Neutral on Infibeam Incorporation IPO - Angel Broking

Infibeam Incorporation Ltd (Infibeam) is an e-commerce company focused on developing integrated and synergistic e-commerce business models. Its operations can be broadly categorized as BuildaBazaar (BaB) e-commerce marketplace and E-retail website Infibeam.com. BaB provides cloud-based, modular and customizable digital solutions and other value added services to enable merchants to set up online storefronts. Infibeam.com is a multi-category E-retailer where it has more than 5,000 registered merchants while it sells its own products as well.

E-retail posting strong growth, Infibeam lags: At the moment, the penetration of internet users in India is at 19%, which is lower compared to countries like the US (87%) and China (46%). With an expected improvement in the number of internet users in the country, the on-line shopper base is expected to improve from the present 35mn to 180mn by 2020. As a result, the E-retail market size in India is expected to grow from US$7bn in 2015 (1.2% of total retail) to US$44bn (4.0% of total retail) in 2020. This positive outlook for the E-retail industry augurs well for e-commerce players. Despite such strong anticipated growth rate of the industry, Infibeam suffers from having smaller scale, absence of funding and lacks the customer mindshare that the other larger players like Flipkart have garnered. In the past, it (CAGR of 22% over FY2012-15 to Rs. 221) has not been able to match the revenue growth of bigger players like Flipkart India (CAGR of 260% over FY2012-15 to Rs. 9,537).

Higher focus on the profitable BaB marketplace business: The BuildaBazaar business of the company has grown at a CAGR of ~119% over FY2011-15 to Rs. 67cr. As a result, its contribution to the company's overall top-line has increased from negligible levels in FY2011 to 28.3% in 1HFY2016. The business' operating margin stood at 58.0% for 1HFY2016. Thus, the BaB business is totally mitigating the E-retail business' losses. Going forward, the company intends to use part of IPO proceeds to scale up its BaB business. However, the BaB business is in the nascent stage and considering that technological landscape being dynamic, this makes BaB a high risk reward venture.

Outlook Valuation: Infibeam's E-retail business has a similar model as Flipkart and Snapdeal, but is significantly smaller than the two dominant players which have strong PE backup. Its other business, i.e. BaB, in revenue terms is also smaller (Rs. 67cr FY2015) compared to global players like Shopify.com (US$205mn CY2015). Moreover, even if BaB business does gain dominant position in India, it is insufficient to justify the valuation. Considering this, we believe that the EV/Sales multiple of 4.3x-5.2x demanded by the company is steep. Given that the company is still evolving, has an unproven profitability track record and the expensive valuation, we have a Neutral recommendation on the issue.

Source : Equity Bulls

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