1 Bonus, 200% Dividend Latest: Jefferies Likes Retail Stock IndiaMART InterMESH, 30% Upside To Unlock Ahead

IndiaMART InterMESH, an internet & catalogue retail company, is attractive to buy. Global brokerage Jefferies believes that IndiaMart is the best play on SME digitisation in India with a strong value proposition and key moats in place to insulate it from competition. Hence, the brokerage has kept a massive target on IndiaMart.

Giving rationale to its recommendation, Jefferies highlighted a few key pointers. They are:

1. Indiamart is a dominant player in B2B classifieds with a market share of over 60%. The platform connects SME suppliers and buyers across 95k+ product categories. Monetization is through a freemium model where suppliers pay subscription fees for premium services.

2. Also, the company has a strong strong community/network effects, higher value to suppliers and diversified listings which are key moats against competitors. The platform also looks well-positioned against horizontal platforms, which we attribute to 1) it's superior matchmaking; 2) higher involvement of B2B buyers; and 3) detailed product specifications.

3. However, IndiaMart operates in an untapped market with 64m MSMEs (14m GST registered) but has only 212k paid suppliers. This offers ample headroom for subscriber growth from 1) rising digital awareness among SMEs; 2) an increase in paid subscriber conversion (currently sub-3%); and 3) penetration into tier-2/3 cities and large enterprises. Further, ARPU can benefit from the up-tiering of subs and price increases.

Accordingly, Jefferies expects 19% rev Cagr over FY24-26E, with 11% Cagr in paid suppliers and 8% ARPU Cagr.

Further, it added, "We expect margins to expand by 200 bps over FY24-26 with benefits of operating leverage, even amidst elevated employee costs due to
growth investments. Indiamart has a negative WC cycle and capex light model driving strong
FCF. We expect cash & investments to rise to Rs 40bn (Rs 660/share) by FY26."

On the valuation, Jefferies said, "Indiamart offers structural growth with 19%/25% rev/EPS Cagr over FY24-26E. Low penetration among SMEs offers a long runway for growth. We value Indiamart's classified business at 37x P/E and its SaaS business at 1x P/B (Rs 150/share) to arrive at our PT. Key risks: higher churn, value destructive investments."

The latest target price of Rs 3,400, signals about 30% potential upside in IndiaMart ahead. On BSE, this retail stock stood at Rs 2,614.65 apiece, up by 3.83% with a market cap of Rs 15,682.45 crore.

In a year, IndiaMart's share price has gained by a whopping 10.15%, while in 5 years, the stock emerged as a multi-bagger with an upside of a whopping 294%.

Last year, IndiaMart rewarded investors with a 1:1 bonus issue and a 200% dividend payout.

IndiaMart's Dividend: The company turned ex-dividend in November 2023 for its final dividend payout to the tune of 200% aggregating to Rs 20 per share for FY23. The stock has a dividend yield of 0.76%.

IndiaMart's Bonus Issue: The company turned ex-bonus in June 2023 for its ratio of 1:1. That means IndiaMart rewarded 1 bonus share for the existing 1 equity share to investors.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, 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.