11-Jan-2022

INDIAMART INTERMESH LIMITED

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DHD
IndiaMART InterMESH (IndiaMART) is India’s largest online B2B product and services platform, set to sustain strong growth
momentum as businesses are increasingly leveraging online channels for efficient procurement. A large and growing number of
buyers and suppliers on the platform are driving up business enquiries, further increasing its attractiveness. The platform is unique
as it enables two-way interactions—suppliers can post their listings and buyers too can post their request for quotations (RFQs).
This helps IndiaMART generate high-quality leads for suppliers and gauge supplier behaviour, particularly their responsiveness.
While the portal is free for buyers, it charges suppliers for premium listing of supplier storefronts and access to buyer RFQs. Over
the years, it has widened listings to 97,000+ product categories spanning 6.5 million supplier storefronts and delivers 50 million
business enquiries daily from 125 million registered buyers. The company also earns revenue from advertising space sold on the
IndiaMART platform, which over the past three years accounted for less than 5% of the total revenue.
According to a 2017 report by KPMG-Google, the company commands nearly 60% market share of the online B2B classifieds space
in India. Its online marketplace provides a platform for mostly business buyers, to discover products and services and contact the
suppliers of such business products and services. It provides a robust two-way discovery marketplace connecting buyers and
suppliers.

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DHD BUYER % PAYING SUBSCRIPTION SUPPLIERS %

(As on 31st March 2021) (As on 31st March 2021)
15%

33%
41%

27%

58%
26%

Metro cities Tier II Cities Rest of India

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 GROWTH
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DHD SALES GROWTH

The company reported a 5% YoY growth in net sales
at ₹670 cr in FY21 led by 3% growth in the paying
subscription suppliers. The annualized revenue per
paying subscriber was also 3% YoY higher at ₹43,640
during FY21.
During H1 FY22, the revenue grew by ~15.2% YoY at
₹364 cr led by 8% YoY growth in the paying
subscription suppliers. The annualized revenue per
paying subscriber stood at ₹48,437 during the
quarter (v/s ₹45,809 in Q2 FY21).
Higher ARPU was led by removal of certain low ARPU
generating customers especially from the ‘Silver
Monthly’ bucket, which aided the overall
realizations. The management expects it to normalize
once this aberration passes away.

5 Year CAGR: 22.2%

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DHD EBITDA GROWTH

During the period FY21, the EBITDA was substantially
higher by 94% YoY to ₹328 cr which was primarily led
by lower employee costs (~23% decline YoY due to
lower hiring activities and a shift to contract based
labour from full time employees) and also lower
other expenses (~33% decline YoY).
During H1 FY22, the EBITDA grew by ~11% YoY to
₹172 cr. The company has been aiming to increase
the number of employees, especially on the product
side. On the sales and servicing front also, the
company would gradually increase the number of
employees.
The management has also guided that it would
witness a 20% increase in the overall cost due to an
increase in the overall talent cost.

5 Year CAGR: NA

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DHD PAT GROWTH

The PAT during FY21 was 90% YoY higher at ₹283 cr
led by healthy EBITDA growth. The effective tax rate
stood at 28% in FY21 as compared to 30% in FY20.
In H1 FY22, the PAT grew by 19% YoY to ₹173 cr
aided by higher other income and operating profit.

5 Year CAGR: NA

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 GROWTH EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 PROFITABILITY
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DHD EBITDA MARGIN

The EBITDA margins in FY21 stood at ~63% (including
other income) as compared to 38.7% in FY20, aided
by lower employee costs and lower other expenses
during the period. The management has however
guided that the current margins are not sustainable
as ~50% of the margins will come down to ~35%-40%
(excluding other income) range, going forward.
In H1 FY22, the EBITDA margin stood lower at ~64%
(v/s 65.5% in H1 FY21) primarily due to the employee
costs coming back as the company resumed fresh
hiring across the departments.
As stated earlier by the management, the company
would continue to benefit from: 1] permanent
optimization in G&A (reduction in offices), 2] sales
through channel partners, making cost more
variable, 3] movement of BPO to cloud telephony
system, and 4] reduction in travel expenses by
shifting some of the meetings to video conferencing.

