IndiaMart InterMesh Ltd : Margins to expand from FY24; maintaining a Buy - Anand Rathi Share and Stock Brokers
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Buy IndiaMart InterMesh Ltd For Target Rs.5,500
IndiaMart’s Q3 FY23 revenue grew 33.7% y/y, 4.5% q/q to Rs2.51bn (org. 28.1% y/y, 4.8% q/q), largely because of 6,263 paid suppliers added in the quarter, up 24.7% y/y, 3.3% q/q, to 194,000 now (156,000 a year ago and 188,000 the previous quarter). Deferred revenue grew 28.5% y/y, 3.2% q/q, to Rs10.15bn. Collections rose 28.1% y/y to Rs2.83bn. Management looks to add ~8,000 customers per quarter in the long term and aims at ~20% long-term sustainable collection growth. We retain our Buy rating, with a TP of Rs5,500 (based on DCF, an implied PE of 40x FY25e EPS).
We expect the company to report a 24.4% revenue CAGR over FY23- FY25 (incl. Buzy Infotech), driven by greater assurance, growth in deferred revenue (25% y/y in FY22, 28.5% y/y in Q3 FY23) and strong cash collections (32% y/y, 28.1% y/y). We now factor in 10,300/12,400 paid suppliers added per quarter in FY24/FY25. We expect a 3.5% ARPU CAGR over FY23-FY25, as in silver customers, which bring ~18-20% to revenue, the company is more focused on adding customers and not on ARPU; whereas in platinum customers, which bring ~45-47% to revenue, it is more focused on increasing ARPU.
Margins should expand with growth in revenue. The company added ~741 employees ytd (largely in sales and tech). We believe it is at the end of employee addition as expansion was not done during Covid and plans to add ~100 odd employees more in Q4 FY23. Employee growth then would be in line with the number of customers and collection growth. We expect margins to start recovering owing to the business’ operating leverage. We expect 29.6%/32.6% margins in FY24/FY25.
Risks: Loss of paying suppliers; concentration risk (top-1% and top-10% paid suppliers bring ~18% and 47% to revenue, respectively).
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