IndiaMART InterMESH up 4% after MOFSL initiates coverage with "BUY" rating

Shares of IndiaMART InterMESH,  India’s largest B2B online classifieds marketplace, gained as much as 4 per cent to Rs 3,107 apiece on the BSE after the domestic brokerage firm Motilal Oswal Financial Services (MOFSL) initiated the coverage on the stock with a "BUY" rating. The target price has been set at Rs 3,550 - up 19 per cent from Thursday's close. 

IndiaMART operates in a sweet spot, wherein high-growth SMEs fuel the top line and a subscription-based model limits the risk of default. Margins mirror the positive operating leverage from revenue growth in the business, the brokerage said in its report. 

"In the past three years, the scalability of paid suppliers and request for quotation (RFQ) relevancy have led to a 26 per cent revenue compound annual growth rate (CAGR). Negligible spends on advertising over FY18–20 have led to turnaround in margins to 23 per cent in FY20 from -19 per cent in FY17. IndiaMART has shown tremendous resilience on the margin front. Despite a 50 per cent drop in collections for 1QFY21, the company has been able to increase margins on significant rationalisation in the operating cost," MOFSL said. 

The brokerage expects that customers with multi-year subscription packages will continue on the platform at lower annual fees. Further growth in new suppliers in certain categories would partially offset a decline in its stressed counterparts. It forecasts 25 per cent decline in collections for FY21, weighed by nearly 50 per cent decline in 1QFY21 collections. In turn, we expect a 7 per cent decline in FY21 revenues, coupled with V-shaped recovery in FY22. 

"We are confident of strong fundamental growth in operations hereon, driven by high growth in digitisation among SMEs (~25%), the need for out-of-the-circle buyers,  a strong network effect,  greater than 70 per cent market share in the underlying industry, the ability to increase ARPU on account of low price sensitivity, and high operating leverage," MOFSL said further. 

Shares of IndiaMart InterMesh were listed on the bourses in July 2019. The initial public offering (IPO) of the company had received a strong response with bids for 97 million shares. The IPO was subscribed 36 times. The qualified institutional buyers (QIBs) category was subscribed 31 times. The non-institutional investor’s category was subscribed 62 times. The retail individual investors (RIIs) category was subscribed 14 times.