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DHD PAT MARGIN

The PAT margins in FY21 stood at ~43% (v/s 23.5% in
FY20).
In H1 FY22, the PAT margin stood at ~47.5% (v/s 46%
in H1 FY21).

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 PROFITABILITY
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DHD ROCE
Since the company was reporting an EBITDA loss
over FY14-18, hence ROCE was negative. However,
from FY19 the company was able to turn profitable
on account of strict cost control (primarily in the
advertisement expenses).
The company had raised ₹1,070 cr via QIP in FY21
leading to a substantial increase in the capital
employed. This in turn has pulled down ROCE to
42.6% during the year.

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DHD ROE
Similar to ROCE, the ROE was negative over FY14-18.
However, the company turned profitable from FY19
led by lower costs which aided the ROE of the
company. In FY21, the ROE has seen a decline due to
higher net worth base.
The company’s focus on sustaining the revenue
growth by retaining customers and attracting more
paying subscribers on board, along with various cost
optimization drives would help aid the profitability.
These would help the company remain a high ROE
company as it is currently operating in the growth
phase of a business cycle.
A strong network effect has created circular value
addition for the company. A higher number of buyers
has translated into further inquiries, in turn leading
to more suppliers and, hence, higher monetization.

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 PROFITABILITY EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 EFFICIENCY
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DHD CASH FLOWS

IndiaMART continues to have a healthy CFO (cash
from operations activities) over the past 4 years. In
FY21, the CFO stood at ₹326 cr. In Q1 FY21, the cash
from operations stood at ₹61 cr, while the collections
from customers improved to ₹170 cr.
CFI (cash from investing activities) was an outflow of
₹1,343 cr which was significantly higher than that of
FY20 due to higher purchases of current investments
worth ₹1,552.8 cr. IndiaMART had invested in three
companies in FY21: 11% stake in Legistify.com for
₹1.3 cr, 25% stake in Truckhall (Superprocure.com)
for ₹11 cr and 26% stake in Shipway.in for ₹18.2 cr.
CFF (cash from financing activities) was an inflow of
₹1,038 cr due to the proceeds from issue of equity
shares on QIP basis.

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 EFFICIENCY
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WORKING
DHD CAPITAL CYCLE
The working capital cycle of the company stood at
-21 days in FY21. The improvement was due to the
company paying off its creditors at a later date.
IndiaMART is a negative working capital cycle
business as the company operates on a subscription-
based model, resulting in upfront cash collection that
appears as deferred revenue on the company’s
balance sheet.

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 EFFICIENCY
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DHD FREE CASH FLOW

IndiaMART has generated a positive FCF per share
over the past few years. Being a low capital
intensive business model and healthy operating
cash inflows, the FCF per share has been healthy.
The company continue to focus on strengthening
the cash position. As the company has a very low
capex requirement: ~<1% of sales is capex for
FY20, hence it would use the cash for synergetic
investments or acquisitions like VYAPAR (26%
stake), Truckhall (25% stake) and Legistify
(announced in Q4 FY21) for improving the
competitive position and build synergetic
adjacencies.
Hence, capex-light model and a healthy CFO would
help the company in generating healthy FCF per
share.

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 EFFICIENCY
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ASSET
DHD TURNOVER RATIO
The asset turnover of the company has been in a
falling trend over the 6 years from 1.9x in FY15 to
0.7x in FY20. In FY21, the asset turnover stood lower
at 0.36x on account of drastic increase in total assets
during the year impacted due to the Covid led
pandemic in Q1 FY21.
The increase in the total assets were mostly in liquid
and short term investments made during the year.

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 EFFICIENCY EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 SOLVENCY
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DHD DEBT TO EQUITY

The company did not have any debt over the years.

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 SOLVENCY
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INTEREST
DHD COVERAGE RATIO
The company does not have any borrowings and the
interest amount relates to lease assets.

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DHD CURRENT RATIO

IndiaMART has had a strong and improving current
ratio over the years. It has been able to increase the
share of current assets substantially to cover up the
current liabilities comfortably. In FY21, the current
ratio has improved significantly mainly due to higher
short term investments made by the company during
the year.
Majority of the current assets are in the form of
short term investments (~93% of current assets)
while ~86% of current liabilities form deferred
revenues (deferred revenues are the payments from
customers for services to be provided in future
years).

