IndiaMart Q2 Results Review - Strong ARPU But Weak Net Adds; Lead Indicators Affirmative: Dolat Capital

Dolat Capital Report

IndiaMart Intermesh Ltd. reported revenue growth of 4.5% QoQ (our estimate: 3.7%), led by healthy average revenue per user growth of 4% QoQ, while net subscriber addition was weak at 2,000, attributed to May-23 price hike and churn in large base of Silverin last six quarters.

Operating profit margin stood at 24.4%, down 34 bps QoQ (our estimate: 26.4%), due to continued investments in Busy and Livekeeping Accounting.

Standalone business Ebitda was up 35bps QoQ at 28.7%.

Gross adds were affected by price hike, where management expects price absorption to be completed by Q3 (gross adds to improve), and has also commenced a strategic review on churn reduction.

What to expect next quarter

We expect revenue growth of about 3.6% QoQ in Q3 FY24, led by relatively improved subscriber addition and sustained ARPU mining. We expect OPM to grow by 21 bps, on normalisation of incentives, slower employee addition and benefits from ARPU translating into better profitability.

Valuations

IndiaMart remains a dominant player in India’s B2B business space, gaining from digital adoption and steady progress by micro, small and medium enterprises. IndiaMart’s platform paid supplier growth is a result of a matured, yet evolving platform that drives efficient matchmaking for buyers.

We expect revenue to grow steadily at 21% (unchanged) compound annual growth rate over FY23-FY32E in stage-I and slightly moderate to 16.8% CAGR (earlier 15%) in stage-II over FY32-FY40E.

We also expect Ebit margins to consistently improve, and later, normalise. Margins to rise from current 24% level and average 32% for the entire forecast period.

We assign 'Buy' rating, and a discounted cash flow based target price of Rs 3,500 (implies ~40 times on price-to-earnings ratio on FY26E estimates).

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