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IndiaMART InterMESH Ltd. IPO Note
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Offer Details

Price band

Rs.970 - 973 per equity share (discount of

Rs.97 to eligible employees)

Offer Open Date

Jun 24, 2019

Offer Close Date

Jun 26, 2019

Lot Size

15 shares

Face value

Rs 10 per equity share

Issue Type

Offer for sale of equity shares

Issue Size

4,887,862 equity shares

Offer Size

Rs.4744.1 mn – 4755.8 mn

Book Building

QIBs

atleast 3,658,397 equity shares

Non-Institutional

upto 731,679 equity shares

Retail

upto 487,786 equity shares

Employee

upto 10,000 equity shares

Lead Managers

ICICI Securities Limited, Edelweiss Financial Services Limited, Jefferies India Private Limited

Registrar to Issue

Link Intime India Private Limited

Exchange

BSE, NSE

Capital Structure

Pre Issue Equity

Rs 29 mn

Post issue Equity

Rs 29 mn

Post Issue Mkt Cap at Upper band

Rs 27,820 mn

 

Shareholding:

Promoter group holds 57.58% stake in the company and post-IPO their shareholding will come down to 52.61%. Public holding will increase from 42.42% to 47.39%.

Company Profile:

Incorporated in 1999, IndiaMART InterMESH Ltd (IML) is India’s largest online B2B marketplace for business products and services with approximately 60% market share of the online B2B classifieds space in India in FY17, according to KPMG. It primarily operates in product and supplier discovery marketplace i.e., www.indiamart.com or “IndiaMART”.

IndiaMART provides a robust two-way discovery marketplace connecting buyers and suppliers. Buyers locate suppliers on its marketplace, including both Indian SMEs and large corporates, by viewing a webpage containing the supplier’s product and service listings (supplier storefront) or by posting requests for quotes (RFQs). Suppliers on IndiaMART include Indian SMEs and large businesses who are manufacturers, wholesalers, exporters and retailers. Further, IML has a number of large suppliers and leading brands including Agfa HealthCare India Pvt. Ltd., Case New Holland Construction Equipment (India) Pvt. Ltd., Hilti India Pvt. Ltd., JCB India Ltd. and Nobel Hygiene Pvt. Ltd. The top 10% of customers accounted for 40% of IML’s revenue in FY19.

The company offers product and services across 52 industries and this marketplace is accessible through desktop and mobile platforms. It earns revenue primarily through the sale of subscription packages (available on a monthly, annual and multiyear basis) to suppliers, which offer a range of benefits including the listing of their supplier storefronts on a priority basis on IndiaMART, access to lead management system, integrated access to third party online payment gateways and access to RFQs. It also earns revenue through advertising on its IndiaMART desktop and mobile optimized platforms and IndiaMART mobile app, payment facilitation service and from the sale of “RFQ credits”.

Its online marketplace is particularly relevant in India, which, unlike many other countries, has no major multi-brand or multi-category offline retailer of scale for business products and services. Given the ticket sizes associated with B2B and wholesale transactions, the opportunity for B2B e-commerce is even higher as compared to B2C e-commerce market. Its online marketplace capitalizes on this opportunity by helping buyers gain access to a national pool of suppliers, comprehensive product and supplier information in a standardized format and greater transparency in prices. Its online marketplace also provides suppliers with cost-effective ways to reach new buyers across geographies.

The Company had 129,589 paying subscription customers in its three different packages as on FY19. It had 82.7mn registered buyers and 5.5mn supplier storefronts in India as on FY19. Indian supplier storefronts had listed total 60.7mn products (76% goods and 24% services). It reported an aggregate of 723.5mn visits in FY19 out of which mobile traffic constituted 76% of total traffic.

Sector Overview:

According to KPMG, the wholesale market in India is estimated to reach USD 700 billion in 2020, rising from an estimated USD 300 billion in 2015. To tap into this potential, B2B e-commerce players have started building platforms for SMEs and traders. The number of SMEs buying and selling online has increased over the years with 27% of the internet-enabled-SMEs being engaged in e-commerce in 2015, according to KPMG. IndiaMART targets the Indian B2B market with the objective of facilitating discovery of businesses through its online marketplace.

