India's Top 5 Internet Stocks

The year 2020 showed us the true power of internet in the modern world, forcing changes one would never have imagined.

Now people are more reliant on internet connections than ever before, be it for our everyday work, education, shopping, or even to attend weddings.

The number of active Internet users in India is expected to increase by 45% in the next four years and touch 900 m by 2025 from around 622 m in 2020, according to the IAMAI-Kantar ICUBE 2020 report. The report defines an active user as someone who has accessed the Internet at least once in the past month.

The internet ecosystem will need to evolve to meet the specific needs of this emerging demography.

And the top Indian internet stocks will be at the front, leading charge.

Here's the list of 5 stocks that will help boost India's internet economy.

#1 Info Edge

With a portfolio of brands, Info Edge is India's leading online classifieds firm. It's one of the oldest internet companies in India.

It owns Naukri.com (online recruiting), 99acres.com (online real estate), jeevansathi.com (online marriage), and shiksha.com (online education service).

It also acts as an investor and has invested in many start-ups in the online space and is aggressively expanding its investment portfolio.

The company also became the first institutional investor to back food delivery start-up Zomato which recently got listed on the stock exchanges.

Info Edge reported robust quarter one numbers. On sequential basis, revenues increased by 10.2% mainly led recruitment revenues.

The company is witnessing a healthy improvement in billing led by improvement in IT and ITeS segment (50-55% of revenues), higher renewals, new customer addition, higher demand from job seekers, better branding, and pricing improvement.

That apart, Info edge has performed well in the last one year, giving a return of 91% to its shareholders.

#2 Indiamart Intermesh

Indiamart Intermesh is an India-based online marketplace, which connects buyers with suppliers.

The company's online channel focuses on providing a platform to small and medium enterprises (SMEs), large enterprises, as well as individuals.

The business for the company largely comes from SMEs. The platform makes it easier for buyers and suppliers through its offerings which include the marketplace, convenient price discovery, intelligent connect & easy and secure payments.

The business has 71 million products from 56 different industries listed across its website which makes it one of the most diversified marketplace in the country.

Indiamart Intermesh made a stellar debut in 2019. Since then, shares of the company have soared 799% to Rs 8,744 from the issue price of Rs 973.

The rally indicates that investors who bought one lot of Indiamart Intermesh at Rs 14,595 have made a profit of over Rs 1.3 lakh.

#3 IRCTC

Indian Railway Catering and Tourism Corporation (IRCTC) is a Mini Ratna (Category-I) central public sector enterprise under Ministry of Railways, Government of India.

It is engaged in catering and hospitality, internet ticketing, travel & tourism, and packaged drinking water (rail neer).

IRCTC enjoys monopoly in the travel support services sector. It's the only entity authorised by the Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India.

It has a dominant position in online rail bookings and packaged drinking water with around 73% and 45% market share, respectively.

IRCTC posts turnaround results in June quarter on the back of robust operational revenue.

IRCTC while announcing its quarterly earnings in August had also said that its board approved the proposal for a 1:5 stock split or sub-division of shares.

The company has set 29 October 2021 as its record date for sub-division of equity shares of Rs 10 each into five equity shares of Rs 2 each.

Since its market debut, shares of the travel support services firm has been on a roll. It has almost turned into a multibagger stock from its IPO issue price of Rs 320 per share.

Speaking of IRCTC, Co-head of research at Equitymaster, Rahul Shah talks whether the company's valuations are running ahead of its fundamentals, in his recent video.

In the video, Rahul discusses whether investors should buy more shares of IRCTC or should they partially exit.

You can watch the video here: IRCTC: Buy, Hold or Sell

#4 Just Dial

Justdial is the market leader in local search engine segment in India.

The company provides local search-related services to users across India through multiple platforms, such as Internet, mobile Internet, and over the telephone (voice) and SMS.

In the last one year, the company's shares have surged over 129%.

