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Favourable risk-reward; upgrade to BUY

We upgrade INMART to BUY from SELL earlier following ~28% correction since our last published note. As expected, the stock has seen significant de-rating due to sharp deceleration in collections growth in 2QFY25 and muted paying supplier additions over the past 6 quarters. While we do not see material improvement in these key metrics in 3Q, from a medium-term perspective we see collections in the standalone business growing around low teens vs. 5% YoY in 2Q, supported by mid-single growth in both paying suppliers as well as realisation. Consol. EBITDA margin could also remain elevated (34-36%) in the absence of meaningful growth investments. Post the recent correction, the stock is trading at 28x NTM PER (ex-cash and other income), c.50% discount to own 5-year average of 56x. For a stock, with FCFF yield (including other income) of >6% on FY26 estimates, this should cap downside in our opinion. We raise margin forecasts and roll forward for a revised Mar’26 TP of INR 2,450 (TP implies FY26/27 ex-cash & other income PER of 30x/26x).

*3QFY25 expectations: INMART’s paying supplier growth has been muted since 1QFY24 and we do not see an improvement in that trend in 3QFY25 as well due to unfavourable seasonality and continued high churn rates in the Silver category. Our estimate of 1.8k QoQ paying supplier additions in the core classifieds business is well below the long-term historical average of ~4.5k. Moreover, high churn will again weigh on the company’s upsell funnel, leading to an adverse impact on average collections per paying supplier (mere +1% YoY in 2Q as well). We, therefore, forecast muted collections growth of 6% YoY in 3Q (vs. 5% YoY last quarter). While revenue growth could be better than collections at 15.5% YoY (+1.4% QoQ) due to robust deferred revenue, it continues to slow down from 30.8%/21.5%/17.7% in FY23/FY24/1HFY25. On the other hand, savings on sales incentives/servicing costs in the absence of material improvement in paying suppliers could lead to EBITDA margin expanding by ~8ppts YoY. As a result, Consol. EBITDA could expand ~50% YoY in 3Q.

*Medium-term collections growth can be around low teens: Since April’24, we have been highlighting that INMART’s core classifieds business would be a low-to-mid-teens collections growth story vs. historical CAGR of 20%+. But standalone collections of 5% YoY in 2Q was a shocker and likely related to a few sales execution issues that are likely to be addressed over the next 2-3 quarters. If INMART adds 2.5-3k paying suppliers/ qtr in FY26, it will lead to mid-single digit paying supplier growth. Moreover, realisation can improve at similar rate assuming some bit of stability in Silver supplier churn and normal price hikes in Platinum category. Hence, from a medium-term perspective, we remain convinced that INMART’s Consol. collections growth can recover to low teens in FY26.

*Favourable risk-reward; upgrade to BUY: Post the recent correction, INMART is trading at 28x NTM PER (ex-cash and other income), c.50% discount to own 5-year average of 56x. For a stock, with FCFF yield (including other income) of >6% on FY26 estimates, this should cap downside in our opinion. While we maintain topline estimates, margin upgrades drive FY25-27 EPS estimates up by 2-5%. We roll forward to Mar’26 for a revised DCF-based TP of INR 2,450.

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