Motilal Oswal's research report on IndiaMART
IndiaMART’s 4QFY22 performance was weaker than expected led by a major miss on margin (at 28.4%), down 13.5pp QoQ and below our estimate of 32.7%. However, sales growth was above expectations at 12% YoY and 7.1% QoQ with the highest ever customer additions of 13k (above our expectation of 7k). Collections continued to be encouraging at +17% YoY, suggesting good visibility on FY23E revenue growth. Similarly, deferred revenue rose 25% YoY to INR 9.1b, which should support 20%+ revenue growth in FY23E. With travel opening up, rising spend levels, and continued supply-side squeeze, IndiaMART’s management anticipates EBITDA margin to stay compressed in FY23. We expect 21% revenue CAGR during FY22-24, and believe the company’s margin will stabilize at 33.5% in FY24. This, in turn, should drive a 16% PAT growth over the same period. Management upgraded its paid subscriber addition guidance to 8-9k from 6-7k earlier propelled by opening up of travel, improved sales traction and lower customer churn. Additionally, its ARPU should start recovering going forward as business activity stabilizes and entry-level customers upgrade to higher packages. We view its ongoing investment into SaaS ecosystem as a positive, albeit marginal to the overall valuation currently. We would keep a close watch on the performance of its acquired entities as they remain synergistic to IndiaMART’s customer base and can drive long-term differentiation v/s peers. IndiaMART saw significant de-rating due to margin concerns.
Outlook
We continue to view it as a key beneficiary of technology adoption within India’s MSME universe as well as of a shift to formalized ecosystem. We believe that the company remains poised to drive significant value due to its industry-leading position in the segment. Moreover, the recent buy-back indicates management confidence in the business. - We lower our FY23E/24E EPS by 9.5%/8.0% mainly because of lower margins. We value IndiaMART on a DCF basis to arrive at our TP of INR6,150 (23% potential upside), assuming 12% WACC and 6% terminal growth rate, implying 47x FY24E EPS. Reiterate BUY.
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