The company has also launched JD Omni, an end-to-end business management solution for SMEs. It intends to transition thousands of SMEs to efficiently run their businesses online and have an adequate online presence via their own website and mobile site.

Apart from this, it has also launched JD Pay, for quick digital payments for both users and vendors. It also launched JD Social, a social sharing platform to provide curated content to users.

It also aims to make communication between users and businesses seamless through its real time chat messenger.

Last month, Reliance Retail Ventures took sole control of Just Dial. Reliance retail on 20 July 2021, acquired 13.1 m equity shares of Rs 10 each of Just Dial at a price of Rs 1,020 per equity share from VSS Mani on the floor of the stock exchange through the block window facility.

The acquisition represents 15.63% of the post-preferential issue paid-up equity share capital of Just Dial. Reliance Retail will be classified as a promoter of Just Dial.

To know more, check out Just Dial's latest shareholding pattern.

#5 CarTrade Tech

CarTrade Tech is a multi-channel auto platform provider company with coverage and presence across vehicle types and value-added services.

The company operates various brands such as CarWale, CarTrade, Shriram Automall, BikeWale, CarTradeExchange, Adroit Auto, and AutoBiz.

The platform connects new and used automobile customers, vehicle dealers, vehicle OEMs, and other businesses to buy and sell different types of vehicles.

The company generates the majority of its revenue from the transaction charge (57% of the revenue).

Other key revenue streams of the company are media: listing subscriptions and ad revenues from OEMs, dealerships, and other advertisers; software services: marketplace and software solutions for OEMs, dealerships, and banks; auto finance; insurance; and other value-added services.

Its websites and apps handled approximately 2.1 million user sessions per day and the average monthly visitors (including apps) were 25.7 m in the financial year 2021,

The number of vehicles listed for auction stood at 814,316 and the number of vehicles sold through auctions stood at 156,689 with a conversion rate of 0.8% as on the financial year 2021.

It has significantly expanded its business, with the total income increasing at a compound annual growth rate (CAGR) of 45.9% between financial years 2018 and 2020.

The company successfully raised Rs 30 bn through the initial public offering (IPO) and made its debut on 20 August 2021.

Since listing, the company has lost nearly 15% against its issue price of Rs 1,618 per share. Currently, shares of CarTrade Tech are trading at Rs 1,374 on the BSE.

Apart from these 5 stocks, here's a list of other internet stocks to look out for.

Companies	Share Price (Rs)
Zomato	138
Matrimony.Com	1,007
Nureca	1,983
Easy Trip Planners	600
Affle India	1,209

Source: Equitymaster

Things to keep in mind before investing in Internet stocks

When it comes to technology or internet stocks, it's important to remember that numbers aren't everything.

After all, there are plenty of examples of high-flying companies that didn't have a penny of profits to speak of but went on to deliver massive outperformance - with Zomato being one of the most prominent examples.

That's because internet stocks are unique in their ability to grow quickly and sometimes turn a money-losing operation into a massive cash cow once they reach critical mass.

Well, one should look out for companies that are focused on expanding businesses in India and overseas with excellent technical and business fundamentals, minimal debt, and are available at attractive valuations.

In similar vein, here's what Richa Agarwal, research analyst and editor of Hidden Treasure at Equitymaster, wrote about internet stocks in an edition of the Profit Hunter...

• Here's the most important thing about new age/internet economy businesses.
  
  They are not monopolies. Most are loss making, fighting price wars, competitively fragile, and prone to disruption themselves.
  
  You may still bet on the scale. But that's speculative. The only thing certain is more cash burn.
  
  You could hope for one of these to be the next Amazon. But remember, markets are too nascent to know the winner yet.
  
  While the trend may still be strong, the company you bet on may not even sustain amid high competition in an era of cheap money.
  
  So play the trend by all means but use your speculative capital for that. Keep it apart from your investment capital.

You can read the article here: Tech Stocks, Upcoming IPOs, and the Internet Economy.

Back in August 2021, Richa made a video on listed companies that could benefit from the 'digitisation' megatrend.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...