India-MART InterMESH plans to raise up to ₹Rs 475 crore through an initial public offering (IPO) to provide a partial exit to promoters, who will reduce stake to 52.6% from 57.6%. Some of the other shareholders including Intel Capital, Amadeus Capital Partners and Quona Capital, which cumulatively own about 24% will also partially sell their stakes.
The company reported double-digit revenue growth in the past three years and turned profitable in FY18. It has zero debt and sizeable cash balance. Given these factors and risks such as dependence on subscription revenue from SMEs, investors with a higher risk appetite may consider the IPO.
BUSINESS
Incorporated in 1999, the company primarily operates through its product and supplier discovery marketplace, www.IndiaMART.com and “IndiaMART” mobile application. As of March 2019, the company had 82.7 million registered buyers and 5.6 million supplier store-fronts in India. It had nearly 60% market share of online B2B classifieds segment in India in FY17, according to KPMG.
It earns over 99% revenue through the sale of subscription packages available on a monthly, annual and multi-year basis to suppliers. The remainder comes from advertising on its website and mobile app and from the sale of request for quotations (RFQ) credits.
According to the company, only 27% of the total SMEs in India use the ecommerce platform. Trade India is the distant second largest player with a user base one-tenth of that of IndiaMART.
FINANCIALS & VALUATIONS
The revenue increased by 26% annually since FY16 to ₹507.4 crore in FY19. The operating profit before depreciation and amortisation (EBIDTA) was ₹82.3 crore and net profit was ₹20 crore in FY19. The bottom-line has been hit in the last two years due to non-cash accounting adjustments due to share conversions. This is unlikely to repeat in the coming years. IndiaMART is debt-free with cash and equivalents of nearly ₹700 crore.
At the upper end of the price band, the company demands a market capitalization of ₹2,800 crore. This makes its enterprise value at 25.6 times of Ebitda, which reflects its growth momentum. The company has no listed peer to compare its valuation.
A high dependence on SME subscription exposes the company to the risk of a slowdown in the economy, which usually affects smaller companies more. Another risk is the possibility of entry of a large and established ecommerce company, which may disrupt the incumbent players including IndiaMART. Given these factors, investors with a high risk appetite may consider the IPO.
