The initial public offering (IPO) of IndiaMART InterMESH, India's largest online business-to-business (B2B) marketplace for business products and services, opens on Monday. Through this issue, the company is offloading 4.89 million shares. The price band of the IPO, which is entirely an offer for sale (OFS), has been fixed at Rs 970 to Rs 973 per share. At the upper end of the price band, the company aims to raise around Rs 475 crore.
On Friday, IndiaMART InterMESH raised around Rs 214 crore by allotting 2,195,038 equity shares at Rs 973 apiece to 15 anchor investors, including ICICI Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, Birla Mutual Fund, SAIF Partners, Hornbill Capital Advisers LLP and Malabar India.
IndiaMART had a negative net worth of Rs 390 crore as on March 31, 2017, and Rs 321.26 crore in 2018. As on March 31, 2019, its net worth had turned positive, at Rs 1,598.88 million. “Its negative net worth as on March 31, 2017, and in 2018 was primarily on account of its operating losses and net loss/(gain) on financial assets and liabilities designated at fair value through profit or loss (FVTPL) in the respective fiscal/period,” notes HDFC Securities.
The company has witnessed consistent growth in its revenue over the past three financial years. In FY17, the company’s revenue stood at Rs 317.8 crore, while in FY18 and FY19 it grew to Rs 410.51 crore and Rs 507.42 crore, respectively. It posted a loss of Rs 64 crore in FY17. In FY18, its adjusted profit after tax (PAT) came in at Rs 55 crore. But in FY19, it de-grew to Rs 20 crore.
Should you subscribe?
Analysts’ views appear divided on the IPO. While some believe investors with a long-term view should subscribe to it, as the business has immense growth potential. Yet there also are experts who advise giving it a miss, given the volatility in the secondary market, the company’s poor financials and limited growth potential in the B2B segment.
For instance, Ravi Singh, head of research, Karvy Broking, says: "At present, the issue might look a bit expensive but over the long term it will reward investors. Over the next 12 months, the stock will rally over 70 per cent to Rs 1,650-1,670." Government push for digital economy and expected growth in SMEs will significantly benefit IndiaMART, he believes.
Based on FY20E and FY21E earnings per share, the stock is valued at P/E (price-to-earnings) multiples of 35.1x and 25.9x, respectively, which is at a premium to the peer average of 21.5x and 15.3x, observes Choice Broking in the IPO preview note.
Analysts at the brokerage say: “Such companies with technological and scalable business model should not be valued merely on the profitability but also on the future market potential and the capabilities of the management to work towards achieving the potential. Thus, we assign a ‘SUBSCRIBE’ rating for the issue."
On the other hand, Umesh Mehta, head of research, Samco Securities, advises against investing in the IPO, given the company’s poor financial performance over the past few years. "If you look at the financial history of the past five years, only last year it made a profit. Otherwise, it had been incurring losses. The company’s earnings per share has been just 4.87; and in the past few years it was quite negative." Moreover, demand for B2B e-commerce is not as much as B2C (business-to-consumer), which is in the market through digitalisation, Mehta adds.