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 SOLVENCY EDGE METER: 5
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 VALUATION
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DHD PE RATIO
Currently, the stock is trading at a PE of 64.97x based
on TTM EPS.
However, given the growth potential of the company,
unique business model and strong balance sheet the
stock is expected to continue to trade at premium
valuations.
45g``````

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DHD DIVIDEND YIELD

For the year FY21, the company has declared an
equity dividend of 150% amounting to ₹15 per share.
The dividend yield stood at 0.23%.
For FY21, the company had a dividend payout ratio
of 16%. Since, the company is still in the high growth
phase, the management intends to keep a certain
portion of the cash reserves for various inorganic
initiatives, be it investments in newer subsidiaries or
in mergers and acquisitions.

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DHD KEY LEVELS

IndiaMART had been consolidating between
₹1800and ₹2800 from Sep, 2019 to Aug, 2020.
The stock broke out on the upside in Aug, 2020 and
saw significant increase till ₹5300. After three
months of consolidation in the ₹4500-₹5300 zone,
the stock witnessed aggressive buying taking it
higher to ₹9950 odd level.
Thereafter, it saw some consolidation, until recently
when it breached the key level of ₹6900. In line with
our expectations, the stock has been taking support
at the ₹6400 mark.
₹6000-₹6400 zone will continue to act as a strong
accumulation zone, while on the upside a breach of
₹8500 would be required for further bullish
momentum.

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 VALUATION EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 QUALITY
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DHD MANAGEMENT
The management’s current focus is protecting the
paying subscriber count and also improving the ARPU
while helping the suppliers generate high return on
investment (ROI). Better ROI for the suppliers will
help the company upgrade the user slab to a higher
service and hence improving ARPU and profitability.
Along with this, the management is also focused on
strengthening the cash position which would be used
to steer inorganic growth for the company.

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SHAREHOLDING
DHD PATTERN
The promoter group shareholding stood at 49.52%.
FIIs shareholding have increased to 27.91% while the
DII shareholding remained almost steady at 4.68%.
Non-institutional shareholding decreased to 17.88%.

Top Public Shareholding:

Arisaig Asia Fund Ltd 4.22%
Westbridge Crossover Fund, Llc 3.51%
Arisaig Global Emerging Market Fund 1.86%
UTI Flexi Cap 1.81%
Madhup Agarwal 1.76%

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 QUALITY
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DHD SECTOR POTENTIAL

• IndiaMART is a dominant market leader in the online B2B classifieds industry. India’s digital classifieds industry is estimated to
reach ₹7,710 cr by FY 2022.
• With less than 20% of India’s MSMEs using the Internet for business purposes, as against 54% in the US and 89% in China, there
is substantial growth potential for the e-classifieds market. Online classifieds offer businesses a chance to connect with
consumers at a low cost and get a measurable return on investment.
• The government of India has planned to increase contribution of micro, small and medium enterprises to 50% of India’s GDP
over the next five years (~29% currently). This is likely to act as a key catalyst for the industry.
• This coupled with growing internet adoption by MSMEs would push down the costs of communication, advertising, and rentals
(since these small and medium businesses can set up digital storefronts rather than physical ones), and would also help to speed
up payment transactions.
• The huge significance of digitalization was driven home like never before due to COVID-19 as the lockdowns hit businesses that
could not be categorised as ‘essential services’. With work from home and social distancing measures possibly to stay in place,
going online to increase their visibility is the need of the hour for SMEs.
• The B2B platform under the classified space have a lower risk of disruption from the likes of Google (horizontal search engines).
Success and sustainability of these platforms is dependent on higher organic searches.

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COMPETITIVE
DHD LANDSCAPE
IndiaMART is present in the Indian digital classified
business mostly catering to B2B players, capturing
close to 60% of the market share. Close competitors
include Just Dial which has recently forayed into B2B
classified space through the product ‘JD Mart’.
Info Edge (India) mostly caters to the B2C space in
completely different areas such as job portals,
education and marriage portals.
Hence, IndiaMART definitely will enjoy a first mover
advantage as it had started to revolutionize and
disrupt the way a wholesale market operates (which
is largely unorganized market). The company is also
investing into various MSME related apps such as
VYAPAR which would further help leverage the
IndiaMART ecosystem.

