IndiaMART IPO Review: Analysts tangled between Subscribe, Avoid

IndiaMART InterMESH IPO is launching on Monday, 24 June and the company has already roped in 15 anchor investors. These investors include ICICI Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, Birla Mutual Fund, Hornbill Capital Advisers LLP. The company counts Intel Capital (Mauritius), Amadeus IV DPF and Accion Frontier Inclusion Mauritius among its investors. Several brokerage houses have come up with IndiaMART IPO review and their recommendations. Here is a snapshot of prominent analyst views.

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Choice Broking is positive about the company’s prospects considering its dominant market position. “At the higher price band, the company is demanding a TTM P/E valuation of 139.7x (to its TTM EPS of Rs. 7), which at a premium to its peer average of 23.8x. Excluding the negative impact of non-cash item, the demanded P/E is around 32.8x (to its adjusted EPS of Rs. 29.6). Based on FY20E and FY21E EPS, the stock is valued at P/E multiple of 35.1x and 25.9x, respectively, which again is at a premium to the peer average of 21.5x and 15.3x,” said a report by analyst Rajnath Yadav who included Just Dial and Infibeam Avenues among its peers.

“Considering the growth outlook coupled with dominant market position and expected benefit from the operating leverage, we feel that the future benefits outweigh the target share price derived from various traditional valuation multiples. Such type of technological and scalable business model companies should not be valued merely on the profitability but also on the future market potential and the capabilities of the management to work towards achieving the potential. Thus, we assign a SUBSCRIBE rating for the issue,” added the research note.

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IndiaMART IPO Review: More Neutrals and Avoid

Angel Broking has also published its report on the IPO and highlighted the concerns related to delayed monetization of the benefits of its dominant market position, excessive dependency on subscription revenues and threats from new players. “At the upper end of the price band, IndiaMart demands PE multiple of 33x of FY19 EPS (post adjustment on account of FVTPL expense). Considering the investment concerns, we believe investors should wait for price discovery before taking any investment decision. Hence, we have NEUTRAL view on the issue,” said Angel Broking’s IPO analysis of IndiaMART InterMESH IPO.

BP Wealth has recommended investors to avoid the IPO citing high valuations and rising competition. “IIL is India’s largest online B2B market places for business products and services with approximately 60% market share. The company earns revenues from the sale of subscription packages, sale of request for quote or RFQ credits, advertising from India MART’s digital platforms and payment facilitation services. On valuation front, at the upper end of the price band, IIL is valued at a P/E of 140x to its FY19 earnings which is aggressively priced, given intense competition from emerging players and new entrants. Considering the overall industry environment, we give an Avoid rating on this issue,” said the brokerage house in its IPO note.

Similarly, Way2Wealth Brokers has an Avoid recommendation on the IPO. “IndiaMART has not been a profitable entity on a persistent basis, although its revenue has grown at a CAGR of ~32% from FY14 to FY18. We believe, valuation based on P/E multiple is difficult due to negative PAT level and we value IndiaMART on EV/EBITDA basis. Since there are no listed company with the same business model, we use other listed entities in the internet business like Justdial, and Matrimony. At the price band of `970-973, the asking valuation for IndiaMART is ~33x EV/EBITDA (FY19). We believe the premium valuation of IndiaMART is not justified and inconsistency show at the operating level makes this IPO offer AVOID,” opined its research report.

IndiaMART has not been a profitable entity on a persistent basis, although its revenue has grown at a CAGR of ~32% from FY14 to FY18. We believe, valuation based on P/E multiple is difficult due to negative PAT level and we value IndiaMART on EV/EBITDA basis. Since there are no listed company with the same business model, we use other listed entities in the internet business like Justdial, and Matrimony. At the price band of `970-973, the asking valuation for IndiaMART is ~33x EV/EBITDA (FY19). We believe the premium valuation of IndiaMART is not justified and inconsistency show at the operating level makes this IPO offer “AVOID”.

SMC Global Securities has rated the upcoming IPO 2 stars indicating a Neutral view. “IndiaMART’s is a first mover in providing a platform for MSMEs as B2B online trading platform. Its strong network effects and brand recognition drives leadership in the B2B marketplace in India. On the flip side, the company depends on third-party service providers for a significant portion of outsourced operational services, and its business may be adversely affected if they fail to meet its requirements or face operational or system disruptions. The issue appears aggressively priced. A long term investors may consider investment for the issue,” noted the IPO research deck.  

Krishna Bagra

Coming from a family of investors and financial analysts, Krishna learnt wading through regulatory filings pretty early in her career. At IPO Central, Krishna plays twin roles of contributor and head of research desk. She can also be reached at +krishnabagra .

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