everything was great, but I don’t really see how you are looking at it on a PE basis of 50, the very fact that it has a negative working capital , on an operating cash flow basis its 6473-860(cash on books), so effectively 255 cr operating cash/5613 is really 22.1 times operating cash, and I feel that’s the way to see it and not the P&L statement , the net earnings is a huge distortion 131 compared to real cash inflow of 255. My 2 cents
@kkumar3, you are right indeed. Looking at it from OCF perspective suggests it is actually cheap on valuation parameters.
Talked to a Flipkart employee today who works in Flipkart B2B. He is working at Flipkart since 2015 and is highly regarded by my friend who is also working at Flipkart since 2019.
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Flipkart B2B is E-commerce of finished products between the manufacturer and the retailer, unlike IndiaMART which does E-commerce between manufacturing SMEs. The reason why Flipkart chose this path is because it is already running a B2C E-commerce business of those finished products. This would bring in lots of data on how to manage their inventory, drive sales and lot more. However, Flipkart has plans to enter all aspects of B2B E-commerce in the long run. Udaan’s thought process is also in similar lines. Note that Udaan’s founders were mid to senior management professionals at Flipkart.
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Flipkart is a Tech company while IndiaMART is a business sales company. i.e. Flipkart has crores of customers and it can’t have a sales team to convince them to use Flipkart. The technology should drive it. While IndiaMART actually has a sales team to sell their product to SMEs, so technology relatively plays a smaller role in IndiaMART.
LAST AND THE MOST IMPORTANT POINT
- IndiaMART’s subscription business value-add is in the ‘Discovery’ of the customers. Once a supplier takes the subscription for two to three years, the incremental value-add of having the subscription for the next year will not be the same and will keep decreasing with time. Once the buyer gets the contact of the supplier and vice versa, they can continue their business without involving IndiaMART.
FYI, IndiaMART’s churn rates hover around 20%, which is on the higher side for internet subscription businesses.
Discl: No holdings. Same as above. The Flipkart employee didn’t really spend time on IndiaMART. Above were his thoughts which came to his mind after I asked him my questions.
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Regarding the third point , just trying to gauge the probability of that playing out. Though that is a realistic possibility , I’m curious as to why that did not play out in Ali baba? My thinking is this, the cost of setting up distribution is not only a cost but also takes time , so there is a certain time period too in getting a good distribution network in place, secondly I feel if one competitor gets online on India mart ( it will force competition to also move online to counter the reach) , its like distribution on steroids , suddenly have a larger reach within seconds in my opinion, also I feel companies that scale on indiamart , and as they increase the plans from silver to say platinum , as a % of cost it will diminish for them as they scale , so the benefits for them to stay on indiamart compared to going offline to save a miniscule amount isn’t worth it .I feel companies for which the India mart subscription is a decent amount of their expense say 10-15% will be more sensitive to going offline compared to if its 1-2%, also say a company starts initially and its 10% of their cost , they scale it becomes 8-7-5% (of costs) and so on , then once its low enough they might go up a higher package ( ARPU increases)… let me know your thoughts ? Disclose nearly 30% of my portfolio ,views may be biased. But pls feel free to respond
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I don’t know why that did not play out in Alibaba. We should find out.
1688.com is completely in Chinese and I don’t understand a single word there.
This assumes quite a few things…
- Typical MSME entrepreneur is pro-active and wants to seek growth and improve his quality of life / business, but not want to lead a laid-back / stagnated life
- On IndiaMART’s subscription cost as % of revenues, doesn’t 10% sound quite high? ARPU is 45k per year. 10% cost is just IndiaMART implies total expenses to be about 4.5 lakhs per year and assuming high margins of 10%, revenues at 5 lakhs per year. But I don’t think these are the numbers for a typical SME.
- MSMEs revenues grow faster than IndiaMART’s ARPU. I don’t think this is the case with GST and shift to organized businesses (COVID-19 will only speeden it up).
Below is what I have in my mind about ho the P&L statements of MSMEs look like:
Micro => less than 5 crores revenues
Small => 5 to 75 crores revenues
Medium => 75 to 250 crores revenues
I’m assuming very low margins for MSMEs, say 1% - 2%. MSMEs generally manufacture commoditized / low value-add products.
