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With adjusted EBITDA profitability delivered by PB Fintech, Delhivery and Zomato’s Food Delivery business in Q4FY23, there is an enhanced investor comfort on the ability of new age stocks to deliver sustained profitability. Going forward, we expect companies to deliver sustainable growth while ramping up profitability. While Zomato and Nykaa are expected to see sequential growth in Q1 with Delhivery’s PTL business continuing to improve post Spoton integration, PB Fintech would see a sequentially subdued quarter due to seasonality. Though wage hikes in Q1 could result in margin compression, focus on profitability is expected to continue with contribution margins expected to expand. We expect Zomato to sustain margin expansion across food and quick commerce along with Nykaa, PB Fintech and Delhivery could report sequentially lower EBITDA margins due to wage hikes as well as operating deleverage. In our view, key to monitor in this quarter would be net transacting user addition and trends in annual ordering frequency. While valuations have sharply improved over the past quarter, we still see gradual improvement going forward due to the longer-term growth and margin expansion potential of our coverage group. Zomato and Nykaa remain our top picks.

* Affle: The ad-tech industry worldwide continues to reel under a slowdown, with no signs of advertisers loosening their purse strings on ad spends. There is also the pressure of funding winter on high-growth businesses. We therefore expect organic revenue growth to remain muted (flat YoY, -2% QoQ). However, consolidation of ‘Youappi’ business would add ~15% to FY24 revenue and c.7% to 1QFY24 revenues (consolidation from Jun’23). While reported gross margins are expected to decline 20bps sequentially (mainly due to Youappi), improvement of 230bps YoY is expected due to improvement in Jampp margins and focus on high-quality volumes. EBIT would decline 6% YoY (+1% QoQ) due to negative operating leverage, meaning EBIT margin can dip c.220bps YoY (-70 bps QoQ). Management commentary on revenue growth momentum across India, other emerging markets and developed markets should be keenly watched.

* CarTrade: In comparison to Q4, Q1 is generally a weaker quarter for New Auto. However, with supply-demand mismatch normalising as well as new model launches, we expect CarTrade’s New Auto business to grow 4% sequentially and 28% on YoY basis considering the sustained strength in new auto sales. However, B2B Remarketing business is unlikely to recover yet with retail business growth compensating for the decline in B2B business and hence would result in a flat quarter. Overall, CarTrade should deliver 19% YoY revenue growth in Q1FY24 led by advertising revenues with adj. EBITDA margin (excluding ESOP expense) of 15%, decline of 550bps QoQ, due to the impact of wage hikes in the quarter. We expect the company to deliver revenue/adj. EBITDA of 23%/44% over FY23-26E with sustained growth in auto industry and shift to digital channels driving operating leverage. Furthermore, the company still needs to provide more colour with regards to the recent acquisition of OLX’s India business. At a high level, we believe this helps CarTrade become a consolidated new and used auto classifieds platform and the acquisition has the potential to provide incremental upside to stock price.

* Delhivery: We expect Delhivery’s express parcel business to see marginal growth in volumes with sequential improvement in e-commerce while PTL business would continue normalising post Spoton integration, though impacted by seasonality as Q1 is generally a muted quarter across both these segments. On a YoY basis, express parcel revenue would grow by 16% while PTL revenue would see a robust 32% growth. Furthermore, Delhivery’s Supply Chain services should also see strong sequential growth as Delhivery’s clients see most business in Q1 seasonally. With the company still seeing high incremental gross margins, we expect Delhivery to continue delivering gross margin improvement (5bps) in Q1FY24 as well. However, wage hike impact is expected to result in Adj. EBITDA margin declining 27 bps sequentially to reach 0%. We forecast the company to deliver FY23-26E revenue CAGR of 21% with Adj. EBITDA margin (pre Ind AS, excluding ESOP

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