Indiamart Intermesh Ltd

Ecommerce - Online Classifieds

Little Masters

Rs. 5097.95
March 27, 2023

Stock Info

Ecommerce - Online Classifieds
Face Value (Rs)
Equity Capital (Rs cr)
Mkt Cap (Rs cr)
52w H/L (Rs)
5248.00 - 3676.00
Avg Daily Vol (BSE+NSE)

Shareholding Pattern

(as on 31-Dec)
Public & Others
Source: Ace equity, StockAxis Research

Price performance

Return (%)
Source: Ace equity, StockAxis Research

Indexed Stock Performance

Indiamart Intermesh Ltd Sensex
Indiamart Intermesh Ltd
Source: Ace equity, StockAxis Research

Structural story intact, investments to continue

Company Profile

Indiamart Intermesh (INMART) is India’s largest online B2B marketplace, connecting buyers with suppliers. With 60% market share of the online B2B Classified space in India, the channel focuses on providing a platform to small and medium enterprises (SMEs), large enterprises and individuals. Founded in 1999, the company’s mission is ‘to make doing business easy’. At present, the company has 165 mn buyers, 7.4mn suppliers, and 90mn products & Services. INMART has 4,413 employees located in India.

For buyers, INMART offers the convenience of connecting with sellers anytime/anywhere, with a wider marketplace and a range of products. However, for suppliers, it provides an enhanced business visibility, increased brand credibility, Lead Management Systems, and Instant Payment Solutions.

Investment Arguments

Market leadership position

IndiaMart (INMART) is a market leader, enjoying 60% market share. The company has superior matchmaking engine, robust network (7.4mn suppliers, 165mn buyers and 90mn products) and deep understanding of India’s online trade and commerce fortify. INMART is present in 1,000+ cities/towns. Its sales and service delivery are multi-channel in nature. It is present in all metro cities such as Delhi NCR, Mumbai, Bengaluru, Hyderabad, Kolkata, Ahmedabad, Pune, and Chennai are under INMART’s extensive coverage. INMART has been consistently focusing on building its sales engine. In FY22, it ramped up the sales manpower recruitment, with sales employees rising 43% YoY. This also indicates good demand environment for MSMEs.

MSMEs Digitization – a structural opportunity

Digitization of MSMEs (6x spike in FY20-25, as per Redseer) sets in structural growth catalyst for INMART. We believe the ONDC initiative of the Indian government will further boost the pace of MSME digitization by facilitating digital commerce infrastructure. ONDC targets to enable digital commerce for 30 mn businesses by 2024, marking ~120% jump over 13.7mn Udyam registered businesses by September 2022.

New paying supplier addition and client upselling key growth drivers

New supplier addition and upscaling of existing suppliers may drive growth in FY23-25. The
YoY growth in deferred revenues has been picking pace since the past six- quarters.  Consistent growth in paid suppliers (up 3.2% QoQ/24.4% YoY). INMART has been successfully growing its paying subscription suppliers YoY. The YoY growth rate has been rising from single digit in FY21 (due to Covid impact on MSMEs) to mid-twenties in the past 2-3 quarters

Improving ARPU and monetization rate

INMART’s supplier monetization rate is very low at 2.6% as on Q3FY23, but it has been on an upward trajectory in the past four quarters. Also, this indicates that there is a huge headroom for improvement. INMART is consistently improving its ARPU, at INR 49,400, up 1.4% QoQ and 2.8% YoY in Q3FY23.

Q3FY23 Financial Performance

Indiamart delivered a strong performance in Q3FY23, with consolidated revenues surging to 34% YoY to Rs.251 cr largely because of 6,263 paid suppliers added in the quarter, up 24.7% yoy, 3.3% qoq, to 194,000 now. Collections from customers grew by 28% YoY to Rs. 283 crores. Deferred revenue increased by 29% YoY to Rs. 1,015 crores.

On the operational front, consolidated EBITDA registered a growth of 10% YoY to Rs.70 cr with EBITDA Margin remaining flat at 28%. PAT saw a robust growth of 61% YoY to Rs.113 cr reflecting strong topline and operational performance.

Key Risks & Concerns

  • Loss of paying customers; concentration risk (top and top 10 paid customers bring ~18% and ~47% to revenue, respectively).
  • The rising competition will aid to reduce the market share and will impact revenue. While Indiamart commands the largest market share, players like Udaan, TradeIndia, and Reliance-owned JustDial are also working aggressively to scale up.
  • ONDC (Open Network for Digital Commerce): The impact of ONDC could be negative for Indiamart if ONDC's B2B operations gain traction as it could directly compete with Indiamart, the brokerage pointed out.

Outlook & Valuation

We like Indiamart owing to network-effect, healthy cash-flows, negative working capital, asset-light model and healthy cash balance. Indiamart is the major beneficiary of the MSMEs digitization. 38 per cent of India’s MSMEs using the internet for business (vs 90 per cent in China), e-classifieds holds substantial growth potential.

IndiaMART is betting on ARPU improvement, paid customer addition, and new category expansion to drive revenues. We expect IndiaMART to continue to report strong revenue growth on the back of very strong cash collections in the last 6 quarters. We believe Ebitda margin has bottomed at 28 per cent, given backfilling of headcount is in its last phase. Going forward, profitability is likely to improve over long term along with a rise in sales productivity,

We recommend a BUY rating on the stock.  At CMP of Rs.5046 the stock is trading at 36x FY25E (EPS – Rs.137) which appears reasonable.

Consolidated Financial Statements