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2025-07-20 09:22:07 am | Source: Motilal Oswal Financial Services Ltd
Buy IndiaMART Ltd for the Target Rs.3,050 by Motilal Oswal Financial Services Ltd
Buy IndiaMART Ltd for the Target Rs.3,050 by Motilal Oswal Financial Services Ltd

ARPU-led growth intact

Increased inquiry funnel may ease churn pressure

* IndiaMART (INMART) reported 1QFY26 revenue growth of 12% YoY vs. our estimate of 10% YoY growth. Deferred revenue rose 16% YoY to INR17b. EBITDA margin was down ~90bp QoQ to 36%, in line with our estimates of 36.4%. PAT stood at INR1,531m, down 15% QoQ/up 35% YoY, beating our estimate of INR1,204m due to higher other income and lower depreciation.

* For 1QFY26, revenue/EBITDA/PAT grew 12.3%/11.6%/35.0% YoY. We expect revenue to grow 10%, whereas EBITDA/PAT would decline 6%/15% YoY in 2QFY26. We reiterate our BUY rating on the stock, citing undemanding valuations, with a TP of INR3,050.

 

Our view: Ad spending to weigh on margins

* Growth in unique business inquiries encouraging: INMART’s unique business inquiries grew 17% YoY (above the average rate of 10-12% growth) in 1QFY26. This growth can be attributed to management’s incremental push on advertising and marketing costs. Management has shifted focus toward demand generation (i.e., buy-side inquiries), rather than adding lowquality suppliers. We believe sustained investments through FY26 are likely to improve inquiry quality and drive stronger conversion.

* Gold/Platinum accounts continue to anchor ARPU growth; silver stability still a few quarters away: Premium accounts remain the primary revenue driver, with low churn (~1%) and steady upsell potential. However, churn in silver accounts remains elevated (4% annually/7% monthly), reflecting weaker first-year retention and possibly lower platform engagement. For now, ARPU remains the lever for growth. Even without net supplier additions, management expects ARPU to grow 5-9%, and we have accordingly built in 7% growth for FY26.

* Margins remained elevated at ~36% in 1Q. However, with INMART set to ramp up demand-side pilots (ad spending of INR60-100m per quarter; ~3% margin impact), margins are likely to settle at a more sustainable 32–33% in FY26. We factor this shift into our model, cutting our margin estimates by 2– 2.5% to 33.4% for FY26. Management remains RoI-focused and is open to recalibrating spending if outcomes fall short.

 

Valuation and changes to our estimates

* We continue to view INMART as a key beneficiary of the growing technology adoption by India’s MSME universe and the ongoing shift toward a formalized ecosystem. We keep our estimates largely unchanged. We expect INMART to deliver a 13% revenue CAGR over FY25-27. We estimate the EBITDA margin at 33.4%/33.1% for FY26/FY27.

* Currently, INMART is trading at an undemanding valuation, in our view, as the valuations reflect uncertainties surrounding the churn rate, productmarket fit, and subscriber growth. We value INMART on a DCF basis to arrive at our TP of INR3,050, assuming 11.5% WACC and 6% terminal growth. Reiterate BUY.

 

Beat on revenue and margins in line; ARPU rises 9% YoY

* INMART reported 1QFY26 revenue of INR3.7b, growth of 12% YoY vs. our estimate of 10.0%.

* Collections were INR4.3b (+13% YoY). Deferred revenue rose 16% YoY to INR17b.

* It added 1.5k paying subscribers QoQ. ARPU grew 9% YoY to INR64k.

* EBITDA margin was 36%, down 90bp QoQ and in line with our est. of 36.4%.

* PAT was INR1,531m, down 15% QoQ/up 35% YoY, beating our estimate of INR1,204m due to higher other income and lower depreciation.

* Traffic grew 7% YoY to 286m. Total suppliers on the platform stood at 8.4m, up 6% YoY.

* Total cash and investments stood at INR27.6b.

 

Highlights from the management commentary

* Collections stood at INR4.3b, reflecting a 13% YoY increase. Deferred revenue rose by 16% YoY to INR17b.

* Management is not actively pursuing the addition of new paying suppliers at this time. However, the percentage of repeat customers and the NPS continue to rise.

* Around 80–85% of business inquiries are delivered to paying suppliers, while the remainder goes to non-paying (free) suppliers.

* While the company is not opposed to adopting a transaction-based model, there are currently no plans to change the existing revenue model.

* Metrics such as traffic, unique business inquiries (UBEs), and business inquiries delivered are considered leading indicators for the buy-side.

* Churn for Platinum and Gold accounts remains low, at approximately 1%.

* Silver accounts faced challenges such as difficulties in platform adoption and issues with lead quality or intent. The company has addressed these concerns and continues to make improvements, though churn remains elevated at 4% annually and 7% monthly.

* Reduction in churn is expected to take six months, aided by increased marketing investments, which have already contributed to the 17% increase in UBEs.

 

Valuation and view

* We are confident of strong fundamental growth in operations, propelled by: 1) higher growth in digitization among SMEs, 2) the need for out-of-the-circle buyers, 3) a strong network effect, 4) over 70% market share in the underlying industry, 5) the ability to improve ARPU on low price sensitivity, and 6) higher operating leverage.

* We value INMART on a DCF basis to arrive at our TP of INR3,050, assuming 11.5% WACC and 6% terminal growth. Reiterate BUY.

 

 

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