IndiaMart share price climbs 5% after Jefferies initiates buy


Shares of IndiaMart InterMesh rallied 5.5 percent intraday on December 23 after Jefferies initiated coverage on the stock with a buy call and target price of Rs 2,500.

This implies a 26 percent potential upside from current levels.

The stock rebounded after losing a 6 percent in previous week. It was quoting at Rs 2,077.85, up Rs 92.75, or 4.67 percent on the BSE at 1026 hours IST.

“It is the dominant B2B classified platform in India. It has strong moats to defend it against the competition,” said the global brokerage which expects 20 percent revenue CAGR over FY20-22 despite macro headwinds.

Jefferies feels the margin should expand to 28 percent by FY22 from 16 percent in FY19. “It is also free cash flow positive helped by upfront collections and low capex,” said the brokerage.

“It is the dominant B2B classified platform in India with strong moats to defend it against the competition,” said the global brokerage.

It has 5.7 million supplier storefronts and 93 million registered buyers. It currently has 1,37,000 paying subscribers which is 2.4 percent of its listing base, who pay Rs 45,000 per annum on average.

“Its monetization is through a ‘freemium’ model where listings are free but suppliers pay for subscriptions, which gives them priority in search results, RFQ credits & quality assurance branding; buyers are not charged,” said Jefferies.

The brokerage sees multiple growth drivers for IndiaMart which should help drive 20 percent revenue CAGR over FY20-22 despite macro headwinds related to economic slowdown.

Continued rise in number of paid suppliers with increased shift towards digital advertising, greater penetration outside of top tier cities, and shift to category & location-specific pricing should drive ARPU growth, which all will help company post double-digit revenue CAGR, said the brokerage, adding large upfront collection led to good revenue visibility for the company. “High customer churn rate is a risk.”

This, in turn, should drive sharp margin expansion to 28 percent by FY22 against 16 percent in FY19 given strong economies of scale, it feels.

Indiamart’s EBITDA margin has expanded sharply over the last few quarters from 11 percent in June 2018 to 24 percent in the first half of FY20, helped by significant economies of scale given low variable costs.

The business is in a negative working capital cycle owing to a large proportion of upfront collections. “This has led to positive free cash flow and significant cash generation with Rs 780 crore (Rs 270 per share) of cash & investments as of first half FY20, which is likely to expand to Rs 1,730 crore (Rs 600 per share) by FY22E end,” said Jefferies.

Disclaimer: The above report is compiled from information available on public platforms. advises users to check with certified experts before taking any investment decisions.

News Source: Moneycontrol

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