Buy IndiaMART InterMESH Ltd for target Rs. 3,645 - Elara Capital
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Sluggish growth; margin beat
Muted revenue growth from high churn; EBITDA margin robust
Revenue growth was muted at 3.8% QoQ and 21% YoY, underperforming our estimates of 7%/25%. The sluggish growth was led by slow paid supplier addition (2k QoQ). This was due to higher churn in the silver category owing to ARPU increase decided upon by the management. However, there has been no impact on gross addition in the silver category. ARPU growth of 12% YoY indicates good mining within existing paid suppliers. Margin management has been better with EBITDA margin at 29.9% (outperforming our estimate of 29%) as other expenses were curtailed. While employee cost remained flat QoQ at 44% of revenue, other operating expense was down 100bps QoQ. Other income was up 19% QoQ.
Strong deferred sales growth
Total traffic stood at 272mn, down 5.6% QoQ due to festive seasonality (similar to Justdial) and was up 8.8% YoY. Total supplier storefronts stood at 7.8mn, up from 7.7mn in Q2. Registered buyers grew by 2.7% QoQ and 13.3% YoY. Deferred revenue rose 2% QoQ/ 25% YoY, indicating promising outlook. Book-to-bill stood at 1.09x.
Busy Infotech’s positioning strengthened
INMART’s largest subsidiary- Busy Infotech has been ramping up. Revenue/ billing/ deferred revenue for Busy rose 26%/21%/47% YoY. The Busy team has been strengthened by new senior level hires – 6k new licenses were sold in Q3 with total cumulative licenses sold standing at 354k
Valuations: Maintain BUY; new TP INR 3,645
Given INMART’s dominant position in the B2B classifieds sector with >60% of the market share, we are positive, led by: 1) robust deferred revenue and ARPU rise (strong revenue growth) and 2) good synergy from acquired entities (Busy Infotech). We slightly pare FY25E/26E earnings estimates 2-4.5%, factoring in Q3 print and reducing paid supplier addition estimates. We reiterate BUY with TP revised to INR 3,645 (on combination of DCF and P/E) from INR 3815. We retain the target P/E at 52x (average since pandemic), with FY23-26E revenue/EBITDA/PAT CAGRs at 23%/27%/21%.
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