An Indian tech value that hasn’t lost its way
War, inflation, impending rate hikes and a possible slowdown in global growth are rarely good news for stocks. India’s booming tech sector has not been spared.
But there are some interesting exceptions. Shares of CE Info Systems, backed by Walmart, a digital mapping company that works with Apple and Amazon, have held up well since the company’s market debut in late 2021, despite a stunning price-to-sales ratio of over 50. Unlike many of its unicorn peers, the company is benefiting from direct regulatory tailwinds and is enjoying steady earnings growth.
For those unwilling to cut all exposure to Indian tech during this volatile time, this might suggest a viable way forward: focus on tech stocks that are already in the black, rather than aspirations, and whose earnings will be driven to some degree by government policy, even in a trickier global economy.
Shares of CE Info Systems, better known as MapMyIndia, are up 8% from their IPO price in December, compared to a 1.5% decline for India’s benchmark S&P BSE Sensex on the same period. Shares of Indian food delivery company Zomato, cosmetics e-commerce player Nykaa and fintech companies Paytm and Policybazaar have all fallen 35-50% since their day one close. America’s tech darlings have also been punished this year.
MapMyIndia, which also counts Japanese map publisher Zenrin among its investors, couldn’t be more different from its consumer tech peers. It is older, more profitable, majority family owned and has a strong order book. This provides visibility into future revenue and earnings for the next three to four years: something that’s worth a lot when more speculative tech games are hammered home. The company, currently valued at around $1 billion, posted a profit of $8.5 million for the nine months ending December, up 60% from the same period last year. Net margins were 37%.
The company will also, to some extent, benefit from recent policy changes and the protectionist bent of the Modi government. Last year, India eased restrictions on the collection and use of high-resolution geospatial data, a privilege previously reserved for the government. Public access to existing government data and new precision satellite data could help, for example, better target e-commerce deliveries, driving demand for the services of digital mapping companies like MapMyIndia. Unsurprisingly, the new regulations also explicitly prohibit foreign companies from using this data except through Indian intermediaries. Google’s plan to cover India through its Street View service was rejected in India in 2016.
MapMyIndia’s earnings are rising rapidly, but the shares aren’t cheap at around 50 times sales and 100 times the company’s past 12-month earnings according to FactSet. One risk is that the new regulatory changes will encourage greater competition in the national digital mapping space, diluting any boost from increased demand. Ongoing supply chain issues in the auto industry, which accounted for 52% of sales last year, could remain a drag for some time. And the founding family still owns a majority stake in the company at 54%. Finally, as in all emerging markets, currency risk is a major consideration for foreign investors.
Nonetheless, in an environment where more speculative tech stocks are crushed, earnings — and political tailwinds — speak loudly. For those who like volatility and prefer to maintain some exposure to emerging market growth stocks in these turbulent times, “X” may be the hit.
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