IndiaMART IPO subscribed 12% in 4 hours on Day 1

On Friday, the company raised Rs 213 crore by allotting 21,95,038 shares to 15 anchor investors.

NEW DELHI: The Rs 475-crore initial public offer (IPO) by IndiaMART InterMESH received bids for 3,17,610 shares by Monday afternoon, which was 12 per cent of the total issue size of 26,92,824 units.

On Friday, the company raised Rs 213 crore by allotting 21,95,038 equity shares to 15 anchor investors, including ICICI Mutual Fund, HDFC Mutual Fund and SBI Mutual Fund, at the upper limit of the price band Rs 970-973.

At this price, the issue demands a valuation multiple of 139.68 times at FY19 EPS of Rs 6.97. The P/B ratio would work out to 17.51 times at FY19 book value of Rs 55.57, which looks unreasonable, analysts said.

While brokerages largely have an ‘avoid’ ratings on the issue, a few of them believe the stock could be a good long-term bet.

IndiaMART has a first mover advantage in offering a B2B online trading platform to MSMEs, which helps strong brand recognition. But the company depends on third-party service providers for a significant portion of outsourced operational services, and its business may be adversely affected if it faces operational or system disruptions, said SMC Global.

"The issue appears aggressively priced. A long-term investor may consider investment for the issue," the brokerage said.

India Mart IPO: All you need to know

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About the company

22 Jun, 2019

IndiaMART is the country's largest online B2B marketplace for business products and services. According to the company’s DRHP, it had a market share of around 60 per cent in the online B2B classified space in India in FY17. This platform is mainly for business buyersto discover products, services and contact details of suppliers. Its suppliers include Indian SMEs as well as large businesses, who are manufactures, wholesales, exporters and retailers. IndiaMART had an aggregate 723.5 million visits in FY2019, of which 550.3 million comprised mobile traffic at 76 per cent of the total. As of March 31, 2019, the company had 82.70 million registered buyers and 5.55 million supplier storefronts in India. These storefronts had listed 60.73 million products, of which 76 per cent comprised products and 24 per cent services.

Financial Health

22 Jun, 2019

Despite reporting a robust top-line growth, IndiaMART’s short financial history is not very encouraging. > The company reported a 26.4 per cent CAGR growth in consolidated operating revenue over FY17-19. > The company reported EBITDA losses in FY17 and FY18. Despite having non-cash expenses, it had an EBITDA profit in FY19, mainly due to improved productivity. > Due to deferred tax credit, it reported a PAT of Rs 5,476 lakh and Rs 2004 lakh in FY18 and FY19 respectively, with a profit margin of 13.3 per cent and 4 per cent. > Baring FY17, cash flow from operations was positive over FY17-19, with an average operating cash flow of Rs. 21,710 lakh (over FY18-19). > RoE for FY19 was 12.5 per cent, while RoCE was 3.2 per cent. Choice Broking expects the company to post 23.9 per cent revenue growth in FY20E at Rs 62,861 lakh. EBITDA and PAT margins are expected at 15.2 per cent and 12.7 per cent, respectively, in FY20E against 3.4 per cent and 4 per cent in FY19.

Comparison with peers

22 Jun, 2019

The company does not have any listed peer in India. TradeIndia, Exporters India, Alibaba India and JD Business, are some of its unlisted competitors. Just Dial, Google and other search engines, B2B transaction-based platforms such as Industry Buying Power2SME, Moglix sand Bizongo are some of its indirect competitors.

Key strengths

22 Jun, 2019

> One of the leading B2B e-commerce players in India > Expected growth in SMEs to significantly benefit IndiaMART > Well-placed to cash in the opportunities in India’s wholesale market

Key risks

22 Jun, 2019

> Subdued economic expansion > Inability to maintain the traffic of buyers and suppliers > Difficulty in retaining and expanding the paying suppliers > Poor acceptance of other fee based services > Competition

Unlisted firms TradeIndia, Exporters India, Alibaba India and JD Business are some of the online B2B classified peer platforms of IndiaMART. In the listed space, companies such as JustDial and Infibeam Avenues can be said to be proxy peers for reference. They have an average PE of 23.8 times.

At 140 times valuation, the issue is aggressively priced, getting intense competition from emerging players and new entrants, said BP Wealth, which has ‘avoid’ rating on the issue.

Choice Broking said if one excludes the negative impact of non-cash items, the demanded P/E is around 32.8 times to its adjusted EPS of Rs 29.6.

"Based on FY20E and FY21E EPS, the stock is valued at a P/E multiple of 35.1 times and 25.9 times, respectively, which again is at a premium to the peer average of 21.5 times and 15.3 times. But considering the growth outlook coupled with dominant market position and expected benefit from the operating leverage, we feel that the future benefits outweigh the target share price derived from various traditional valuation multiples," it said.

Such types of technological and scalable business models should not be valued merely on profitability, but also on future market potential and capabilities of the management to work towards achieving the potential, the brokerage said, assigning a ‘SUBSCRIBE’ rating to the issue.

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