Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities and Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities
IndiaMart Intermesh (IndiaMart) posted in-line performance but strong growth in cash collection (+32% YoY) indicates strong renewals. Our positive view is based on (1) strong scalability in the business (+22% revenue CAGR over FY21-24E), (2) robust network effect leading to +28/23/32% YoY increase in traffic/registered buyers/business enquiries on the platform, (3) multi-year growth opportunity as only ~1.2% of the addressable MSMEs pay for listing services, (4) superior execution capabilities with continued margin expansion over the past four years (doubled in FY21), (5) asset-light business model with embedded non-linearity, and (6) 100% organic traffic leading to negligible spend on advertising. Our TP of INR 9,400 is based on 58x EV/EBITDA (DCF implied) at 1.4x the average multiple, supported by revenue/EPS CAGR of +22/18% over FY21-23E.
4QFY21 highlights: (1) IndiaMart revenue stood at INR 1.80bn (estimate of INR 1.78bn), registering a growth was 3.5% QoQ, driven by 2.7/0.6% QoQ growth in paying suppliers/ARPU; (2) cash collections from customers/deferred revenue grew 51.8/6.0% YoY; (3) business enquiries were down 2.6% QoQ but business enquiries per paying supplier were up 27% YoY; (4) EBITDA margin was down 280bps QoQ to 47.8% (better than our estimate of 46.1%) due to +10.5/21.5% QoQ increase in manpower/outsourced sales cost; (5) paying supplier net addition was ~4K vs. the target of ~5K quarterly addition; (6) churn rate increased in platinum packages due to the pandemic; (7) Silver/Gold/Platinum annual churn rate is 25/10/6%; (8) ~40% of the paying suppliers are more than three years old and~70% are more than one year old.
Outlook: We expect revenue growth of +21.8/22.0%, based on paid supplier growth of +15.1/16.0% and APRU growth of 6.4/5.2% for FY22/23E respectively. EBITDA margin estimate stands at 44.9/45.4% for FY22/23E, leading to an EPS CAGR of 18% over FY21-23E.