Indiamart Intermesh - Indian Alibaba?

Chandragupta · June 5, 2021, 7:57am

Indiamart is a business inherently difficult to analyze. Unlike traditional businesses where a sale enters the P&L first and then comes into the Balance Sheet, here the money comes into the Balance Sheet first and then moves to the P&L. Most of the traditional ratios do not hold much relevance for Indiamart.

Collections from Customers is a key number reported by the company. It represents the actual cash paid by customers to the company. Collections add up to Deferred Revenue in the Balance Sheet and from there move to the P&L as Revenue from Operations. In FY2021, collections have risen consistently quarter after quarter after the sharp fall in Q1. There was a sharp jump in Q4. In aggregate though, total collections in FY21 fell short of the FY20 figure.

Rs. In crores	2020				2021
	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Collections from customers	168.00	173.00	178.00	206.00	94.00	163.00	178.00	272.00
Growth QoQ %		2.98%	2.89%	15.73%	-54.37%	73.40%	9.20%	52.81%

Since the company manages its expenses from these collections, the difference between Collections and Expenses is the rough equivalent of EBIDTA for the company. This metric has been consistently rising, pointing to the operating leverage inherent in the business model.

Rs. In crores	FY16	FY17	FY18	FY19	FY20	FY21
Reported Collections	315.00	386.00	509.00	671.00	738.00	711.00
Pre-tax operating expenses in cash*	291.58	312.15	354.33	417.70	454.15	338.40
Difference	23.42	73.85	154.67	253.30	283.85	372.60
Margin %	7.44%	19.13%	30.39%	37.75%	38.46%	52.41%
(*All expenses excluding depreciation)

Do you find this logic correct, feedback is welcome.

nosh · June 5, 2021, 3:05pm

Great post. Is there any way to predict revenues for the full year from the collections fairly accurately?

Unknowninvestor · June 5, 2021, 4:57pm

Indiamart has been stating that their revenues are a rolling average of 20 month collections number. Thats about 6.5 quarters.

End of quarter collections are known numbers. Hence easy to calculate.

Also, q4 fy21 numbers have super normal margin(52 percent) due to lower employee cost.

Their sustainable margin is 35 - 40 percent ( stated on conf call). As economy opens sales will grow but margins will also normalise

Their aspirational growth is 25 percent plus.

From that point of view valuations are pricing in very high growth which at this point in time is not visible in the near term.

But then one or two really good quarter can prove us all wrong

Dis: invested .small part of portfolio

Chandragupta · June 6, 2021, 6:59am

There is no way to predict Revenues from Collections directly into the future. However, the management has explained the relationship between them in one of the concalls by saying that the difference between Collections and Revenue is the incremental Deferred Revenue. Another thing to note is that revenue is not recognized over the tenure of the customer’s subscription simply on a Straight Line basis. The Revenue Recognition Policy states that Leads data is used to recognize revenue:

The company’s I.T. systems generate reports based on daily transaction volumes and based on that the revenue is recognized which could be even earlier than when the customer’s subscription period ends.

MihirDam · July 3, 2021, 1:30pm

Did a top down deep dive into IndiaMart Intermesh to understand the full potential of the business.

Key points -
A list of all investments made by IndiaMart along with stake, what they do and their valuations

Simply Vyapar Apps Private Limited (26% stake) - Last round valuation 116 crores. Accounting and tax invoicing company.
TruckHall Private Limited (25.02 % stake) - Last round valuation - 44 crores. Online Marketplace and software development for the logistics industry and managing Superprocure that digitises freight sourcing.
Legistify Services Limited (11.01 % stake) - Last round valuation round 11.8 crores. Through its SAAS based ERP tool “Legistrak” offers organizations to manage legal workflows such as litigation tracking, notices management and legal vendor management.
Shipway Technology Private Limited (26 % stake) - Last valuation round - 70 crores. Shipway Technology Private Limited is engaged in the business of developing SaaS based solutions which allow small businesses to automate their shipping operations.
Mobisy Technologies Private Limited (8.98%) -Last valuation round - 111 crores -Mobisy owns Bizom which is an integrated platform for distribution and salesforce management of businesses.

This is over and above their in-house CRM, lead manager and payment gateway.

The above investments signify that IndiaMart wants to create a one stop shop for addressing all MSME needs. The company expects one large ticket size acquisition and multiple smaller investments which are synergistic to the IndiaMart model over the next year.
So IndiaMart has already hinted at 8-10 synergistic small investments, they have already done 5 investments (4 in FY 2020-21). This is in-line with what 1688.com does which provides a lot of value added services in areas of payments, tax invoicing and basic management software and incremental services.

1688.com a subsidiary of Alibaba Group holding company is one of China’s leading online business-to-business (B2B) marketplaces, with 120 million users and 10 million companies listing their products on the site and earns revenue through subscriptions.

