Powered by: Motilal Oswal
20/09/2022 12:15:44 PM | Source: Motilal Oswal Financial Services Ltd
Buy IndiaMART Ltd For Target Rs.8,610 - Motilal Oswal Financial Services
News By Tags | #872 #6201 #4315 #1302
Buy IndiaMART Ltd For Target Rs.8,610 - Motilal Oswal Financial Services

Collections remain robust; expect strong growth to continue

Investments to keep near term margin rangebound

* INMART delivered a strong performance in 1QFY23, with revenue up 24% YoY and 12% QoQ (in line). Collections grew a strong 49% YoY to INR2.5b, suggesting good visibility on FY23E revenue growth. Deferred revenue rose 32% YoY to INR9.6b, which should support 25% revenue growth in FY23E. Strong paying subscriber additions (up 10k QoQ) are encouraging. EBITDA margin was largely flat QoQ at 28.6% (est. 26.3%) due to lower than expected manpower expenses.

* We expect INMART to deliver 23% revenue CAGR over FY22-24 on the back of sustained paying subscriber additions and resumption of price hikes after a hiatus during the COVID-19 induced slowdown. With continued investments on growth, the management expects EBITDA margin to be in the 28-30% range in FY23. Our estimates indicate a gradual pickup in EBITDA margin as investments fall over FY24, and build in 31% margin in FY23. This, in turn, should drive 11% PAT growth over the same period.

* With a good start to the integration of Busy Infotech (a revenue of INR105m in 1QFY23), we continue to see expansion in its accounting software as a positive long-term driver for INMART’s business. We remain watchful on the performance of its other investments. While Busy Infotech remains synergistic to INMART’s customer base and can drive long-term differentiation, it needs to scale up to be a meaningful value add.

* INMART saw a significant de-rating due to margin concerns. We continue to view it as a key beneficiary of technology adoption within India’s MSME universe as well as of a shift to a formalized ecosystem. We believe that the company remains poised to drive significant value due to its industryleading position in the segment.

* We lower our FY23/FY24 EPS by 12.5%/2% on account of lower other income due to mark-to-market losses on investments in 1QFY23. We value INMART on a DCF basis to arrive at our TP of INR5,000 (a potential upside of 23%), assuming 12% WACC and 6% terminal growth rate, implying 42x FY24E EPS. We reiterate our Buy rating

Strong operational performance, PAT miss on investment loss

* Revenue grew 24% YoY and 12% QoQ to INR2.2b (in line). Excluding inorganic gains from Busy Infotech (INR105m), revenue grew 18% YoY.

* The company posted another quarter of strong collections (up 49% YoY to INR2.5b). Deferred revenue rose 32% YoY to INR9.6b.

* It maintained its robust additions in paying subscribers (up 10k QoQ). ARPU was largely flat v/s 4QFY22 levels.

* EBITDA margin was largely flat QoQ at 28.6%, above our estimate of 26.3%, due to lower than expected manpower expenses.

* PAT fell 47% YoY to INR476m, a 25% miss to our estimate, due to MTM losses on investments as against gains in the preceding quarters.

Highlights from the management commentary

* Collections grew 49% YoY and deferred revenue rose 32% to INR9.6b in 1QFY23.

* Priority for Busy Infotech in FY23 is to: a) double the growth rate, b) create a new customer base, and c) build a strong team to support growth.

* The management continues to invest in growth. Manpower expenses are expected to increase in line with growth over the next few quarters, keeping margin in the 28-30% range.

Strong collections to sustain; growth story intact

* Strong collections are testimony to the recovery in the demand momentum. We anticipate the momentum in collections to remain intact in the near term.

* We are confident of strong fundamental growth in operations, propelled by: a) higher growth in Digitization among SMEs (~25%), b) the need for out-of-thecircle buyers, c) a strong network effect, d) over 70% market share in the underlying industry, e) the ability to improve ARPU on low price sensitivity, and f) higher operating leverage.

* We have arrived at our DCF-based TP of INR5,000, assuming 12% WACC and a terminal growth rate of 6%. Our TP implies a 23% potential upside from current levels. We reiterate our Buy rating.

 

To Read Complete Report & Disclaimer Click Here

 

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

 

Above views are of the author and not of the website kindly read disclaimer

Disclaimer: The content of this article is for informational purposes only and should not be considered financial or investment advice. Investments in financial markets are subject to market risks, and past performance is not indicative of future results. Readers are strongly advised to consult a licensed financial expert or advisor for tailored advice before making any investment decisions. The data and information presented in this article may not be accurate, comprehensive, or up-to-date. Readers should not rely solely on the content of this article for any current or future financial references. To Read Complete Disclaimer Click Here