Internet Q2 Results Preview - Online Still Growing Faster: ICICI Securities

ICICI Securities Report

The trend of online growing faster than offline may have likely sustained in Q2 FY24E. This is evident from the trends in 'consumer foodservice’ and ‘fashion and lifestyle’ categories, where both Zomato Ltd. and Nykaa are likely to post higher growth than their offline peers.

In the listed business-to-business e-commerce space, we believe demand-led growth should have improved sequentially; however, IndiaMart Intermesh Ltd.’s net customer addition would continue to be below Rs 7000-8000 per quarter desired run rate.

In our view, gaming sector (specially e-sports) is likely to grow as some key multiplayer games have been re-introduced into the Indian market.

We believe, gradual recovery in matrimonial space should continue.

Our top picks for the quarter: Zomato, Nazara Technologies Ltd. and Just Dial Ltd.

Zomato ('Buy', target price Rs 160)

We estimate Zomato’s food delivery gross order value to grow 4% QoQ (14.8% YoY) in Q2 FY24E given a high base of 11.4% QoQ GOV growth in Q1 FY24. We estimate food average order value to remain flattish sequentially (3.2% YoY).

We estimate food ordering contribution margin to expand by 60 basis points QoQ led by take rate improvements. We estimate Blinkit to grow 30.9% QoQ (aided by a low base in Q1 FY24) and Hyperpure business (B2B) to grow 7% QoQ in Q2 FY24E.

Overall, we estimate adjusted revenue growth of 10.1% QoQ (46% YoY) and overall adjusted Ebitda margin to improve to 3.4% as a proportion of adjusted revenue (versus 0.4% in Q1 FY24). We estimate an adjusted Ebitda of Rs 1.1 billion in Q2 FY24E (versus Rs 0.1 billion in Q1 FY24).

Nazara Technologies ('Buy', raise our target price to Rs 1080 from Rs 850)

We estimate revenue to grow 20.1% YoY (15.8% QoQ) in Q2 FY24E. In our view, this may be led by sustained strong growth in e-sports (40% YoY), gamified early learning (54% YoY) and ad-tech segments (34% YoY).

We estimate Ebitda margin to improve to 10.9% in Q2 FY24E versus 8.1% in Q2 FY23 and overall Ebitda to grow 56.9% YoY to Rs 334 million. We increase our target enterprise value/Ebitda multiple from 32 times to 38 times in line with stock’s current market price. We maintain BUY on the stock and raise our target price to INR 1080 from INR 850.

Just Dial (Upgrade to 'Buy' from 'Add', Rs 870)

Overall, we estimate revenue to grow 4.9% QoQ (26.2% YoY) aided by B2B revenue growth of 8.3% QoQ (50.4% YoY) in Q2 FY24E. We estimate Ebitda to grow 15.0% QoQ (1.48 times YoY) to Rs 422 million in Q2 FY24E, with margin expansion of 140 bps QoQ.

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