Anand Rathi has given IndiaMART InterMESH Limited, a mid-cap E-commerce business, a buy call. The brokerage calculated a target price of Rs 5,000 per share. The stock is expected to rise 15% from its current level, according to the brokerage's target price. It has a market capitalisation of Rs 13,388.21 crore.
The brokerage recently met the IndiaMart management. 1) With ~38% of India's MSMEs using the internet for business (vs 90% in China), e-classifieds holds substantial growth potential, 2)Focus on growing collections at a 20% CAGR ahead, 3) FY23 margins should be ~28-28.5% and expand from next year with revenue growth.
Stock Outlook & Returns
The stock of IndiaMart on NSE last traded at Rs 4,379.60 per share, gaining 0.96% compared to its previous close. The 52 week high level is Rs 7,598.75 and the 52-week low is Rs 3,676, respectively. The stock in a week has fallen 2.49%. It has given 2.16% positive returns in 3 months. Over a year the stock moved down by 39.66%. However, in 5 years, it gave a multibagger return of 107.74%.
Vast headroom for growth based on TAM. TAM has two constituents
TAM has two constituents: free and paid suppliers. Approx. 25m (~39%) of India's ~63.5m MSMEs use the internet. GST-registered supplier MSMEs are ~13m (20%). Of the free suppliers (IndiaMart's ~7.3m in Q2 FY23), the company is focusing on everyone to get on board; of paid suppliers, though (188,092 in Q2 FY23), it is focusing on only GST-registered suppliers. Hence, its paid suppliers are just 1.44% of GST-registered MSMEs in India & of its 7.3m free suppliers, it is just 2.57%. Hence, the company's focus for the next 3-5 years is to raise the number of its paid suppliers to 5% of GST-registered MSMEs, and 10% in the long term. Hence, the number of paid suppliers can easily move in the short to medium term to 3x-7x from now.
Margins should expand with growth in revenue
As the company will add ~8,000-10,000 paid suppliers every quarter, it will need more sales and servicing people. But as efficiency ramps up, margins should start recovering owing to the business' operating leverage. We expect 28.3%/29.6%/32.6% margins in FY23/FY24/FY25.
According to Anand Rathi, the key risks to the buy call would be, Loss of paying suppliers; concentration risk (top-1% and top-10% paid suppliers bring ~18% and 47% to revenue, respectively).
The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.