IndiaMart Gets 'Buy' Rating As Jefferies Initiates Coverage Citing Strong Balance Sheet

IndiaMart Intermesh Ltd. got a 'buy' rating as Jefferies initiated coverage, citing a strong balance sheet and investments in SaaS for the move.

The brokerage has set a target price of Rs 3,400 apiece on the stock, implying an upside of 24% from the current levels.

The company has strong cash flow generation with no debt and Rs 2,300 crore in cash as of Q3 FY24. IndiaMart's cash balance has more than tripled, from Rs 680 crore in FY19 to Rs 2,300 crore in Q3 FY24, the brokerage said.

While this has been aided by a Rs 1,070-crore QIP in FY21, IndiaMart has made cumulative investments of Rs 1,000 crore in acquisitions over the same period, Jefferies noted.

"However, high cash on the balance sheet has led to a dilution of the return profile, which is still sub-20%. IndiaMart's recent Rs 5 billion (Rs 500 crore) buyback would help the ROE profile of the business, but we expect IndiMart's ROE to be range bound around the 20% level. We expect IndiaMart to utilise cash on SaaS based investments and shareholder payouts," Jefferies said in its note.

The B2B classified platform in India has a market share of over 60%, with a strong value proposition that has it well-placed against competition. The platform is "well positioned against horizontal platforms" due to its superior matchmaking of buyers and suppliers, higher involvement of B2B buyers, and detailed product specification.

Strong community effects, higher value to suppliers, diversified listings and rising contributions from value-added services are among the other reasons for its better placement, the brokerage said.

Jefferies also said that there is a strong growth prospect as the company operates in an untapped market with 64 million MSMEs and only 212 suppliers. There is also more scope for growth due to rising digital awareness, an increase in paid subscriber conversion, and penetration in Tier-2 and Tier-3 cities, as well as medium and large enterprises.

The brokerage expects 19% revenue CAGR over FY24–26E, with 11% CAGR in paid suppliers and 8% ARPU CAGR.

It also forecasts margin expansion by 200 basis points over FY24–26, with the benefits of operating leverage and cash and investments rising to Rs 40 billion.

Shares of the company rose as much as 1.16% before paring gains to trade 0.01% lower at 12:41 p.m., compared to a 0.33% decline in the NSE Nifty 50.