With the economy opening up it is expected that the subscription will take off and improve.
Rationale for IndiaMart to invest heavily in the accounting space [from Q3 concall, emphasis mine]
Brijesh Agarwal:
So let me also just add on the rationale that we believe is driving this decision of going ahead and looking at multiple companies within the accounting space. When we look at accounting traditionally, its a business which is very, very sticky. Customers typically would not switch from one platform to the other very easily and we’ve seen that players like Tally, Busy, Marg have had a loyal and sticky customer base available with them. These are customers who have also been focused upon keeping their data in a fairly protective mode, not really going ahead and doing everything on a cloud basis. And a lot of this is also driven by how the chartered accountants really want them to go back and manage their accounting and auditing practices.
So overall, today when we look at the top three players in the accounting space which do on-premise, they have more than 2.5 million paying subscribers between Tally, Busy, and Marg. When we look at the mobile first cloud-based market, the number of subscribers, the paying subscribers there for each of these players put together is just a fraction of this number today. When we look at the overall GST registered businesses only here in India which is about 12 million, all of these numbers again suggest that we have only or these softwares have only been able to reach to a certain small percentage of the overall population.
The way we are seeing usage of mobile, acceptability of cloud and increased regulations and need for compliance which is being pushed by the government in the form of e-invoices, e-way bills, regular returns being filed. It is going to become almost mandatory for such businesses to go and adopt a software to manage their entire accounting and compliances and reporting. So the overall market in itself, according to us is poised for growth and there is going to be growth coming in for all kinds of these offerings put together. So for us, by having multiple, let’s say, presence across different kinds of products catering to different kinds of segments will mean that we would be able to address a larger chunk of this bucket, given the fact that accounting is the — or accounting software is the only product which is used at scale by small and mid-size businesses and this is a global phenomenon by the way if you really go and look at it. In India, it is far more prominent.
We think that this opportunity in itself allows us to go and reach to the widest possible SMB audience and therefore we are doubling down on this space. We have stated in the past also as to how strongly we feel about it. And in fact, given our experience of investing in Vyapar and what we’ve seen there that actually also gave us a lot of confidence to go ahead and look at doing a full-fledged acquisition at this point in time rather than just simply taking that root of minority investment and then look at taking a majority or doing an acquisition there. In fact we feel absolutely confident about this entire space. We would want to go back and continue to build a royal class product and make sure that this expansion that we are going to see in terms of market, in terms of the penetration of accounting software within SMB space, we should be leading that change here in the next decade to come here. So that is something why we believe that we need to invest behind on-premise accounting, why we believe we need to have multiple investments in the accounting space and also why we should go ahead and do an acquisition at this point in time rather than only taking a minority investment route.
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Very nicely explained the futuristic views and area of growth the company has invested in.
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The problem while doing reverse dcf is that what will you value it’s terminal value.
Beacuse if shift of saas is taken into account then over a 5-7 year time frame the pe of 40-60 can be sustained.
If we just look it like a huge cash generating platform type company them 30-40 can easily be possible.
So if your prediction of 20% cagr is your base case may go up or down if saas plays out you will beat the implied growth as saas will boost it’s n multiple while also increasing its margins and if it don’t play out 20% cagr growth might be not that easy to achive specially in revenue side and upward gowth in margins might be quite less from here so returns would still be good but not astronomical.
Personally I am betting on its ability to grow the saas plans that they have mentioned and also quite evident from there aquisition that they really want to grow there base but also to move them up the pay scale quite fast while having them easily sustained.
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Thanks for your inputs. My focus on reverse DCF was more to check if the current price is worth paying for near to medium term growth (1-3 years). Anything beyond that is very hard to predict in real life and the thesis needs to be continuously updated as we move forward.
By management’s own admission and their past record, they are in no hurry to launch SaaS. By their own admission, they need 1 year to get and complete understanding of new acquisitions and for taking Busy to a SaaS mode via cloud platform (currently it is single license mode) they are looking at 3 years minimum. And that is why I keep harping back to the point on narrative vs numbers. Are we investing only based on narrative and hope or we are cross checking it back with available data points (which of course need to be updated as we progress forward).
Thanks again for your inputs. Helpful conversations!
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Weekly payout by IndiaMart is surprising and interesting.
Would it be successful with employees, only time will tell :
https://www.peoplematters.in/article/benefits-and-rewards/indiamart-moves-to-weekly-pay-policy-32598
Disc : Invested
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If we then look over it and do all the pros and cons aside and Don’t belive in saas and upward momentum then it might become inline with it type company much fast growing so pe can shrink to around 30-40 levels.
So if we just do the thesis work right then just looking over it then by 35 pe it will atleast need to return around 30-32% eps growth rate to justify 15% annual return over.
Even if pe go for a toss this growth can be achievable especially for next 3 years atleast from management side they have said it may be possible and if we account of there Deferred revenue of around 799cr then current pe would be around 45 pe so if we take that in account then growth in eps alone will be around 28% that may be possible even by most estimate.
Right now I personally don’t see much margin of safety if you want to enter and go big unless management start to perform and also to add a point this 15% is just stock based growth with a nice dividend of .3-1% overtime
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Thanks again for inputs. I have some what similar views at this stage
On the deferred revenue model, Nitin Mangal is planning to do a webinar on Indiamart through SmartKarma platform. I have registered for it. Will share key points if I manage to attend it (since it is on weekday).
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This is probably a step forward in addressing the issue of Talent Attrition.
This is further seen in the high Employe Expense this quarter.
The quarterly results show an increase in Revenue from operations, marginally up. But, Employee expense is up 8%
I would be concerned if there was a notable drop in revenues.
So one benefit of the stock getting hammered is that we now have a presentation about the investee company. Not bad ! 
They are paying Rs.91.42 crores for a 16.53% stake, valuing the company at Rs.550 crores. Revenue for FY22E is Rs.28 crores, which gives a multiple of around 20X sales.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/ef0f3a17-8ba6-43c1-87ae-b7b06351d439.pdf
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Thanks for the update.
Just thinking aloud - Logistics is very low margin and hyper competitive business. While Fleetx is more of SaaS in this area, would be interesting to find some data points showing what margins the SaaS players in logistics make. Since this area is hyper competitive, my guess (and I could be wrong here) is the margins will be on the lower end.
I hope management in near future gives a roadmap on how they plan to integrate all these acquisitions or strategic investments in their larger game plan.
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Looking at all the acquisitions, Indiamart trying hard to show growth
I personally see that these acquisitions are not to acquire but to actually make them unrivaled as they are trying to be the end solution for most MSME software and service needs.
Just look at the acquisition of all software just related to a business from logistics to accounting and they are just trying to be a one-stop place by providing and integrating them.
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One more acquisition. Bought 26% stake in IB MonotaRO (IMPL) for around 106 Cr. So it approximately values the company at 408 crores. FY21 total turnover of the company is 7.2 Cr. So roughly the acquisition is at 56X sales.
Company’s website:
This valuation might look steep and could be done in very less but it is not an acquisition but more like buying a stake to have a partnership with Japanese company Monotaro as they have around 50%+ stake in this and basically their Indian Subsidiary.
As just by document this is not even 2 years old company and it is more about partnership and stake than the real type of acquisition.
Also, the other partner that is monotaro is one of the world’s biggest industrial supply e-commerce.
I personally see the price it paid to get the deal to be very pricy but may still turn out good.
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It looks like Indiamart is going to be too big looking at the recent acquisitions.
The latest financials of target company for 9 months ended can give better picture of the value of acquisition.
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