Platforms Ltd.

2. Tanla Platforms Ltd.

With a target price of Rs 1,005 per share, the brokerage has assigned a buy on the stock of Tanla Platforms. If purchased at the current market price, the stock is likely to give a return up to 43%. The stock's closing price is Rs 703.55/share on NSE.

The stock has fallen 61.78% in the last 1 year. Whereas, it has given a robust 954.01% return in the past 3 years and a massive 1,697.06% return in the past 5 years. This is a midcap stock with a market capitalisation of Rs 9,552.77 crore.

According to the brokerage, Tanla Platforms is expected to report a soft quarter due to lower volume growth both in enterprise and platform business. The transactional volume is growing but promotional messages are witnessing a slowdown. The Enterprise business will report 3.1% QoQ growth but it will register a decline on a YoY basis due to the ongoing ramp-down in one large account. Total revenue is expected to increase by 3% QoQ and EBITDA margin is likely to expand marginally to 16.6%. The gross margin will be flat for the enterprise segment, while the platform segment will operate in a similar range of 90%. The EBITDA margin will gradually reach ~18- 19% next year, supported by expansion in enterprise GM. The impact of the ILD price is yet to be visible in realisation. "We reduce our revenue and gross margin estimates for the enterprise business due to volume decline and a shift of margin expansion timelines, resulting in an ~6% cut in FY24E EPS. We maintain our BUY rating on Tanla but lower the target multiple; our TP of INR 1,005 is based on 22x Sep-24E EPS," the brokerage firm has said.

3. Info Edge (India) Ltd. - 4525

3. Info Edge (India) Ltd. - 4525

The brokerage has assigned a Buy on the stock of Info Edge with a Rs 4,525/share target price. It claims a potential upside of up to 23% from its current level if purchased at the current market price. The stock's last traded price is Rs 3716.15/share on NSE.

The stock has fallen 25.92% in the last 1 year. However, the stock gave positive returns in the 3 and 5 years. It gave 42.9% in 3 years and a massive 164.2% in 5 years, respectively. It is a midcap stock with market capitalisation of Rs 48,006.76 crore.

According to the brokerage, Naukri growth will normalise to 2.8% QoQ, after posting six quarters of strong growth (>8%). The other segments 99acres/Shiksha will report +5.3/-2.8% QoQ growth. The IT sector hiring is coming off a high base but hiring activity in other sectors like the BFSI, travel, auto, etc., will remain strong. Standalone revenue is expected to increase by 3.2% QoQ and EBITDA margin will increase by 40bps QoQ to 35.0%. The ad spend will remain higher for 99acres; Naukri's margin will remain in the 59-60% range. "We expect +23/+19/-8/+21% revenue CAGR in Naukri/99acres/Jeevansathi/Shiksha and a standalone EBITDA CAGR of 34% over FY22-25E. We have a BUY rating on Info Edge and a SoTP-based TP of INR 4,525. We have assigned 40x EV/EBITDA to Naukri (earlier 45X) and 5/3/3x P/S to 99acres/ Jeevansathi/ investments (ex-Zomato and PB)," the brokerage has said.

4. AGS Transact Technologies Ltd. ( AGS Transact)

4. AGS Transact Technologies Ltd. ( AGS Transact)

HDFC Securities has placed a Buy on the stock of AGS Transact with a target price of Rs 113/share. The stock has the potential to surge up to 81% from its current level. The current market price of the stock is Rs 62.60/share on NSE.

The stock was listed last year on 31 January 2022, almost 1 year back. Since its listing, its share value has fallen 61.13%. In 1 month it has fallen 10.32% and in 3 months it has fallen 23.61%. It is a small-cap stock with a market capitalisation of Rs 759.98 crore.

According to the brokerage, AGS is expected to report a modest quarter with 5.5% QoQ revenue growth, led by scaling of fixed-priced CRMs & ATMs, growth in cash management and higher GTV at POS business while banking automation and petroleum automation segment will be muted. The number of transactions/ATM/day is ~85; thus, the recovery in transaction-based ATMs is slower than expected. Focus on cost savings will lead to margin expansion (EBITDA at INR 1.16bn, +27.0% vs 26.3% in Q2FY23). The company will post a PAT of INR 0.21bn, impacted by higher interest cost (~INR 0.37bn). "We have cut the revenue estimate by ~6% and EPS by ~4% for FY24E. Revenue CAGRs in ATM Business/Digital Payments/Banking Automation are +6/13/8% and an EBITDA CAGR of 11% over FY22-25E. We have a BUY rating on AGS, with a TP of INR 113, based on 12x Sep-24E EPS," the brokerage has said.

Disclaimer

Disclaimer

The stocks have been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.

Story first published: Thursday, January 19, 2023, 20:13 [IST]
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