INSUBCONTINENT EXCLUSIVE:
Edelweiss has given a 'buy' rating on IndiaMART InterMESH with a target price of Rs 1,900.
INVESTMENT RATIONALEIndiaMART InterMESH
(IndiaMART), India’s largest online B2B product and services platform, is set to sustain strong growth momentum as businesses are
increasingly leveraging online channels for efficient procurement
A large and growing number of buyers and suppliers on the platform are driving up business enquiries, further increasing its attractiveness
This should continue to lift realisations and lure more paying customers, leading to a revenue CAGR of 24% over FY19–21
Given its high operating leverage, IndiaMART would clock CAGRs in EBITDA of 51% and PAT of 50% over the period.
"We see value in the stock
owing to high entry barriers, network effect-driven pricing power, and negative working capital (INR7.5bn cash on books)," the brokerage
Network effect driving enquiries"We are seeing a strong network effect at play
Growth in suppliers is luring more buyers and driving business enquiries, which in turn is attracting more sellers too
With a meagre 2.4% of the total suppliers as paying suppliers, and strong 59% CAGR in enquiries over FY16–19, we expect paying customers
to continue to grow well," the brokerage said
Investors view disruption risk for IndiaMART from the emergence of well-funded players
"It concerns us little since the so-called rivals operate in a narrow space and are far from gaining critical mass, whereas IndiaMART
largely deals in long-tail products, wherein competition might affect only later
Besides, IndiaMART is building new businesses in payments, SaaS, and credit, which may create additional moats," it said.
"We believe
IndiaMART is on the cusp of strong profit growth momentum led by revenue growth and high operating leverage
Deferred revenue of INR6.1bn – 1.1x of TTM – provides strong visibility
The stock’s current valuation at 24 times FY21E P/E is attractive vis-a-vis growth prospects in our view
We are initiating coverage with a ‘buy’ and a target price of Rs 1,900, valuing it at 33 times Q3FY21E EPS," the brokerage said.