IndiaMart InterMesh Ltd. will launch its three-day initial public offering on Monday as its investors and promoters are looking to pare holdings in the online marketplace for business products and services.
It has raised more than Rs 213 crore from 15 anchor investors by allotting 21.95 lakh equity shares at a price of Rs 973, the upper band of its IPO that opens on June 24.
The operator of Indiamart.com plans to raise about Rs 476 crore by selling close to 49 lakh equity shares at Rs 970-973 apiece, according to its red herring prospectus. Intel Capital, Accion Frontier and Amadeus IV will gain 2.5-5.4 times by selling shares in the IPO—a pure offer-for-sale.
The maiden offer values the company at close to Rs 2,800 crore at the upper end of the price band, BloombergQuint’s calculations showed. After listing, the promoter’s shareholding will fall to 52.6 percent from 57.6 percent.
Business
IndiaMart—the nation’s largest wholesale online marketplace with about 60 percent market share according to KPMG—connects manufacturers, suppliers and exporters to buyers through its platform. It, however, doesn’t engage in any other allied activities like logistics and credit facility, among others.
The company, which mostly has small businesses listed on its platform—generates 99 percent of revenue from the subscriptions purchased by sellers. The subscription packages are available monthly, annually and for multi-year, which offers benefits such as featuring on storefronts on priority basis, access to lead management system, integrated access to third-party online payment gateways and access to request for quotations. The rest of its business comes from advertising, facilitation of payment and sale of request for quotations credits. It also allows sellers to list without subscribing and is free for buyers.
The digital classified market—estimated at Rs 4,020 crore in financial year ended March 2017—is expected to grow at an annualised rate of 14 percent over FY17-22 to reach Rs 7,710 crore, the red herring prospectus said.
Haitong Securities said given the nascent stage of the online business-to-business e-commerce in India, this segment provides a huge room for growth in the years to come. IndiaMart being the market leader will benefit from this expansion, it said in a sales note to clients.
IndiaMart is present across India and caters to several industries. Most of the suppliers on its platform belong to construction materials, equipment, civil engineering and real estate spaces.
Nearly half of the company’s suppliers are in Delhi-National Capital Region, Mumbai, Bengaluru, Hyderabad, Kolkata, Ahmedabad, Pune and Chennai.
Over the years, the company has seen a steady rise in the number of registered buyers and paying suppliers. Still, the number of paying suppliers remains lower than total suppliers.
Financials
The company’s net worth stood at Rs 161 crore as of March, translating to a book value of Rs 56 a share after issue of new shares, according to its red herring prospectus.
IndiaMart’s revenue grew at an annualised rate of 30.2 percent over financial years 2014 to 2019 as the number of paying suppliers rose. But the company turned operationally profitable only in 2017-18 on the back of higher revenue and stable cost.
Also, a decline in employee, advertising, content development and buyer engagement cost as a percentage of revenue led to profitability.
As the company sells nearly a third of the subscription packs for three years, deferred revenue is a good near-term metric. IndiaMart’s deferred revenue, or advances from customers, stood at Rs 586 crore as of March 2019 against Rs 424.4 crore a year ago.
Peers
The company has no direct listed peer in India.
It, however, faces competition from unlisted entities such as Tradeindia.com and Alibaba India, besides indirect peers like Just Dial Ltd. Google and other search engines, which allow buyers to locate suppliers, also pose as a risk for IndiaMart.
Besides, traditional trading channels such as trade show organisers, trade magazine publishers, yellow pages, classified advertisements and outdoor advertising are other competitors.
Valuation
IndiaMart’s earnings per share for 2018-19 is close to Rs 7. At the upper end of the price band, its price-to-earnings ratio stands at 140 times, according to BloombergQuint’s calculations. By enterprise value-to-FY19 Ebitda, however, the issue price indicates a valuation of 25.7 times.
Assuming a 20 percent revenue growth over the next two years and an Ebitda margin of 17 percent, Haitong Securities said the issue price indicates an EV-to-Ebitda of 17 times.
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