The crash in the stocks of several start-ups or new age technology companies (NATCs) has cost investors dearly. For a clutch of six such players, the erosion, in market capitalisation since July last year, has been close to Rs 1.8 trillion. To be sure, some of the sell-off may be related to the choppy state of the markets and the weakness in the Nasdaq, which last Thursday ended at its lowest level since November 2020.
However, the disappointing financial performance of some of the companies, and the realisation these businesses may be hugely over-valued, has also added to the disenchantment.
CarTrade Tech, for instance reported a poor set of numbers for FY22, posting an Ebitda (earnings before interest tax, depreciation and amortisation) loss as it normalised expenses on employees and marketing. The cost of ESOPs rose sharply but even excluding these expenses, the stand-alone Ebitda margins for FY22 and Q4FY22 came in at 4.5% and 5.5% respectively, significantly lower than in the previous year, thanks to higher employee and advertising expenses. Compared with the IPO price of Rs 1,618 per share, the CarTrade stock now trades at Rs 646.45, down 60%.
The biggest loser in the pack is One97 Communications, which has given up Rs 64,500 crore in value since listing in November 2021, a 64% fall. Compared to the issue price of Rs 2, 150 per share, the stock closed at Rs 568.15 on Friday, an erosion of 73%. In early April, Morgan Stanley had put a price target of Rs 935 for the stock. Earlier in mid-March, Macquarie has slashed the 12-month price target to Rs 450 apiece from the earlier level of Rs 700 apiece as it assigned a lower price to sales growth multiple of 0.2 times following the correction in global fintechs.
Zomato has seen nearly two-thirds of investor wealth being wiped out from its peak in November last year. Compared to the issue price of Rs 76, the stock closed at Rs 60.50 on Friday. Post the Q3FY22 results, Kotak Institutional Equities (KIE) had lowered the fair value for the stock to Rs 135 from Rs 170 earlier. The brokerage noted that although Zomato had $1.7 billion to fund investments in quick grocery commerce, the path to profitability ‘appears to get longer’.
Although it listed a handsome premium to its issue price of Rs 980, the PB Fintech stock has since corrected sharply and closed at Rs 617 on Friday. The company posted a consolidated loss of Rs 298 crore for Q3FY22 compared with a loss of Rs 19.58 crore in the year-ago period although revenues from operations were up 73% y-o-y. The business is expected to continue to post losses in FY22 and FY23 according to analysts’ estimates.
FSN-E Commerce Ventures, which runs the beauty portal Nykaa, reported Ebitda margins of 6.3% in Q3FY22, a contraction of 700 bps y-o-y as the company spent more on advertising and re-focused on customer acquisition and brand building. Revenues were a good 36% y-o-y higher on a strong base. The stock after a dream listing, at a 79% premium to the issue price, has corrected but is still trading 40% above its listing price of Rs 1,125.
Fino Payments Bank, a profitable entity in FY21, made a weak debut on the bourses. The stock has not recovered and plunged to a low of Rs 257.75 per share in late February. In early January, analysts at ICICI Securities had set a target price for the stock of Rs 475, assigning it a price/earnings multiple of 32 times given its limited history of profitability and scale. On Friday the stock closed at Rs 285, a drop of 51% over the issue price of Rs 577.
Concerned about the steep loss in values post listing, the Securities and Exchange board (Sebi) proposed in February that in addition to the financial parameters, NATCs should disclose details of the KPIs (key performance indicators). The choice of KPIs should also be explained, the regulator believes. Sebi also wants the data to be audited to ensure it is authentic. Market experts agree that in the absence of profits, KPIs will give investors a sense of the valuations being demanded. Comparisons with global peers would also help, they say.