IndiaMart IPO opens today: Should you subscribe to the issue?

IndiaMart InterMesh, an online marketplace for business products and services, will launch its initial public offer (IPO) today. The initial public offering (IPO) will comprise sale of 48,87,862 equity shares in a price band of Rs 970-973 per share. IndiaMart will become the first company to test the IPO market in Modi government's second tenure.

The Noida-based firm is looking to raise Rs 475 crore at the upper end of the price band. The issue which opens today will close on June 26.

ICICI Securities, Edelweiss Financial Services and Jefferies India are the book running lead managers to the offer. The equity shares of IndiaMart InterMesh are proposed to be listed on the BSE and the National Stock Exchange.

On Friday, IndiaMart InterMesh raised more than Rs 213 crore from 15 anchor investors by allotting 21,95,038 equity shares at a price of Rs 973, the upper band of its IPO that opens on June 24.

ICICI Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, Birla Mutual Fund, Hornbill Capital Advisers LLP are among the 15 anchor investors.

This stock was valued just Rs 4 in 2009, now it's worth over Rs 650!

Promoters Dinesh Chandra Agarwal and Brijesh Kumar Agrawal will sell 14,30,109 shares through the issue, while investors Intel Capital (Mauritius), Amadeus IV DPF and Accion Frontier Inclusion Mauritius will offload 33,20,753 shares and 1,37,000 equity shares by other selling shareholders.

On July 2 last year, the firm filed draft papers with market regulator SEBI for its public market debut. IndiaMart InterMesh is an online business-to-business marketplace for business products and services.

The E-commerce firm expects to maintain a compounded annual growth rate (CAGR) of 29% for the next two years, mainly on account of big brands joining the platform, IndiaMart's co-founder and CEO Dinesh Agarwal said recently.

The business-to-business (B2B) company, which is in the process of getting listed, posted revenue of Rs 429 crore in 2017-18 and operating profit of Rs 46 crore.

Rakesh Jhunjhunwala, wife Rekha have earned Rs 915 crore with Titan Company stock since March this year

"Last three years, our revenue has grown at CAGR of 29 percent. Similar growth should be possible this year and next year also," Agarwal  said.

"We have been generating internal cash which we will deploy once we get listed. We have democratised information for around five crore products with 47 lakh suppliers through our platform. Most of the firms listed on our platform are small and medium enterprises. Now, we are going to focus on big brands," Agarwal said.

Here's a look at what brokerages have recommended on the IPO.

Angel Broking

At the upper end of the price band, IndiaMart demands PE multiple of 33 times of FY19 EPS (post adjustment on account of FVTPL expense). Considering the investment concerns, we believe investors should wait for price discovery before taking any investment decision. Hence, we have NEUTRAL view on the issue.

Choice Broking

Choice Broking has assigned Subscribe rating to the issue. "At the higher price band, the company is demanding a trailing twelve months (TTM) P/E valuation of 139.7 times (to its TTM EPS of Rs 7), which at a premium to its peer average of 23.8x. Excluding the negative impact of non-cash item, the demanded P/E is around 32.8 times (to its adjusted EPS of Rs. 29.6). Based on FY20E and FY21E EPS, the stock is valued at P/E multiple of 35.1timesand 25.9 times, respectively, which again is at a premium to the peer average of 21.5 times and 15.3 times," Choice Broking said in a report.

"Considering the growth outlook coupled with dominant market position and expected benefit from the operating leverage, we feel that the future benefits outweigh the target share price derived from various traditional valuation multiples. Such type of technological and scalable business model companies should not be valued merely on the profitability but also on the future market potential and the capabilities of the management to work towards achieving the potential. Thus, we assign a SUBSCRIBE rating for the issue," the research note added.

Geojit

Geojit is neutral on the India Mart IPO. The brokerge said the company primarily earns revenue through the sale of subscription packages to business suppliers (monthly, annual and multi-year). Boosted by its increasing number of paying subscriptions, the company registered robust revenue CAGR of 26% over FY16-FY19. Larger corporates and leading brands are getting attracted to the IndiaMart platform on a daily basis.

With increasing contribution in the number of suppliers, the company expects its average revenue realization to grow from paying customers through its competitive pricing strategies. The company is well positioned to leverage the vast opportunities from B2B space in India. Moreover, the business model of the company is such that the company earns 45% of the sales (as of FY19) in the form of deferred revenue (advance payment) which reduces the chance of volatility in revenue.

At the upper price band of Rs 973, IndiaMart is available at a EV/EBITDA of 34 times FY19 which seems premium. This is because the company turned into profitability recently, not providing a clear glimpse of its current and future financial credentials.

Given the lack of comparable peer's analysis the situation for investors remain unclarified. As a result, we have a neutral rating for the stock, also factoring the weak undercurrent in the broad equity market & economic data. But the company should be considered in the long term, given the sustainability of its profitability due to strong market share, healthy balance sheet, rich in cash, nil debt and healthy RoA.