Q1FY24 Review: IndiaMART: Subscriber addition softens as pricing hiked

24 Jul 2023 , 02:05 PM

IndiaMART’s (INMART’s) Q1FY24 revenue of Rs2.82bn grew 26% YoY, in line with IIFLe. Paying subscriber addition in Q1 was weak at 5k, below management guidance of 8k-9k range. Collections increased to Rs3.2bn, growing 26.4% YoY, in line with IIFLe. Ebitda margin at 27.4% (+280bps QoQ/-120bps YoY) was above IIFLe of 25.8%, as INMART hiked prices of their subscriptions during Q1. INMART announced buyback of shares worth Rs500mn through tender offer at Rs4,000 per share for 2.04% of equity. Management expects Q2 subscriber addition to remain soft but to revert to add 8k+ paying subscribers from 2H onwards and margins to trend higher as operating leverage kicks in. Analysts of IIFL Capital Services fine tune FY24-26 EPS. Their DCF-based 12-mth TP inches up to Rs2,800 (from Rs2,700) on roll forward. At current valuations of 48x and 36x FY25 P/E and EV/Ebitda, respectively, the stock offer no upside and the price may remain elevated in the near term due to the buyback. Maintain ADD.

Paying subscriber addition soft: 

INMART added 5k (vs 8.6k in Q4) paying suppliers in Q1, below management guidance of 8-9k. Churn rate in gold/platinum remain <1%. Company has taken price hikes in their entry level plans to Rs3k/30k for monthly (from 2.5k) and annual silver plans from the middle of the quarter. With that, they have reverted to prepandemic prices for these plans. This may result in lower sales productivity for 3-4 months. Hence, subscriber addition is expected to remain weak in the near term but pick up to 8-9k in H2FY24 and beyond.

Ebitda margins inch up: 

Ebitda margin at 27.4% (+280bps QoQ) was a result of improved pricing and better leverage on employee costs despite increased investments in Busy Infotech. Margin are expected to inch up to 30% by end of FY24 and settle in the 30–32% range, in the medium term as the company tries to maintain a balance between growth and margins.

Valuations fair, maintain ADD: 

Analysts of IIFL Capital Services DCF-based 12-mth TP of Rs2,800 assumes 10-yr revenue Cagr of 16%, with 35% exit Ebitda margins. INMART is trading at 48x FY25 P/E, pricing-in the long term structural story. Buyback may keep the stock price elevated in the near term, leaving no room for upside thereon. Successful integration of acquisitions could provide upside risks. Key risk: M&A.