IndiaMART InterMESH - Competitive intensity is a key monitorable - ICICI Securities

Sequentially, paying subscribers declined ~4% impacted by covid second wave. Increase in buyer traffic and business enquiries (4%-8%) was led by categories like oxygen concentrators, etc. Deferred revenues witnessed a marginal dip (vs EOP-FY21). EBITDA margin improved slightly to ~49% led by further reduction in manpower cost (-5% QoQ). Management reiterated that sustainable EBITDA margins over the medium term will be ~40%. The prognosis of capital infusion by RIL (~Rs22bn) into Just Dial is a key thing to watch out for. This may help Just Dial to become more aggressive in scaling up its B2B business. Learning from RJio suggests that, Just Dial can now afford to delay its monetisation plans, disrupt the industry on pricing and play a significant catch-up in B2B. Potential transition of Just Dial into more 'comprehensive' and end to end 'transactions' platform cannot be ruled out - further increasing the competitive / capital intensity of the business. In the context of Indiamart's rich multiples (63x FY23E EPS), these concerns should remain a drag on stock price going ahead. We retain our HOLD rating as we monitor the competitive intensity of industry.

- Revenues and margins are broadly in line with estimates. Supplier store fronts and number of live products remained more or less stable sequentially. However, paying subscribers declined ~4% QoQ due to covid second wave impact. The reduction in paying subscribers was way lower than what it was during the first wave (~14k). Collections too remained resilient (Rs170 crore vs Rs94 crore last time). Buyer traffic and business enquiries witnessed 4%-8% increase led by categories like oxygen concentrators, etc. Deferred revenues dipped marginally (vs EOP-FY21). Revenues were in line with our estimates and remained largely stable on a sequential basis. Manpower cost further declined (5% QoQ) driving slight expansion in EBITDA margin (to ~49%). Other operating expenses witnessed a strong increase during the quarter.

- Steady-state EBITDA margin to be around 40%. Competitive intensity is the key. Currently, the company is operating at higher than normal EBITDA margins due to covid-led transient tailwinds. In the post-covid equilibrium, management indicated that EBITDA margins will most likely be in the range of 40%.

Learning from RJio suggests that, Just Dial can now afford to delay its monetisation plans, disrupt the industry on pricing and play a significant catch-up in B2B. Potential transition of Just Dial into more 'comprehensive' and end to end 'transactions' platform cannot be ruled out - further increasing the competitive / capital intensity of the business. In the context of Indiamart's rich multiples (63x FY23E EPS), these concerns should remain a drag on stock price going ahead. We retain our HOLD rating as we monitor the competitive intensity of industry.

Source : Equity Bulls

Keywords