1688.com has around 900,000 paying members. The business of 1688.com has done very well across the last few years primarily due to an increase in the average revenue from paying members for the past 3 years despite the fact that there has been no major increase in the number of subscriptions.

FY 2018/ 2019/ 2020 - RMB7,164 million / RMB9,988 million (+39%) / RMB12,427 million (+24%)

Average Revenue Per User - 7960RMB (INR 81,988) / 11098RMB (INR 1,18,738) / 13807 RMB (INR 1,54,000)

1688.com does 1.5 billion USD in sales almost 20 times what IndiaMart does (due to having 6x more subscribers and more than 3x ARPU) and is still growing at very high rates which shows the possible runway IndiaMart has, if it executes efficiently. 1688.com has EBITDA margins of over 50 percent, while IndiaMart has a sustainable EBITDA margin in the range of 35-40 percent. Investments in technology and value add products will keep the range lower than the more mature 1688.com at least in the near future.

This also shows the potential for IndiaMart and their vision is also aligned with providing value added services in addition to increasing subscribers.

Disclosure - Invested

MihirDam · July 15, 2021, 3:52am

Not great news for IndiaMart. Justdial being acquired by RIL. Will need to look for announcements. Hoping the focus for RIL is not on the B2B business.

Rohan265 · July 17, 2021, 9:15am

There is a good chance that RIL bought the stake in Justdial after realising the potential of the B2B sector.
If the B2B business is indeed the focus of RIL, we will finally get to see Indiamart’s moat and market share being tested by a big player.

ramraopatil · July 17, 2021, 4:06pm

Chandragupta · July 17, 2021, 5:07pm

The Tatas have also launched a B2B marketplace for SMEs:
https://www.nexarc.in

Chirag99 · July 18, 2021, 1:03pm

A lot of new players are coming into this segment(B2B) even big names, Can we say that the growth of this sector is very huge that’s why all players want to eat that piece of cake??
Because people want to invest in growth only.

Investor_No_1 · July 18, 2021, 3:41pm

I think apart from growth in just b2b, the bigger players are more inclined towards building a larger ecosystem where b2b plays it’s part and synergy works. Also the big players initially had less digital online presence so inorganic route is quick…

reem · July 19, 2021, 5:03am

Ratan Tata has invested in MOGLIX at a $1bn valuation …which also is an indiamart competitor.

source:

vnktshb · July 19, 2021, 6:24am

The question is not whether Just Dial can impact Indiamart’s business. The fear that it might in the short term or long term (because of the RIL backing) will keep investors away.

Look at telecom or broadband internet after the entry of Reliance Industries. If you have capacity to take losses you can kill a lot of businesses or atleast prevent your competitors from growing.

What I cant understand is what value Just Dial adds to Reliance current business. Would it not have been better if they had tried a acquired Indiamart instead if they wanted to get into B2B listings. Or did they send feelers to Indiamart promoters which was not reciprocated?

sujay85 · July 19, 2021, 7:47am

I suppose Just Dial or similar B2B marketplace would help RIL to build its ‘new commerce’ platform.

Dev_S · July 22, 2021, 11:29am

Q1 performance - resilience visible, YoY are superb but QoQ being good on most parameters is true resilience IMO

Consistency in numbers over longer time frame

Outlook commentary in call will be key to watch, sizable cash in books as well.

In a way Indiamart is a proxy for MSME health to some extent, good to see the performance.

Lower cash collection and some reduction in paying subscribers in qtr( now 146k from 152K in Q4) - understandable given MSME impacts in wave 2) - well compensated by higher per subscribers realization now(47K Q4 to 49.7K in Q1 22) - dimension depicts a pricing power attribute and possibly higher quality of customers

Notice 220+ sales and service team addition in quarter hit by covid wave 2 - says something

8 associates/subsidiary in adjecncies

Dev_S · July 24, 2021, 10:03am

Q1 concall highlights

mgmt continues conservative stance and no guidance on growth outlook, no firm views on cash deployment either to accelerate growth
JDmart not causing any dents yet, competetion is welcome as it helps for industry growth per them
Strategy and roadmap for 5X to 10X growth doesn’t exist at execution level( interesting Questions from Amit jeswani to instigate mgmt)
Realization going up will normalize back as new/low plan subscribers join the user base

It is becoming clear that what got them here over last few years will not be enough to help them with hyper growth for next few years - mgmt seemed to know it, is attempting adjecncies but believes it will take some.

While they have been excellent at cracking Discovery part to build current core business , newer growth areas such as Payments, conversational commerce( LMS + CRM), logistics are at experimental stages at best.

Digital disruption theme over last year hasn’t played out well for Indiamart given their target customers are adversely affected( MSMEs) - keen to see how mgmt builds on adjecncies in sizable biz while continuing core biz earnings growth of 20%+

Invested

MihirDam · July 24, 2021, 2:54pm

I really liked the questions asked by Amit Jeswani (Stallion) and more importantly Bharat Shah(ASK). This is the first time that the management was asked about their ambitions and probably criticised for the first time since their listing.

