Q2FY24 Review: IndiaMART: Soft subscriber addition offsets ARPU increase

30 Oct 2023 , 01:24 PM

IndiaMART’s (INMART’s) Q2 revenue of Rs2.95bn grew 22% YoY — a tad above IIFLe of 21%. In Q2, paying subscriber addition in was the weakest in nine quarters at 2k, impacted by lower gross addition due to the price hike taken in Q1 and higher churn in the Silver category. Collections increased to Rs3.4bn, growing 27.7% YoY; above IIFLe of 19%. Ebitda margin at 27.1% (-30bps QoQ/- 80bps YoY) was a tad below IIFLe of 27.5%. Management expects net subscriber addition to remain soft in the near term as the previously taken price hike will continue to impact gross addition and elevated silver-category churn. Analysts of IIFL Capital Services lower FY24-26 EPS by up to 4%, on the back of lower subscriber addition. Their DCF-based 12- month TP increases to Rs2,900 (from Rs2,800) on roll forward. At current valuations of 44x and 32x FY25 P/E and EV/Ebitda, respectively, analysts of IIFL Capital Services see balanced risk-reward. Maintain ADD. 

Paying subscriber adds the weakest in nine quarters: 

INMART added 2k (vs targeted range of 8-9k) paying suppliers in Q2 — below IIFLe of 5k. This was due to a combination of lower gross addition, because of the price hike taken from May 15th and higher churn in the silver category. Churn rate in gold/platinum remain healthy at ~1% per month. ARPU increased by 10% YoY, as management indicated that ~10% of their customers are now on the increased rates. INMART expects gross addition to remain muted in Q3 and start improving from Q4. However, churn rates are expected to remain elevated, leading to mgmt staying away from guiding for a period by when they will go back to the previously guided 8-9k range. 

Ebitda margins range bound: 

At 27.1% (-30bps QoQ), Ebitda margin was a tad below IIFLe of 27.4%; due to higher investments in subsidiaries. Margins are expected to remain range-bound in the near-term 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-month TP of Rs2,900 assumes 10yr revenue Cagr of 15%, with 35% exit Ebitda margins. INMART is trading at 44x FY25 P/E, pricing in the long-term structural story. Successful integration of acquisitions could provide upside risks. Maintain ADD. Key risk: M&A.