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IndiaMart InterMesh
Saturday, June 22, 2019
The largest online B2B marketplace
CM RATING37/100
Incorporated on September 1998, IndiaMart InterMesh (IM) is India's largest online Business-to-Business (B2B) marketplace for business products and services. The company was promoted by Dinesh Chandra Agarwal and Brijesh Agrawal. Prior to incorporating the company, Dinesh Chandra Agarwal, the Managing Director and one of the Promoters, was engaged in the business of operating the website www.indiamart.com through InterMESH Systems, a sole proprietorship firm. Pursuant to an agreement dated January 1, 2000, the company bought the assets and liabilities (including the website www.indiamart.com) from Dinesh Chandra Agarwal.

IM enjoyed 60% market share in online B2B classifieds space in India in FY2017, according to KPMG report commissioned by the company.

IM primarily operates in product and supplier discovery marketplace, i.e., www.indiamart.com or IndiaMART. It provides a robust two-way discovery marketplace connecting buyers and suppliers. Buyers locate suppliers on its marketplace, including both Indian SMEs and large corporate houses by viewing a webpage containing the supplier's product and service listings (supplier storefront) or by posting requests for quotes (RFQs).

Their marketplace enables buyers to search for and view product and service listings over a widespread range of industries spread across India, rather than relying on a single target industry or type of geography. As of March 31, 2019, IndiaMART had organized their listings across 54 industries.

IM target the Indian B2B market with the objective of facilitating discovery of businesses through their online marketplace, which they have designed to address the significant challenges faced by offline suppliers and buyers. IM provides an effective and trusted platform to help businesses leverage the power of the Internet to increase their market reach and conduct commerce. The growth in internet penetration across India is helping companies move their businesses online and reach out to a larger customer base.

As on FY 2019, IM had 1,29,589 paying subscription customers on IndiaMART platform.

Suppliers on IndiaMART include Indian SMEs and large businesses who are manufacturers, wholesalers, exporters and retailers. Further, IM has a number of large suppliers and leading brands including Agfa HealthCare India Pvt. Ltd., Case New Holland Construction Equipment (India) Pvt. Ltd., Hilti India Pvt. Ltd., JCB India Ltd. and Nobel Hygiene Pvt. Ltd.

The top 10% of customers accounted for 40% of IM's revenues in FY2019.

IM reported an aggregate of 72.35 crore visits in FY 2019, out of which mobile traffic constituted 76% of total traffic.

IM earns revenues from the sale of subscription packages, from the sale of request for quote or RFQ credits, advertising from IndiaMART desktop, mobile optimised platforms and revenue from payment facilitation services. The company had 129,589 paying subscription customers in its three different packages end FY 2019.

Company's online marketplace is accessible through desktop and mobile-optimized platforms and apps on personal computing and mobile devices. Their IndiaMART mobile website, together with their IndiaMART mobile app, accounted for 63%, 72% and 76% of total traffic to IndiaMART for FY 2017, FY 2018 and FY 2019, respectively. Buyers can make business enquiries on IndiaMART through telephone, SMS, email or by posting RFQs.

The listings displayed on IndiaMART cover a wide range of suppliers' products and services. This provides a logical and hierarchical structure for more than 5 crore products across 54 industries which are divided into various different levels of sub-categories.

IM had 8.27 crore registered buyers and 0.55 crore supplier storefronts in India end FY 2019. These Indian supplier storefronts had listed 6.07 crore products, of which 76% of goods comprised products and 24% were services.

A total of 44.90 crore business enquiries were delivered to IndiaMART suppliers in FY 2019 and 29 crore business enquires were delivered in FY 2018. For FY 2019, they had 7.25 crore daily unique buyer requests, of which 55% were repeat buyers calculated on the basis of the past 90 days.

The Offer and the Objects

The offer comprises offer for sale of 48.88 lakh shares which at lower price band of Rs 970 per share, works out to Rs 474.12 crore and at higher price band of Rs 973, the issue size works out to Rs 475.59 crore. The selling shareholders comprises of Promoters and Promoter Group including Dinesh Agarwal (8.52 lakh shares) and Brijesh Agrawal and other shareholders Intel Capital (Mauritius) ( 25.9 lakh shares), Amadeus Dpf ( 2.6 lakh shares), Accion Frontier (4.8 lakh shares) and other shareholders ( 1.4 lakh shares).

The minimum bid lot is 15 equity shares and in multiples of 15 equity shares. The issue is made through the book-building process and will open on 24 June and will close on 26 June.

The objects of the issue is to get the benefits of listing the equity shares on the BSE and the NSE and to enhance its visibility and brand image and provide liquidity to its existing shareholders.

Strengths

There is strong brand recognition and market position. The company's market leading position creates strong network effects as a large number of buyers on their online marketplace results in more enquiries for suppliers, which in turn attracts more suppliers to register, create supplier storefronts and list products and services, consequently attracting more buyers.

It is attracting larger suppliers and leading brands, while growing the core SME segment supplier base. While Indian small and medium enterprises initially comprised the core base of the supplier community on IndiaMART, larger corporates and leading brands are a growing supplier segment on its platform.