Hopefully the management can look to extend beyond their goals outside of their B2B subscription ecosystem.

The company has enough money to grow/widen their moat extending outside of their ecosystem and the potential is huge in the B2B spaces. Let’s see if the management does something about growing both horizontally and vertically.

Chandragupta · July 24, 2021, 4:33pm

The company got hit by Covid lockdown in Q1 last year, started recovering but got hit again in Wave 2 this year. With situation improving, I guess it must be on the recovery path once again. Meanwhile, the whole premise of the stock re-rating last year was that Covid will accelerate the digital journey of SMEs and force them to come online in a hurry. That expectation has been belied; the SMEs just don’t seem to have the money or awareness to jump onto the online bandwagon. So this was a miscalculation on the part of the analysts, not the company’s fault.

Having said that, I think the company can be more aggressive with their cash and margins. They don’t seem to find attractive acquisition opportunities at this time which is understandable. They should increase discounting, reduce the pricing and get more numbers onto the paid bandwagon. Once the SMEs get used to the online environment, it will be difficult to go back. This is the only way the first-mover advantage can be retained. else the competition will take them away.

Lynch · July 25, 2021, 5:17am

Indiamart seems to be a promising story, where the analysts/market really went overboard, but the company fundamentals have not changed in terms of a long term investment timeframe.

A few thoughts that come to my mind are:-

Could the affect of Reliance/JD Mart on their business be overplayed? Is this really a market share oriented, reasonably penetrated market like Telecom? I would assume most suppliers are on Indiamart or similar platforms because being there is ROI positive or a potential growth engine. Why would they leave? Additionally, as a supplier, wont I prefer to be on both platforms - considering I want maximum visibility in front of a growing digital buyer base?
In the short term Indiamart will be heavily dependant on the animal spirits of the SME sector (which are obviously currently affected). In the moderate term though, as SMEs get back to functioning and try to go again from a severe setback like COVID, should the growth story in buyers, sellers and hence revenue/profits for Indiamart not continue? Additionally, in the long term, say India was to become a stronger force in manufacturing (Make in India) or Global trade (new FTAs being negotiated) - it makes Indiamart as well as a Reliance offering both attractive plays for new buyers/sellers
Dinesh has shown good ability to manage profit. I thought the questions on horizontal/vertical integration and long term vision in the conference call were a bit too impatient. I wonder how the investors would have reacted in case Indiamart would have done a big bang marketing campaign in the middle of COVID or shown losses like JDs last quarter. The fact is that Dinesh doubled his net profit in the last 5 quarters (COVID affected or in the middle of COVID waves) versus the 5 quarters prior to that. I think they know the business inside out - and would there be a point of getting on board more buyers from marketing in this period? Capital allocation as well as business management during crisis seem like positives
Interesting SAAS investments in very initial stages. I just have knowledge of Mobizy, which is a good business. Dont know much about the other platforms though.
Couple of doubt areas for me. Biggest is that the market really overhyped the business through very many projections, and I wonder if anything can meet the lofty expectations. The other aspect being that they are very focussed on innovations in their key areas, where the potential for profit pools still have to be proven. I would not be disappointed at all in case I hear about a few more inorganic acquisitions in upcoming SAAS areas that are not even directly a fit into the Indiamart product. Let’s see how that progresses.

Overall, listening to the latest conference calls and going through the presentations, it does seem like the market can really hype up expectations and then punish companies which even do well. For a SME focussed company to manage earnings the way they have shows prudent capital allocation, good management and resilience.

Discl : Invested

vnktshb · July 25, 2021, 6:00am

A few thoughts from my side

Dont blame analysts for miscalculation and overestimation. I have observed analyst target prices through out the upmove to Rs9500. It was the investors - institutional, HNI and retail who over estimated and miscalculated first and ramped up the stock price. The analysts were only playing catch up everytime the stock price went up (like they normally do in most stocks)
Analysts only provide information, it is upto you to interpret information and take stock calls. Analysts dont buy shares and move stocks. So investors should stop blaming analysts for their folly. If analysts knew what would happen to stock prices wouldnt they quit their job and just invest?
Coming to Indiamart, its not like this company grew sales meaningfully in FY21. They just cut costs like everyone else which helped double EPS. Now there is very limited scope to cut costs. So EPS has to be driven by sales growth.
Unlikely to grow sales growth by >15% unless adjacencies kick in. Will adjacencies like payment, working capital financing and logistics kick in to drive growth, maybe yes, but this will take time and cannot happen overnight.
Reliance does not have to do anything in B2B commerce with JD Mart. Just the thought that Reliance might do something will keep a lot of incremental investors away.
So the question you need to ask yourself is are you okay to hold a stock at 75x P/E with 15% medium term growth?