Indiamart India’s largest B2B horizontal marketplace, is a dominant player in the B2B classifieds space, boasting 7.5 million sellers and 37 million active buyers. The company enjoys a high margin and generates healthy cash flow, making it a strong business in its sector. Our forecasts indicate a healthy compound annual growth rate (CAGR) of 20% for revenue, 24% for Ebitda, and 19% for EPS from FY2023-26.
However, we believe that Indiamart should make aggressive investments in new capabilities and products to further enhance monetisation of its paying customers. Considering the company’s rich valuations and the potential risks posed by competition, we assign a REDUCE rating. Based on a sum-of-the-parts (SoTP) valuation, we arrive at a fair value of Rs 5,400, which implies a price-to-earnings (P/E) multiple of 42x by March 2025E.
Leading online B2B horizontal player in India with dominant market share
The company follows a subscription-based pricing model, charging the sellers for lead generation, lead management and online payments. Data-driven matchmaking facilitates discovery of products and services for 170 million registered buyers. However, we remain watchful of stagnating buyer enquiries, despite increasing the paying supplier base. Indiamart’s enquiries delivered have declined to 123 million in Q4FY23 from a peak of 175 million in Q2FY21.
Expect healthy FY2023-26 EPS CAGR of 19%, longer-term concerns notwithstanding
We believe the impact of stagnating traffic and enquiries on financials may be some time away. Over FY2023-26E, we forecast healthy standalone revenue/ Ebitda/EPS CAGR of 20/24/19%.
The e-B2B (electronic) industry is poised for growth, fueled by the increasing digital engagement of small and medium enterprises (SMEs) and the expansion of online advertising. This growth trend will benefit Indiamart by attracting a larger number of paying suppliers at the entry level. Indiamart has already demonstrated success in premiumising some of these customers, but further premiumisation will hinge on its ability to consistently enhance its product offering.
One of Indiamart’s strengths lies in its strong cash flow generation, supported by a negative working capital cycle. This factor provides a level of reassurance regarding the company’s financial stability and ability to meet its operational needs efficiently.
Initiate with REDUCE rating
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We initiate coverage on Indiamart with a Reduce rating and FV of Rs 5,400. Our FV is based on a DCF-based valuation of the subscription-based services, to which we separately add the book value of investments in subsidiaries (Busy and Livekeeping) and associates.
Key risks: SME churn, high competitive intensity
Inability to increase buyer enquiries, despite higher supplier addition, is a key risk. Higher churn on the platform owing to lower ad spends by SMEs is also a risk. Increase in competition from deep-pocketed players in specific verticals can lower pricing power. Lack of meaningful synergies from SaaS companies’ investments is also a risk.