Kotak Initiates Coverage On IndiaMART With ‘Reduce’ Rating Amid Stagnating Buyer Enquiries

Kotak Institutional Equities has initiated coverage on online B2B marketplace IndiaMART InterMESH with a ‘reduce’ rating. The brokerage said the company needs to aggressively invest in new capabilities and products to further improve the monetisation of its paying customers.

Despite being the country’s largest e-B2B horizontal marketplace, which enables about 7.5 Mn sellers and 37 Mn active buyers, IndiaMART has witnessed stagnating buyer enquiries in recent years.

The brokerage has noted that IndiaMART’s enquiries delivered have declined to 123 Mn in the March quarter of FY23 from a peak of 175 Mn in Q2 FY21. Meanwhile, its quarterly traffic has come down to 252 Mn in Q4 FY23 from a peak of 284 Mn in Q2 FY22.

“According to the company, this is due to the change in the matchmaking algorithm, which has induced better targeting of relevant enquiries on the platform. However, we are more circumspect on this aspect and will keep an eye on both traffic and enquiries generated figures,” Kotak analysts said. 

“We believe this is one key concern, as the growth in paying supplier base should be supported by growth in buyer enquiries… to help paying sellers achieve a return on investment,” they added.

Kotak has also set a fair value of INR 5,400 on the stock, which implies a downside of about 4% to its last close on the BSE.

In fact, reversing its upward momentum in straight three previous sessions last week, IndiaMART’s shares fell 1.5% to INR 5,617.75 on the BSE on Monday (June 5).

Besides the declined buyer enquiries, Kotak believes that increasing competition in specific verticals from deep-pocketed players, such as Reliance (Jiomart+Metro B2B), Amazon, and Walmart’s Flipkart, can add to its investment risks. Higher churn on the platform, owing to lower ad spends by SMEs, is also a risk, the brokerage added.

The brokerage said that some B2B startups such as Moglix, OfBusiness, Ninjacart, and Udaan, which have raised large sums of capital, can disrupt existing distributors/SMEs and ‘could take business away from Indiamart’.

However, Kotak’s concerns largely are long-term. With the impact of stagnating traffic and enquiries on financials expected to be still some time away, Kotak sees IndiaMart reporting healthy standalone revenue and EBITDA at a compound annual growth rate (CAGR) of 20% and 24% over the FY23-26 period.

It must be noted that in FY23, the company reported a 5% year-on-year (YoY) decline in its consolidated net profit to INR 283.8 Cr while its revenue increased 31% to INR 985 Cr. In Q4 FY23, the net profit fell 3% YoY and 50% sequentially to INR 55.8 Cr.

Though risks prevail, IndiaMart is one of the few stocks among new-age tech startups that has managed to gain significantly in the equity market since its listing in 2019. Shares of IndiaMart have grown over 300% to date.

Recently, the company’s board of directors was also mulling the issuance of bonus shares.

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