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Ashi Anand , Founder & CEO, IME Capital , says the profitability of some of the new-age companies should surprise quite significantly. Can a Zomato be at $100 billion-plus 7 to 10 years down the road? Can Policybazaar be worth $40 billion 7 to 10 years down the road? Anand says these numbers are on very conservative projections without taking note of a lot of optionality that can be built on in these businesses is showing that quite clearly. Their core thesis is if companies that are growing at a very rapid pace, are going to be turning highly profitable with very strong free cash flows , that will be very potent recipe for value creation.
There are companies like Zomato, Paytm, PB Fintech, Nykaa, and CarTrade, I could go on with the list. Considering you track this space very closely and we have all known the kind of question marks that have been raised throughout their journey since listing. Now, at these current valuations, where is it that out of this list, you still find value on the table? Ashi Anand: We have been very strong bulls in the space ever since the launch of our fund in Feb 2023, a time when everyone was running away from this particular place, we went in and said that markets were underestimating not just growth, but also the path to profitability.
And our assessment and our research very, very clearly show that these companies are not only going to turn profitable, but they are going to turn highly profitable over the longer term. Now, when we are looking at valuations and after the very sharp run-ups that we have seen over the last year, year-and-a-half, at current valuations, is this still kind of scope ahead? We actually very strongly believe so. To understand valuations, you really need to look at what is happening in the underlying industries.
Each of these companies are basically solving better ways for people to transact across industries. It is easier to buy insurance policy on a Policybazaar as compared to via an agent. It is easier to order food on Zomato vis-a-vis ordering phoning the restaurant.
Every single new-age digital platform is solving for a customer need. And you are seeing a tremendous amount of value migration away from traditional businesses towards new-age platforms and this is something that we believe is just the start. It is a multi-year, we believe that growth rate should actually continue very strongly over the coming decade.
Now, while growth is probably well understood, the key point is profitability. If you go deep into the cost structures of these companies, if you just look at something like an employee cost, you look at something like sales and marketing, over the longer term there is no reason why these companies really need to spend more on these line items as compared to traditional businesses. Yet, it is probably four to five times.
So, your traditional consumer companies would spend 5% to 7% on advertising promotion. Stock Trading Market 101: An Insight into Trendlines and Momentum By - Rohit Srivastava, Founder View Program Stock Trading Markets 102: Mastering Sentiment Indicators for Swing and Positional Trading By - Rohit Srivastava, Founder View Program Stock Trading Market 103: Mastering Trends with RMI and Techno-Funda Insights By - Rohit Srivastava, Founder View Program Stock Trading Market 104: Options Trading: Kickstart Your F&O Adventure By - Saketh R, Founder- QuickAlpha, Full Time Options Trader View Program Stock Trading ROC Made Easy: Master Course for ROC Stock Indicator By - Souradeep Dey, Equity and Commodity Trader, Trainer View Program Stock Trading Introduction to Technical Analysis & Candlestick Theory By - Dinesh Nagpal, Full Time Trader, Ichimoku & Trading Psychology Expert View Program Stock Trading Options Scalping Made Easy By - Sivakumar Jayachandran, Ace Scalper View Program Stock Trading Futures Trading Made Easy: Future & Options Trading Course By - Anirudh Saraf, Founder- Saraf A & Associates, Chartered Accountant View Program Stock Trading Stock Markets Made Easy By - elearnmarkets, Financial Education by StockEdge View Program Stock Trading Renko Chart Patterns Made Easy By - Kaushik Akiwatkar, Derivative Trader and Investor View Program Stock Trading Options Trading Made Easy: Options Trading Course By - Anirudh Saraf, Founder- Saraf A & Associates, Chartered Accountant View Program Stock Trading Stock Investing Made Easy: Beginner's Stock Market Investment Course By - elearnmarkets, Financial Education by StockEdge View Program Stock Trading Macroeconomics Made Easy: Online Certification Course By - Anirudh Saraf, Founder- Saraf A & Associates, Chartered Accountant View Program Stock Trading Stock Valuation Made Easy By - Rounak Gouti, Investment commentary writer View Program Stock Trading Candlesticks Made Easy: Candlestick Pattern Course By - elearnmarkets, Financial Education by StockEdge View Program Stock Trading Technical Analysis Made Easy: Online Certification Course By - Souradeep Dey, Equity and Commodity Trader, Trainer View Program Stock Trading Technical Trading Made Easy: Online Certification Course By - Souradeep Dey, Equity and Commodity Trader, Trainer View Program You Might Also Like: Why Fed rate cuts could boost India's growth stocks? Sunil Subramaniam explains A lot of new-age companies are spending 40% to 50% because they are currently in hyper growth. Fast forward 7-10 years down the line, these ratios can reduce significantly and the amount of margin expansion that you are likely to see will actually surprise a lot of participants.
So, we run long-term models. We see, and I think very clearly, growth is not something that we see any issue with. We think it is still early days.
But profitability should surprise quite significantly and then the point, a Zomato is at $30 billion, can it be at $100 billion-plus 7 to 10 years down the road? Policybazaar is currently trading at about $10 billion. Is it worth $40 billion 7 to 10 years down the road? Our numbers on very conservative projections without taking a lot of optionality that can be built on in these businesses is actually showing that quite clearly. So, our core thesis is that if companies that are growing at a very rapid pace, are going to be turning highly profitable with very strong free cash flows, this combination of strong growth and very healthy cash flow is a very potent recipe for value creation.
And when we launched the fund, we kind of believe one of the core thesis was that you saw huge value creation in US tech from 2010 to 2020. We expect listed digital platforms to do something very similar over the coming decade in India. How have you read into the kind of meteoric rise that we have seen in some of these stocks? Has it come as a surprise to you? And what do you believe are going to be some of the key triggers? What is the way forward for these companies? Ashi Anand: We have launched a fund and we have a fund that invests exclusively in these kind of companies.
We launched this in February 23, when everyone was running away from the space. At that point in time, what we were very certain about is that over a five to seven to ten year period, these companies are going to grow very rapidly and turn highly profitable. What we are very certain about and what we continue to be very certain about as of today is that the kind of value creation you are going to see over the longer term is going to be something which will actually surprise a lot of market participants, similar to what you saw in US tech over the last decade.
But I think in terms of whether we were expecting the last year-and-a-half to be so strong, our fund for example is up 100% in a year-and-a-half, that is something that is actually surprised us. We were not expecting markets to really gravitate towards these stocks as quickly as they have. You Might Also Like: Don’t go for cash! Follow Druckenmiller, press on the pedal & go for home run now: Anshul Saigal A very important reason is that the path to profitability is something which has been a lot stronger than what people in the market were expecting.
The fact that they could turn profitable as quickly as they have, all companies across the board have actually achieved profitability timelines well ahead of what initial guidances were, that is actually something that led to this very strong rise. The important point is we still believe that we are still in early days. I can give you just one simple example.
Zomato executes some 75 crore orders every year. Just a Rs 10 platform fee accounts for Rs 750 crore of incremental EBITDA and this is just a single line item. So, if you go to each company, there are specific monetization levers that each of these companies have, specific areas where costs can actually be reduced outright, very strong operating leverage that can play through.
So, the very strong rise that we are seeing is a greater market understanding of this kind of potential for growth and strong profitability going ahead. You Might Also Like: Make hay while the sun shines; never seen such a bull market before & there's no case for a correction: Dipan Mehta (You can now subscribe to our ETMarkets WhatsApp channel ).
