1:1 Stock Split, 200% Dividend: Despite Weak Q3, Retail Stock IndiaMART Is Recommended To Buy

Internet & Catalogue Retail Company, IndiaMART InterMESH faced the wrath of bears on the trading session of Saturday after a disappointing Q3FY24 dampened investors' mood. In the period of the current fiscal, IndiaMART has paid a 200% dividend and turned split in the ratio of 1:1. Despite a weak Q3, brokerage JM has recommended buying in IndiaMart share price.

On BSE, IndiaMART's share price ended at Rs 2573.70 apiece, down by 2.25% on Saturday with an m-cap of Rs 15,758.55 crore.

In Q3FY24, IndiaMART reported consolidated Revenue from Operations of Rs. 305 Crore as compared to Rs. 251
Crore in the corresponding quarter of last year, representing a growth of 21%. This includes IndiaMART Standalone Revenue of Rs. 291 Crore and Busy Infotech Revenue of Rs 13 Crore, registering a growth of 21% and 26% respectively on a YoY basis.

Also, in the quarter, collections from customers grew to Rs. 332 Crore for the quarter and Deferred Revenue as on
December 31, 2023, increased to Rs. 1,270 Crore representing a YoY growth of 25%. Lastly, the Net Profit for the quarter was at Rs. 82 Crore representing a margin of 24%.

Post the Q3, JM Financial said, "INMART's paid subscription addition trends were disappointing for the third consecutive quarter at 1.8k QoQ (JMFe was 2k and historical avg. is 5-6k). Price hikes (in mid-May) and unusually high churn rates in the Silver category continued to weigh on subscriber growth. Collections trend also moderated to 17% YoY (-1.5% QoQ) from 27% YoY in 1HFY24, leading to a miss on JMFe by 4.6%."

On a positive note, the brokerage said, the realisation trend was again strong (+11.5% YoY), especially for the Top 10% of the subscriber base (+13% YoY). Consol. EBITDA margin also improved 90bps QoQ (+10bps YoY, in line JMFe) driven by strong operating leverage.

Overall, JM Financial expects INMART to report c.20% revenue CAGR over FY23-26E, aided by a strong build-up of deferred revenue at Rs 12.7bn (+25.1% YoY) and collections growth of 16-17% over FY24-FY26.

Further, the brokerage said, that while investments in the accounting software segment are likely to continue, operating leverage in standalone should support EBITDA margin expansion in the near term. Accordingly, the brokerage forecasts EBITDA margin to expansion of c.310bps over FY24-26.

On the valuation, the brokerage said, "While we trim our PAT estimates over FY24-26 by 1.6%-4.6% due to lower topline assumptions, we believe the company can deliver 24% EBITDA CAGR, supported by topline growth of c.20% and margin expansion. We continue to value INMART on DCF (FCFF CAGR of 12.5% over the next 15 years, 5% Tg and 12% WACC) and roll forward to Mar'25 for a revised TP of INR 3,150 (implied Mar'26 PER of ~37x on TP)."

From the current market price, this will be a potential upside of 22% in the stock.

Earlier, during the April to December 2023 period of FY24, the company first paid a final dividend for FY23 to the tune of 200% valuing Rs 20 per share. Later on, the stock was also subdivided in the ratio of 1:1 in June.

Currently, the company's stock has a dividend yield of 0.78% without adjusting stock split action.

IndiaMART is India's largest online B2B marketplace for business products and services. IndiaMART makes it easier to do business by connecting buyers and sellers across product categories and geographies in India through business enablement solutions. IndiaMART provides ease and convenience to buyers by offering a wide assortment of products and a responsive seller base while offering lead generation, lead management and payment solutions to its sellers.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.