IndiaMART’s (INMART’s) Q3 revenue of Rs3.05bn grew 21% YoY, in line with IIFLe. At 2k, the net paying subscriber addition in Q3 was soft for the second straight quarter; impacted by continued higher churn in the Silver category. Gross subscriber addition has improved and is currently ~1k lower YoY. Collections increased to Rs3.3bn growing 17% YoY; below IIFLe of 22%, partly impacted by higher number of festival days in the quarter. Ebitda margin at 28.1% (+100bps QoQ) was in line with IIFLe. Management is confident of the net subscriber addition bouncing back over the next few quarters, without specifying a timeline for the same. Analysts of IIFL Capital Services lower FY24-26 Ebit estimates by 1-3%, while their EPS increases due to higher Other income. Their DCF-based 12-month TP reduces to Rs2,850 (from Rs2,900). The stock is currently trading at 39x FY25 P/E. Analysts of IIFL Capital Services believe improvement in net subscriber addition would be required for re-rating. Maintain ADD.
Churn rates continue to impact subscriber addition:
INMART added 2k paying suppliers in Q3 — the second straight muted quarter. While gross addition bounced back from Q2, net additions were impacted by continued high churn rates in the Silver category. Churn rate in gold/platinum are near all-time lows. ARPU increased by a healthy 11.5% YoY, on continued higher realization in gold/platinum customers and the transition of a higher proportion of Silver customers (33% vs 10% in Q2) to the new plan. INMART is confident of net subscriber addition bouncing back in the next few quarters, as it focuses on improving the persistency of its customers, but did not call out the quantum of improvement.
Ebitda margins improve despite early wage hike:
Ebitda margin at 28.1% (+100bps QoQ) was in line with IIFLe; despite a one-month impact of wage hikes in the quarter. Margins are expected to see the usual seasonality in Q4 and remain range-bound in the near-term.
Re-rating requires recovery in net subscriber addition:
Analysts of IIFL Capital Services DCFbased 12-month TP of Rs2,850 assumes 10yr revenue Cagr of 15%, with 35% exit Ebitda margins. INMART is trading at 39x FY25 P/E, 1 SD below its long-term avg. However, analysts of IIFL Capital Services believe a recovery in net subscriber addition is required for the stock to re-rate. Maintain ADD. Key risk: M&A.
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