Financial Overview:

 

FY16*

FY17*

FY18*

FY19*

Net Sales

2,377

3,086

4,036

4,973

EBITDA

(610)

(228)

(1,912)

143

EBITDA Margin (%)

(25.6)

(7.4)

(47.4)

2.9

Reported PAT

(588)

(131)

(724)

126

PAT Margin (%)

(24.7)

(4.2)

(18.0)

2.5

RoE (%)

24.3

5.2

23.2

7.8

RoCE (%)

(81.9)

(11.2)

(80.5)

11.6

Net Debt to Equity (x)

-

0.1

0.1

(0.2)

              (*Rs. In mn)

              On standalone basis


With 16.2% CAGR rise in the paying supplier base and 10.3% CAGR rise in average realisation towards each paying suppliers, IndiaMART reported a 26.4% CAGR rise in consolidated operating revenue over FY17-19 to Rs 507. 42 Cr in FY19.Some key performance metrics (consol. basis) for IndiaMART are as follows:

1)    Employee cost, which formed almost over 50% of the revenue increased by 4.7% CAGR over FY17-19.

2)   Income from investment increased by 77% CAGR

3)   Cash flow from operations was positive over FY17-19, with an average operating cash flow of Rs 217 Cr (over FY18-19)

4)   RoE for FY19 was 12.5%, while RoCE was 3%

Objects of the Issue:

The objects of the Offer are to achieve the benefit of listing the equity shares on the stock exchanges and for the sale of an aggregate of up to 4,887,862 equity shares by the selling shareholders. Further, the company expects that listing of the Equity Shares will enhance visibility and brand image and provide liquidity to the shareholders. Listing will also provide a public market for the equity shares in India.

Promoters Dinesh Chandra Agarwal and Brijesh Kumar Agrawal will sell 14,30,109 shares through the issue, while investors Intel Capital (Mauritius), Amadeus IV DPF and Accion Frontier Inclusion Mauritius will offload 33,20,753 shares and 1,37,000 equity shares by other selling shareholders.IndiaMART will not receive any proceeds from the Offer and the entire proceeds from the Offer will go to the selling shareholders, in proportion to the equity shares offered and sold by the respective selling shareholder in the Offer for Sale.

Key Strengths:

1)   One of the leading B2B e-Commerce Players in India.

2)   Expected growth in SME sector to significantly benefit IndiaMART.

3)   A robust two-way discovery marketplace connecting buyers and suppliers.

4)  Well-placed to cash in the opportunities in India's wholesale market.

Key Risks & Concerns:

1)   General demand slowdown for the types of products and services listed by the suppliers on IndiaMART online marketplace.

2)   Inability to maintain the traffic of buyers and suppliers

3)   Difficulty in retaining and expanding the paying suppliers

4)   Poor acceptance of other fee based services

5)   Higher competitive intensity

Peer Comparison:

Operating in the B2B space, IndiaMART’s direct competitors include Tradeindia.com and Alibaba India. However, these two are not public companies.

Two public indirect competitors for IndiaMART are JustDial and Google as they both serve as search engine platforms. Private direct competitors for IndiaMART include Industry Buying, Power2SME, Moglix, Tradohub and Bizongo; and traditional trading channels such as a trade show organizers, trade magazine publishers, the yellow pages, classified advertisements and outdoor advertising.

However, IndiaMART believes that its USP against these competitors is reach, brand recognition, breadth and quality of suppliers and product listings, pricing and customer service.

Number of Suppliers on Select B2B e-Commerce Platforms:

B2B Platform

Number of Users

Number of suppliers

IndiaMART

59.8mn

4.7mn

Trade India

4.3mn

NA

Industry Buying

NA

5,000-6,000

Moglix

NA

~2,000

              Source: Company DRHP

Update on IPO:

IndiaMart InterMesh Ltd has raised 2.14 bln rupees through anchor investment ahead of its initial public offering. ICICI Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, Birla Mutual Fund, and Hornbill Capital Advisers LLP are among the 15 anchor investors. The company has allotted 2.19 mln shares to 15 anchor investors at 973 rupees per share, which is the upper price band of its IPO.

Conclusion:

At the upper price band of Rs 973, IndiaMart is available at an EV/EBITDA of 34 times FY19 (and P/E of 140) which seems premium. The company turned profitable recently, and management is not providing a clear picture of its current and future financials. The company has not given any guidance on their EBITDA margins as well. Even the complete financial results till March 2019 are not available. We are giving NEUTRAL rating on the stock. There could be minor listing gains as GMP (Grey market premium) is around 100-110 but it needs to see if it is sustainable by the time listing day comes. The stock due to its unique positioning as only listed player can be considered after listing on declines. At CMP, it seems expensive and lack of information is a hindrance in making any investment call.

Source: DRHP filings of IndiaMART InterMESH Ltd.


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