B2C E-commerce market has led to a large number of sellers bringing their businesses online, which is leading to the B2B e-commerce market gaining traction. The company's online marketplace capitalizes on this opportunity by helping buyers gain access to a national pool of suppliers, comprehensive product and supplier information in a standardized format and greater transparency in prices. Their online marketplace also provides suppliers with cost-effective ways to reach new buyers across geographies.

According to KPMG, the wholesale market in India is estimated to reach US$ 700 billion in 2020, rising from an estimated US$ 300 billion in 2015. In order to tap into this potential, B2B e-commerce players have started building platforms for SMEs and traders. The number of SMEs buying and selling online has increased over the years with 27% of the internet-enabled-SMEs being engaged in e-commerce in 2017. The company's online marketplace is particularly relevant in India, which, unlike many other countries, has no major multi-brand or multi-category offline retailer of scale for business products and services.

Internet penetration among Indian SMEs remains low, at only 32% in India in 2017 and 17% of Indian SMEs used internet for business purposes as compared to 34% in China. Internet penetration and mobile usage is expected to grow rapidly, driven by greater smartphone penetration and relatively affordable mobile data costs, favourable government policies, make in India initiatives and Digital India promotions.

Weaknesses

There is high competitive intensity in the area of its operations. In an event where other existing or new players including MNCs offer better discounts and rates, it would be difficult to retain existing paying subscription suppliers or attract new paying subscription suppliers to IM.

International marketplace players can offer access to international buyers and sellers, which IM cannot offer.

General economic demand slowdown will affect growth prospects.

The company reported losses at the PBT level in the past years, except FY 2019.

The nature of business is such that the company has to face allegations and lawsuits or negative publicity if items listed and content available on online marketplace are pirated, counterfeit or illegal. Government regulations are also becoming stricter in these regards and any discrepancies will lead to loss of revenue and brand image.

Internet business is more restricted to mobiles and other small ticket items. Concerns about fraud, privacy, lack of trust and other problems may also discourage businesses from adopting the Internet as a medium of commerce for doing reliable high value businesses.

The company relies on Internet search engines and search engine optimization (SEO), in particular to attract and acquire new online visitors to its marketplace and retain existing suppliers and buyers. Internet search engines may change their algorithms to determine the ordering and presentation of search results or change IM's position in their search results in a manner that negatively affects the search engine ranking of or the placement of links to its online marketplace.

Valuation

For FY 2019, consolidated net sales were up 24% to Rs 507.42 crore. The OPM stood at 3.4% as compared with -18.6% thus resulting in OP of Rs 17.08 crore compared to OP loss of Rs 76.23 crore. Other income stood at Rs 40.97 crore up by 115%. Interest cost stood at nil while depreciation was higher by 43% to Rs 4.13 crore. Thus, PBT stood at Rs 53.92 crore as compared to loss at the PBT level of Rs 60.1 crore. After considering tax credit of Rs 114.86 crore for FY 2018 compared with tax payment of Rs 20.04 crore, consolidated PAT for FY 2019 stood at Rs 20.04 crore, down by 63% YoY.

The company had around Rs 607 crore of investments in liquid and debt mutual funds end March 2019. And other income will be major contributor to its profits unless it utilises this cash for any acquisition.

The EPS of the company for FY 2019 on diluted equity share capital of Rs 28.77 crore of face value of Rs 10 each stands at Rs 7. At the higher price band of Rs 973, the issue is offered at P/E of 140 times FY 2019 consolidated earnings.

The bottom line of the company has suffered due to fair value through P&L (FTPVL) of financial adjustments for preferential shares conversion and ESOP for FY 2017, FY 2018 and FY 2019. Management claims that it has done away with all such adjustments, and it is confident of maintaining around 16% OPM (before such adjustments) it achieved in FY 2019 with continued growth in the top line.

Adjusting for the gain/losses due to FTPVL, the OPM stands at 16% and PAT would have been around Rs 47.7 crore, translating into an EPS of Rs 16.6 in FY 2019. On this EPS, P/E works out to 59 times. The nearest comparable listed player Just Dial trades around 24 times FY 2019 earnings.

IndiaMart InterMesh: Issue highlights

Offer for sale ( in Rs crore)
- On lower price band474.12
- On upper price band475.59
Total Issue size for offer for sale ( in no of shares in lakh)48.88
Price Band (Rs)970-973
Bid size (in no of shares)15.00
Post issue share capital (Rs crore) 28.77
Post-issue Promoter & Group shareholding (%)52.6%
Issue open date24-06-2019
Issue close date26-06-2019
ListingBSE, NSE
Rating37/100

 IndiaMart: Consolidated Financials

1703(12)1803(12)1903(12)
Net Sales317.76410.51507.42
OPM (%)-23.2%-18.6%3.4%
OP-73.69-76.2317.08
Other in. 14.1719.0240.97
PBDIT-59.51-57.2158.05
Interest0.000.000.00
PBDT-59.51-57.2158.05
Dep.4.632.894.13
PBT -64.14-60.1053.92
EO 0.000.000.00
PBT after EO-64.14-60.1053.92
Tax (including Deferred Tax)0.20-114.8633.88
PAT-64.3554.7620.04
MI0.000.000.00
PAT after MI-64.3554.7620.04
EPS*-19.07.0
*EPS is on post issue equity capital of Rs 28.77 crore of face value
of Rs 10 each
# EPS not annualised due to seasonality of business
Figures in crore
Source: Capitaline Database

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