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Indiamart's Declining Unique Buyer Enquiries A Key Concern, Says Kotak Securities

Weakened buyer enquiries, SME churn and high competitive intensity key risks for Indiamart in long term

<div class="paragraphs"><p>A man browsing IndiaMart website. (Source: BQ Prime)&nbsp;</p></div>
A man browsing IndiaMart website. (Source: BQ Prime) 

The decline in Indiamart's unique buyer enquiries is a key risk in the medium term, according to Kotak Institutional Equities.

Apart from weakened buyer enquiries, a likely increase in churn due to an unfavourable macroeconomic environment and increased competition from deep-pocketed players are medium-term risks for Indiamart, Kotak said.

The brokerage initiates coverage on Indiamart with a 'reduce' rating, citing a strong near-term performance as it dominates the B2B classifieds space on the back of higher margins and a healthy cash flow-generating business. But long-term risks to Indiamart persist.

Indiamart's revenue share from the top 10% of paying suppliers increased by 47%, while its unique buyer enquiries per paying seller dropped by 24.25% to 434 in FY23. "We believe this is one key concern, as growth in the paying supplier base should be supported by growth in buyer enquiries over the medium to help paying sellers achieve return on investment," according to Kotak. Indiamart will have to aggressively invest in technology to reverse this trend over the medium term.

Indiamart's churn rates spiked during Covid, but they have returned to pre-Covid levels as its gold and platinum customers churn at under 1% per month now. Lower advertising spends by SMEs that can lead to higher churn on the platform continue to be a risk for Indiamart.

Increased competition in the B2B marketplace also creates long-term uncertainty for Indiamart. However, SMEs, an important customer group for Indiamart, will remain tough to penetrate for new entrants due to their high customer acquisition costs. This, along with a better monetisation ability achieved over the past four to five years, reduces competitive risks for Indiamart.

However, despite long-term concerns, Kotak expects a healthy EPS CAGR of 19% for the period of FY23 to FY26.