IPO Analysis: IndiaMART
IPO Rating - 39 (Avoid)*
About the Issue
IndiaMART Intermesh (Indiamart), India's largest online B2B marketplace for business products and services, is entering the primary capital market with its initial public offering (IPO) up to 4,887,862 equity shares of face value of Rs. 10 each. The price band of the IPO has been fixed at Rs. 970 to Rs. 973 per equity share of the face value of Rs. 10 each. The entire issue is offer for sale. Both promoters, as well as early investors, are offering their shares in this IPO. The offer includes a reservation of up to 10,000 equity shares, for subscription by eligible employees. A discount of Rs. 97 per equity share is being offered to eligible employees bidding in the employee reservation portion. The offer and the net offer (excluding employees portion) shall constitute 16.99 per cent and 16.95 per cent of the post-offer paid up equity share capital of the company, respectively.
The issue size is between Rs. 474.12 to Rs. 475.58 crore at lower and upper price band, respectively. Company 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. Equity shares of IndiaMart are proposed to be listed on both BSE and NSE. The IPO opens on Monday, June 24, 2019 and closes on Wednesday, June 26, 2019.
| Indiamart IPO Detail |
| Issue Open | Jun 24, 2019 - Jun 26, 2019 |
| Issue Type | Book Built Issue IPO |
| Issue Size | 4,887,862 Eq Shares of Rs 10
(aggregating up to Rs 475.58 Cr) |
| Offer for Sale | 4,887,862 Eq Shares of Rs 10
(aggregating up to Rs [.] Cr) |
| Face Value | Rs 10 Per Equity Share |
| Issue Price | Rs 970 - Rs 973 Per Equity Share |
| Employee Discount | Rs 97 |
| Market Lot | 15 Shares |
| Min Order Quantity | 15 Shares |
| Listing At | BSE, NSE |
About the company
Indiamart, which was incorporated in the year 1998, is India's largest online business to business (B2B) marketplace for business products and services. According to KPMG, the company had 60 per cent market share in online B2B classified space in India at the end of FY17. Indiamart primarily operates in product and supplier discovery marketplace through its website (www.indiamart.com) and mobile app ("IndiaMART"). The company earns revenues from the sale of subscription packages, from the sale of request for quote or "RFQ" credits, advertising from IndiaMART desktop, mobile-optimised platforms and revenue from payment facilitation services. The company's online marketplace is accessible through desktop and mobile-optimised platforms and apps on personal computing and mobile devices. IndiaMART's mobile website, together with their IndiaMART mobile app, accounted for 63, 72 and 76 per cent of the total traffic to IndiaMART for FY 2017, FY 2018 and FY 2019, respectively.
The company has 1,29,589 paying subscription-based customers in its three different packages as on FY19. Besides, the company had 8.27 crore registered buyers and 0.55 crore supplier storefronts in India as on FY19. Indian supplier storefronts had listed total 6.07 crore products (76 per cent goods and 24 per cent services). Indiamart reported an aggregate of 72.35 crore visits in FY19 out of which mobile traffic constituted 76 per cent of total traffic. The top 10 per cent of customers accounted for 40 per cent of Indiamart's revenue in FY19.
| | FY17 | FY18 | FY19 |
| | Rs crore | % | Rs crore | % | Rs crore | % |
| Sale of services | 305.828 | 96.20% | 407.694 | 99.30% | 501.925 | 98.90% |
| Income from web services | 11.935 | 3.80% | 2.814 | 0.70% | 5.492 | 1.10% |
| Advertisement and marketing services | 317.763 | 100.00% | 410.508 | 100.00% | 507.417 | 100.00% |
Financials
For the period between FY17 and FY19, the company's revenue recorded CAGR of around 18.21 per cent and was at Rs. 548.38 crore for FY19. Substantially, all of the revenue from operations was earned through the sale of subscription packages, and a minor portion of total revenue was earned through advertising, facilitation of payment and sale of RFQ credits.
The EBITDA in the same period turned black from red. For FY17, the company reported negative EBITDA of Rs. 61 crore that grew to Rs. 14.3 crore at the end of FY19. The company's reported profit for FY19 was Rs. 12.6 crore. It had reported a loss of Rs. 64.34 crore in FY17.
The company's performance seems to be improving in the last few years and is witnessing strong growth. One of the reasons for such growth is in the past three years; the company has experienced significant growth in the number of suppliers and buyers on IndiaMART. The number of Indian supplier storefronts has increased from 2.3 million at the end of FY16 to 5.6 million at the end of FY19. The number of paying subscriptions suppliers and buyers has also witnessed similar growth.
This performance has led to turning its net worth positive during the last financial year. As at March 31, 2019, company had a positive net worth of Rs 159.9 crore. The networth of the company for at March 31, 2017 and 2018, was negative to the tune of Rs. 390.0 crore and Rs. 321.3 crore. The negative net worth as at March 31, 2017 and 2018 was primarily attributable to company's operating losses and net loss / (gain) on financial assets and liabilities designated at fair value through profit or loss (FVTPL) in the respective fiscal / period.
| Particulars | 31 March 2019 (Rs Cr) | 31-Mar-18(Rs Cr) | 31-Mar-17(Rs Cr) |
| Income | | | |
| Revenue from operations | 507.42 | 410.51 | 317.76 |
| Net gain on financial assets measured at FVTPL | 37.32 | 16.16 | 11.91 |
| Other income | 3.65 | 2.86 | 2.26 |
| Total income | 548.39 | 429.53 | 331.94 |
| Expenses | 0.00 | 0.00 | 0.00 |
| Employee benefits expense | 229.98 | 194.86 | 209.67 |
| Depreciation and amortization expense | 4.13 | 2.89 | 4.63 |
| Net loss on financial liability designated at FVTPL | 65.26 | 122.86 | 19.28 |
| Other expenses | 195.09 | 169.02 | 162.50 |
| Total expenses | 494.47 | 489.62 | 396.08 |
| | 49.80 | -62.98 | -68.78 |
| Restated Profit/ (Loss) before tax | 53.92 | -60.10 | -64.14 |
| Income tax expense | 0.00 | 0.00 | 0.00 |
| Current tax | 0.13 | 0.18 | 0.20 |
| Deferred tax / (income) | 33.75 | -115.04 | - |
| Total tax expense | 33.88 | -114.86 | 0.20 |
| | 0.00 | 0.00 | 0.00 |
| Profit / (Loss) for the year | 20.04 | 54.76 | -64.35 |
| Other comprehensive income (OCI) Items that will not be reclassified to profit or loss in subsequent years | | | |
| Re-measurement losses on defined benefit plans | -11.17 | -14.36 | -5.6 |
| Income tax effect | 3.81 | 5.2 | - |
| Other comprehensive loss for the year , net of tax | -7.36 | -9.16 | -5.6 |
| Total comprehensive income / (loss) for the year | 193.08 | 538.43 | -649.06 |
| Attributable to: | | | |
| Equity holders of the parent | 193.08 | 538.24 | -649.24 |
| Non-controlling interests | - | 0.19 | 0.18 |
Valuation and recommendation
At the higher price band of Rs. 973, the offer is demanding market cap to sales (FY19) of 5.07 times, which seems to be on the higher side even on absolute terms. However, if we compare it with a listed player like Just Dial, which is available at market cap to sales of 4.9x, the issue seems to be priced expensively. In terms of PE, the offer is made at around 58 times after adjusting its EPS for its fair value through P&L (FTPVL). Compare this with Just Dial a much larger company available at PE of 24x.
Although the company's finances are improving, the price at which the company is offering its issue looks expensive.
*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment