IndiaMART InterMESH 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 & Medium Enterprises (SMEs), Large Enterprises as well as individuals. As of June 2020, company has 107 million+ registered buyers, 6 million+ suppliers storefronts, 68 million+ Products Listings across 100000+ categories. The company operates through a “freemium” model where listings are free but suppliers pay for subscriptions. The company has grown superbly in the past three years with a strong EBITDA margin expansion. The company has a negative working capital cycle owing to its unique business model which gives company a cushion in the current turbulent times. Going forward, in this world where online business models are quite successful around the world, Indiamart business model is well poised for the growth on the back of being market leader and its unique subscription based business model.
Valuations & Recommendation:
Indiamart has shown strong growth momentum in the recent years, EBITDA margin expansion led by economies of scale coupled with increasing number of paying subscribers and strong growth in deferred revenue (key driver for revenue visibility of the company) portrays a company with huge growth potential going forward. Indiamart is far ahead of its traditional competition like Trade India or Exporters India. Indiamart is at an early stage of monetization and poised for accelerated revenue growth. With the domestic economy getting digitalized, Indiamart is poised to benefit from exploding digital transactions. We expect Revenue/EBITDA/PAT to grow around CAGR of 10%/25%/26% respectively over FY20-22E. The company has a negative working capital cycle owing to large proportion of upfront collections. Within the few listed internet enabled businesses, the stock currently trades at attractive valuations of 29.4x FY22E earnings, given the business model of the company and healthy return ratios. We feel investors can buy the stock at the CMP and add on declines to Rs.2160-2178 band (26.5xFY22E EPS). Our Base case fair value is Rs.2660 (32.5xFY22E EPS) and Bull case fair value is Rs.2865 (35.0xFY22E EPS).
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