IndiaMART InterMESH : Maintaining A Stronghold
Even though there is a downturn in e-commerce as of now, IndiaMART InterMESH has a strong balance-sheet and cash reserves and the prospects of an increase in internet penetration and subscription-based business model are likely to drive future growth in the quarters ahead
IndiaMART InterMESH is an online marketplace connecting buyers with suppliers. The company’s online channel focuses on providing a platform to small and medium enterprises (SMEs), large enterprises as well as individuals. Its product categories include industrial plants and machines, electronics and electrical equipment, industrial supplies, building and construction material, apparel and garments, food and beverages, medical and healthcare products, packaging machines and goods, chemicals, dyes and solvents, mechanical parts and spares, home textiles and furnishings, cosmetics, gems, etc.
Industry Overview
FY20 was a challenging year for highly organised, lean and technology-forward businesses as well because of the sudden downfall in economic growth led by the fast-spreading of the corona virus pandemic. There was a slowdown in the global economy, mirrored by Indian economy which gave rise to problems relating to liquidity crisis and the difficulties faced by the SME segment in obtaining loans. MSMEs had to face huge challenges in transacting with offline counterparts owing to a highly fragmented and unorganised B2B market. This was coupled with an under-developed commerce infrastructure. Thus, towards the end of FY20, the e-commerce sector witnessed a slower growth rate in net customer addition and average revenue per user.
The overall user traffic also remained flat as buyer sentiment across the nation remained cautious. The Indian government is taking efforts to aid the growth of e-commerce industry in India and subsequent growth of the MSMEs.
Financial Overview
On a consolidated financial front, the total income for the first quarter of FY21 was reported at Rs 187 crore, an increase of 16 per cent as compared to the total income of Rs 162 crore posted for the first quarter of FY20. The PBT for Q1FY21 came in at Rs 100 crore, which is a significant rise by 117 per cent as compared to Rs 46 crore reported for the same quarter of the previous fiscal year. The net profit gained by the company in Q1FY21 rose by 129 per cent to Rs 74 crore from Rs 32 crore gained in Q1FY20. The company was able to maintain a modest growth in revenues in these turbulent times of the pandemic.
Looking at the annual trend, net sales were reported to be Rs 638 crore for FY20, increasing by 25.92 per cent when compared to Rs 507.40 crore for FY19. In FY20, PBDT also increased significantly to Rs 234.20 crore from Rs 58 crore reported for FY19. The company calculated the net profit for FY20 at Rs 149 crore, which is a tremendous increase compared to the net profit of Rs 20.10 crore gained in FY19. The company’s board of directors has approved an interim dividend of 100 per cent during the year on a face value of Rs 10 per share, amounting to a net outgo of Rs 10 per share excluding dividend distribution tax.
The Vyapar Deal
In FY20, the company acquired 26 per cent stake in Vyapar, which is mobilebased accounting software for small businesses. It was led by Series A investment round in Simply Vyapar Apps Private Limited, the owner of Vyapar, of Rs 360 million along with the participation of existing investors, India Quotient and Axilor. This investment in Vyapar is aimed at assisting in solving complex billing and accounting needs of MSMEs in a simplified manner and is aligned with IndiaMART InterMESH’s longterm vision to make ‘doing business’ easy for millions of businesses by providing them with technology-enabled, fluid and cost-effective solutions.
Outlook
On account of the overall weakness in the economy and major customers being SMEs which have gone through financial stress of their own, the year FY19-20 was quite challenging for the company. Despite the many headwinds, however, the company had positive cash flows with a negative working capital cycle, indicating strength in its operations. Moreover, with small and large businesses increasingly adopting digital means to support business growth, there is likely to be a higher demand for B2B online classifieds in the future. The total paying subscribers at IndiaMART InterMESH stood at approximately 147,000 with a net addition of approximately 5,000 subscription suppliers for the quarter.
There was significant traffic growth in Q4FY20 in categories such as sanitization, safety, hospital, pharmaceutical and food supplies and in indirect categories like chemical, packaging, raw materials related to the above-mentioned items. Given the severity of the pandemic, the sales of such products are likely to remain at an elevated level going ahead as well. Also, the company has approved investment of Rs 10 crore in Mobisy Technologies (P) Ltd along with other investors such as Triton Investment Advisors. Bizom, which is a business run by Mobisy, offers sales force automation and distribution management system to medium and large-sized businesses.
It also solves complex sales and distribution and direct retail reach needs of the consumer brands on a mobilebased, stabilised and scalable platform. This is a strategic benefit for IndiaMART InterMESH. However, going forward, there could be a decline in demand, but in the long-term this will be offset as organisations now prefer to adapt to online business. The company’s strong balance-sheet and cash reserves, an increase in internet penetration and subscription-based business model are likely to drive future growth in the quarters ahead. We thus recommend our investor-readers to BUY this scrip.