They are currently at probably the lowest bottom business wise… But the stock price may not be at lowest bottom lol.
They currently have dual factors working against them…
- Their entire target market ie smes are struggling and will continue to struggle for the next few quarters with lock downs in play and covid raging.
- Their expenses have shot up with the launch of jdmart and they won’t make much ground here profit wise for at least 2 more quarters. So revenue will stay mute and expenses will continue staying high.
The comfort is that even at this low point there is no existential threat due to their huge cash reserves and no debt and low asset model. Also, their business model strength is showing since they have managed to keep a respectable amount of organic traffic with almost no ad spend. Their ad expenses for fy 21 was 6.8 crores vs 68 crores of FY20.
However, the green shoots are very much visible.
A few quarters down the line they’ll start spending on ads again and their inorganic traffic will aid their top line from what can now be considered base line traffic which is already pretty impressive considering its all organic!
Their jdmart venture should start generating returns towards the end of this year and while it won’t show on the balance sheet yet their Concall will be key.
What I suspect will happen is their Q1 will be a washout too so I don’t expect the price to go anywhere but towards its 200 dma levels over the next few months.
I also suspect q2 will be poor. So we have about 6 months of poor results and price pressure and volatility ahead of us along with opportunity costs.
Personally il be holding and adding at lower levels over this next year if it reaches on or under 200 dma levels. I’ve seen enough to know that once their ad spends are back to pre covid levels and covid goes back to ummm… Pre covid levels, and jdmart starts fructifying(I have huge faith in this venture) there will be a turnaround. If I had 4800 crores I’d buy the entire business though I’m pretty sure it wilI be available near 4000 crores soon… So while I feel its undervalued there may be a higher discount on the offering. I do think the management is capable and honest too and have handled this tough period + launch as best they could.
I also love buying cash rich, low debt, asset light businesses at their bottom and since its a platform based business all the better since there isn’t any corporate governance issues I can see so I don’t foresee losing too much here in the medium term even in the worst case scenario.
Will be attending the Concall and posting further thoughts on Monday night