Kotak Institutional Equities has commenced coverage on IndiaMART InterMESH, the leading online B2B marketplace in India, with a ‘reduce’ rating. The brokerage highlights the need for the company to make aggressive investments in new capabilities and products in order to enhance the monetization of its paying customers.
Despite being the largest e-B2B horizontal marketplace in the country, facilitating around 7.5 million sellers and serving 37 million active buyers, IndiaMART has witnessed a stagnation in buyer enquiries in recent years.
Kotak analysts note that IndiaMART’s delivered enquiries have declined from a peak of 175 million in Q2 FY21 to 123 million in the March quarter of FY23. Additionally, the quarterly traffic on the platform has decreased from 284 million in Q2 FY22 to 252 million in Q4 FY23.
“While the company attributes this to changes in the matchmaking algorithm, resulting in better targeting of relevant enquiries, we remain cautious and will closely monitor both traffic and enquiry figures,” state the Kotak analysts.
The growth in the paying supplier base should be supported by an increase in buyer enquiries to ensure a return on investment for paying sellers, the analysts added.
Kotak has set a fair value of INR 5,400 on IndiaMART’s stock, implying a 4% downside to its last closing price on the BSE.
IndiaMART’s shares fell by 1.5% to INR 5,617.75 on the BSE on Monday, June 5, reversing the upward momentum it had seen in the previous three sessions.
Kotak also highlights increasing competition from well-funded players like Reliance (Jiomart+Metro B2B), Amazon, and Walmart’s Flipkart in specific verticals, which poses additional investment risks for IndiaMART. The brokerage also notes that B2B startups such as Moglix, OfBusiness, Ninjacart, and Udaan, with their significant capital raises, have the potential to disrupt existing distributors and SMEs, potentially drawing business away from IndiaMART.
However, Kotak’s concerns are primarily long-term in nature. They expect IndiaMART to report healthy standalone revenue and EBITDA, with a compound annual growth rate (CAGR) of 20% and 24%, respectively, over the FY23-26 period.
It is worth noting that in FY23, IndiaMART reported a 5% YoY decline in consolidated net profit to INR 283.8 crore, while its revenue increased by 31% to INR 985 crore. In Q4 FY23, the net profit decreased by 3% YoY and 50% sequentially to INR 55.8 crore.
Despite the existing risks, IndiaMART has performed well in the equity market since its listing in 2019, with its shares growing over 300% to date. Additionally, the company’s board of directors has recently considered the issuance of bonus shares.