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DHD FUTURE OUTLOOK

• Paying subscribers retention remains a key monitorable: During the second wave of Covid, the company lost 6,000 paid suppliers
(v/s 14,000 in Q1 FY21) due to the second wave of Covid. However, the collections improved by 81% YoY to ₹170 cr. As the
company primarily earns from its paying subscription suppliers, the retention of these customers is a key monitorable. Any
negative impact on the same, would lead to lower earnings. At the current juncture, the leading indicators like the traffic & unique
business enquiries stood at a healthy 284 million and 26 million indicating revival in the business environment. The management
expects the traffic to be sustainable at ~250-260 million in the near future.
• Margin normalization inevitable: Due to a reduction in the employees cost, pricing renegotiations in outsourcing sales contracts
and optimization of other expenses, the margin almost doubled during H1 FY21. However, it is expected to normalize as and when
there is an increase in the employee costs and other expenses due to an increase in the transportation costs. It expects the
margins to sustain at around 35%-40%, going forward.
• No significant threat from JD Mart: The JD Mart (Justdial’s new B2B platform) is the new competitor in the market. However,
IndiaMART does not expect any market share loss from the launch of JD Mart due to the strong network effect in the B2B
classifieds business. Other close competitors are Udaan, Power2SME, etc which have a different standardised B2B products,
however IndiaMART ‘s platform contains mostly non-standardised products.

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DHD FUTURE OUTLOOK

• Focus on inorganic growth opportunities: The company has successfully raised ₹1,070.2 cr at a price of ₹8605 per share during Q4
FY21. This would be utilised majorly to pursue inorganic growth opportunities around SaaS product, fintech and vertical
commerce. Strategy would be make long term investments along with one or two acquisitions and some minority investments.
During the quarter, the company invested in three companies : 11% stake in Legistify.com for ₹1.3 crore, 25% stake in Truckhall
(Superprocure.com) for ₹11 crore and 26% stake in Shipway.in for ₹18.2 crore.
• Change in pricing structure expected to improve the topline: The company had reduced the upfront fees of its base package to
₹3,000 per month from ₹3,000 per month + ₹5,000 setup fees from Q3 FY21, which would enable more suppliers to come on
board with lower initial cash outflows. To increase the flexibility, quarterly and six monthly premium plans were also launched.
Currently, only export leads are priced differently while it is also looking forward to inculcate this once things stabilize. The
management is also looking to grow its paying customers by 15%-20% per annum, which would be driven by stronger network
effect.

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 QUALITY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 FINAL
ABOUTEDGE
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DHD
Edge Meter Aspects Grade
Growth 4
Profitability 3
Efficiency 3
Solvency 5
Valuation 3
Quality 4
TOTAL 22

The maximum grade for a company could be 30. Any company above grade 20
is worth considering. A grade below 15 is considered to be poor.
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DHD

THANK YOU
This document and the process of identifying the potential of a company has been produced only for learning purposes. Since
equity involves individual judgements, this analysis should be used for only learning enhancements and cannot be considered to
be a recommendation on any stock or sector. Our knowledge team has limited understanding and we all are learning the art and
science behind this.

www.stockedge.com

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DISCLOSURES
DHD
Neither Kredent Infoedge P Ltd. nor any of its associates have any financial interest in the subject company.
Neither Kredent Infoedge P Ltd. nor any of its associates have actual/beneficial ownership of one percent or more securities of the subject company, at the end of
the month immediately preceding the date of publication of the research report or date of the public appearance.
Neither Kredent Infoedge P Ltd. nor any of its associates has, any other material conflict of interest at the time of publication of the research report or at the time
of public appearance.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation from the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have managed or co-managed public offering of securities for the subject company in the past twelve
months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation for investment banking or merchant banking or brokerage services from
the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation for products or services other than investment banking or merchant
banking or brokerage services from the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation or other benefits from the subject company or third party in connection
with the research report.
Neither Kredent Infoedge P Ltd. nor any of its associates was a client during twelve months preceding the date of distribution of the research report.
Neither Kredent Infoedge P Ltd. nor any of its associates has served as an officer, director or employee of the subject company.
Neither Kredent Infoedge P Ltd. nor any of its associates has been engaged in Market making for the subject company.
Kredent Infoedge P Ltd. shall provide all other disclosures in research report and public appearance as specified by the Board under any other regulations.