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IndiaMart InterMesh reported consolidated Q2FY25 revenue from operations at INR3,477mn, up 18.0% YoY. The growth in revenue was primarily driven by 4% increase in paying subscription suppliers and 14% improvement in ARPU. The number of subscription-paying suppliers increased to ~218,000, up 0.9% sequentially/ 3.8% YoY. Consolidated collections grew 6% YoY to INR3,560mn in Q2FY25. Deferred revenue rose 19% YoY to INR14.8bn, which should support revenue growth in FY25E. Consolidated cash generated from operations stood at INR1,030mn for Q2FY25 (represents 29% of collections).

* Standalone collections trajectory has been 15-20% for past few quarters. However, this quarter saw a modest increase of only 5%. This slowdown was possibly due to certain challenges in sales execution. Despite this dip, management remains optimistic, suggesting that this decline may be an anomaly and that growth levels could return to their usual range. Company added ~2,400 customers in Q2 and continues to see more than anticipated churn in silver category, while gold and platinum customers continue to have a very low churn and grow healthily in terms of numbers and ARPU. IndiaMart registered traffic of 287mn and unique business enquiries of 28mn in Q2FY25. Supplier Storefronts grew to 8.1mn, an increase of 5% YoY. Company continues to make investment and undertake measures to enhance customer experience and improve retention, as well as drive a deeper penetration in the paying customers.

* Standalone Adj. EBITDA margins reached a strong 38%, driven by organic operating leverage, cost optimization initiatives, and lower customer acquisition expenses. These margins have been elevated in recent quarters due to slower growth, which has limited the company’s ability to expand its net customer base significantly. However, they project sustainable margins for FY25E to be in the range of 34-35%, rather than the 37-38% levels. This normalization will be supported by continued operating leverage and lower sales and marketing costs. Additionally, upcoming wage hikes in Q3FY25E are expected to impact margins. Currently, the collection to cash flow ratio has been trending between 35% and 40%, but this quarter, it has dropped to around 33%. Therefore, the collection to cash flow ratio serves as a leading indicator of margin performance.

* BUSY has done a net billing of INR171mn in Q2 representing a 17% YoY. The revenue from operations have grown by 19% YoY to INR153mn. The deferred revenue and advances have grown by 40% YoY to INR533mn. The EBITDA for the quarter stood at INR1mn representing a 0% margin. There were a total of about 8,000 new licenses that were sold to customers during the quarter, taking the total licenses sold count to 3,81,000 at the end of Q2. Management is focused on growing its new customer base and increase the overall growth rate in coming quarters.

Valuation: IndiaMart continues to make investments in strengthening their organization to leverage the growth opportunities. Growth will be driven by new sales, service and marketing head, focus on tier1 and tier 2 suppliers and ARPU growth in gold and platinum segment. We have introduced FY27E and expect Revenue/EBITDA/PAT to grow at a CAGR of 18.7%/28.1%/27.8% respectively over FY24-FY27E. We maintain our BUY rating to arrive at a revised TP of INR3,252 implying a P/E of 35x on FY27E EPS of INR115.

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