=> Micro enterprises make about 3-4 lakhs profits per year
=> Small enterprises make about 50 lakhs profits per year
=> Medium enterprises make about 1-2 cr profits per year
Please note that these profits are generally used for bread and butter by the owners for those businesses as that would be the only source of income. Among those I think only Medium sized companies will fall into the category of “comfortably” maintaining the subscription without any churn.
I never had a conversation with any SME entrepreneur and don’t understand what / how they think or run their business. I think we should seriously pursue on why the company has such high churn rate.
And wow, 30% of portfolio sounds quite high, especially for a newly listed company!
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yes that’s what the 10% cost bit was not literally 10% haha, I was just giving my thought process, basically being that as they scale the cost of the subscription as a % of operating costs will diminish hence it wont pinch them as much to stay online … that was the basic idea didn’t literally mean 10% , its like I have a 10 years old car, as long as the cost to maintain it and run it is not absurd and it gets me from point A to B , that car in use is much better than if I sell it for 80% of the initial cost, basically its value in use it higher than if disposed , if that makes sense.
Any idea, when IndiaMart result is coming?
Amazon entered into b2b marketplace with covid-19 related products for now. It can easily scale and include more products and with its distribution and logistical reach, manufacturers would prefer them over smaller players like indiamart.
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Amazon has been in the b2b segment in India for more than 25 month
Is the the trend you saw in the last two years?
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Q4FY20 Results declared
- Net profit after tax increased by 633% YnY
- Diluted EPS rose from 7.61 YF19 to 50.24 FY20
- Equity rose from 1599 FY19 to 2751 FY20
Quick_Result_Mar2020.pdf (3.6 MB)
Investors Earnings Call Q4FY20
Financials: INDIAMART_Financialresults12052020.pdf - Google Drive
Investors Presentation: INDIAMART_Investor_Presentation_12_05_2020.pdf - Google Drive
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Results look good considering current pandemic situation and its impact on SMEs and overall businesses who are customers of Indiamart. There might be greater impact in Q1 of current FY. But despite good results cant see much price response in the market. Indiamart cashflows look good and interesting part is other income which is aprox. 10% of total revenue will go on increasing. This is majorly coming from investments into liquid funds.
Disclosure: Invested.
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Please listen to the Q4 concall transcript which is available in their app. Though the FY 20 was good lot of headwinds in near term. How deep and how long the headwinds continue is uncertain. IMHO it may not have smooth ride for quite some time. It was my largest holding (about 40%), I exited totally today.
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What this COVID situation means for everyone. This has clearly divided companies into these categories
- Companies high in debt and high cap ex => These are the ones that are going bankrupt
- Companies with high debt and low cap ex => They will require loan restructuring or else bankrupt
- Low debt high cap ex => These will post loss for the coming quarters
- Low debt and low cap ex => Lower PAT numbers but will be positive and will be the ones to fastest get momentum after normalcy
I believe Indiamart belongs to the 4th and that it is well placed than most of the listed companies.
Prices may be stagnant or fall in the first quarter but then these must be the time to add it to the portfolio.
I see nothing wrong with Indiamart and that it is poised to be a multibagger especially at times when our lifestyles is going to be changed for quite a while
what percentage of their clients will survive ? For them to survive they need businesses to survive
Addition on this:
On call Mr. Dinesh told that problem in growth is not only because of COVID only because even before 2 - 3 quarters they are facing slow growth of 17% as compare to 25 - 30% in previous years.
COVID will hit hard further to MSME and the recovery will take longer then expected.
He is suggesting monthly paying customer might churn.
Before we see a rise, how much time this dip will take to recover is anybody’s guess.
Any views ?
Regards
If you think it like this
What percentage of SME’s need India Mart to survive, sales would be zero otherwise
Obviously there would be churn as SME’s are going down, is it going to be high or low is what the question was answered as it is going to be low.
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Coats, World’s largest manufacturer and distributor of sewing thread and supplies, is now a part of IndiaMART’s ever-growing network.
Has IndiaMart rolled out the new customizable subscription plan, they said they will be such that the subscription amount is proportional to the market cap for the company & not fixed?
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IndiaMart : Exceptional business model. Great Insights