IndiaMART: Structural story intact, despite near-term blip

15 Feb 2024 , 12:55 PM

Analysts of IIFL Capital Services hosted the IndiaMart (INMART) management at IIFL’s Investor Conference in Mumbai. Management believes the company can grow its revenues in the range of 20-25% over the medium term driven by growth in paying customers (15-20%) and increase in ARPU (5-10%). In the recent quarters, paying subscriber addition has been impacted by high churn rates in the basic packages, however management has taken multiple steps to reduce the churn rates. Margins are likely to be range bound in the near-term. BUSY has seen acceleration in growth over the last 12 months. Analysts of IIFL Capital Services DCFbased 12-month TP is₹2,850, implying limited upside. At 42x/32x FY25/FY26 P/E the believe an increase in paying subscriber addition is required for re-rating. Maintain ADD. 

High churn rates impacting near-term subscriber addition: 

INMART highlighted that low net paying subscriber addition is a function of the high churn rates in the Silver monthly and Silver annual packages, while the Gold and Platinum subscribers churn rates have remained broadly stable. INMART is correcting this in a surgical fashion by taking steps like discontinuing monthly packages in high churn cohorts, upselling servicing team, increasing supplier engagement through product improvements etc. The value that the platform provides is visible through the ARPU increase that the gold/platinum subscribers continue to see. 

Long runway of faster growth for longer: 

With only ~200k paying subscribers, out of the ~8mn supplier on INMART and ~13mn GST filing business in India, the runway for growth remains significant. Management sees enough room to increase the number of paying subscribers by 3-5x of the current number. The network effect built by INMART provides a first mover advantage that is difficult to replicate. 

Margins to remain range bound in the near-term, sustainable margins can be ~35%: 

INMART believes its ~30% Ebitda margins are likely to remain range bound in the near-term. However, over the mediumterm sustainable margins could be ~35%. Analysts of IIFL Capital Services maintain ADD as they wait for signs of pick up in paying subscriber addition.