IndiaMART: Collection growth expected to decelerate

Update on the Indian Equity Market:

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IndiaMART: Collection growth expected to decelerate

Excerpts of an interview with Mr Dinesh Agarwal- Founder and CEO, IndiaMART InterMESH Ltd. The interview was broadcasted on CNBC-TV18 dated 24^th December 2019.

• IndiaMART is India’s largest online B2B market place. The stock price has rallied 120% since listing in July 2019.
• IndiaMART’s revenue growth for the last couple of years has been robust. Revenue growth in 1HFY20 was strong at 29% but the growth is expected to decelerate going forward due to overall economic slowdown.
• IndiaMART collects money in advance and has Rs 6,290 mn deferred revenue pool. The deferred revenue flows into the revenue eventually.
• The incremental growth in the deferred revenue has slowed down considerably over the last 2 quarters. The impact on revenue will show up over the next couple of quarters if the economic conditions do not improve substantially quickly. Growth will be lower than the 25% growth guidance given earlier.
• IndiaMART has 137,000 paying subscribers. The subscribers have been growing 15% YoY. The net customer addition is about 5,000 per quarter. The slowing economy has impacted the net additions. In 2QFY20 IndiaMART added only 4,000 customers because of pressure on sales and revenue.
• Management believes they will grow at 15% on the customer side and about 5% on the average revenue per customer.
• Mr Agarwal said that collection growth has come down to 15%-16% in the last two quarters from 30% earlier. IndiaMART has successfully reduced business in MSME space. IndiaMART is well diversified in terms of industries and geography coverage.  They already have more than 140,000 product categories and about 60 mn products. They deal into 1,000 plus small towns, cities and tier-III villages. Management believes their core business will continue to remain robust.
• Management has taken additional bets in SaaS [software as a service] and fintech opportunities for SMEs. They have invested in mobile accounting software for micro SMEs called Vyapar.
• IndiaMART’s cost base has been growing at 16%-18%. As long as revenue base continues to grow faster, margins will expand. Being a technology company, the product has already been built so the margins should continue to improve.
• In 2QFY20, EBITDA margin jumped YoY from 18%-19% to 23%. This level of margin is sustainable and can further improve QoQ if the economic condition is not very bad.

Consensus Estimate (Source: market screener website)

• The closing price of IndiaMART was ₹ 2,074/- as of 24-December-19. It traded at 54x/32x/27x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 38.2/63.8 /76.3 respectively.
• Consensus target price of ₹ 2,202/- implies a PE multiple of 29x on FY22E EPS of ₹ 76.3/-.