Revival in SME sector helps IndiaMART gain investors' confidence

Brokerages bet on the stock despite a 122% rally in 6 months

Even as India’s small businesses are still looking to adapt and grow amid uncertain times, investors are placing their bets on the nation’s largest online marketplace that lets such firms buy and sell in the bulk.

An integral part of the economy, the MSME sector has been hit hard by the Covid pandemic and the lockdown. However, government measures to boost liquidity, longer repayment times to ease the cash crunch are helping; the recovery had been better than expected in the second quarter. 

IndiaMART is the country’s largest online business-to-business marketplace with a market share of 60 per cent. The company operates a product and price discovery platform, facilitating interactions between suppliers and buyers. The platform is unique as it enables two-way interactions -- suppliers can post their listings and buyers can place their request for quotations.

“IndiaMART has aced its business model; it monetises leads by providing them to suitable suppliers. As many as 6.1 million storefronts on the platform attract 107 million buyers, which makes the platform compelling for more sellers and, thereby, fuels the network effect,” said Pranav Kshatriya, research analyst at Edelweiss securities.

In Q2FY21, it provided 113 million registered buyers with access to 6.2 million supplier stores in India, listing 69 million products, and services across 56 industries. Yet, there’s a huge untapped potential.

“With less than 20 per cent of India’s MSMEs using the internet for business (against 54 per cent in the US and 89 per cent in China), the e-classifieds market holds potential. Online classifieds offer businesses a chance to connect with consumers at a low cost and secure a measurable return on investment,” according to brokerage firm Anand Rathi.

A strong showing in the second quarter further reiterates the Street's confidence in sustainable growth momentum. “Though Covid-19 acted as a temporary speed breaker in its growth momentum, a jump of 32 per cent YoY in traffic, along with 42 per cent YoY growth in business enquiries in Q2FY21, demonstrates that the business is well on its path to recovery,” said Kshatriya.

Shares of IndiaMART have surged 122 per cent in six months to trade at Rs 5,109 apiece. The stock, which listed on the bourses last July, has given a fivefold return to investors from its issue price of Rs 973.