IndiaMART InterMESH IPO review (May apply)

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Review By Dilip Davda on June 19, 2019

• IndiaMART is India's leading B2B market place exploring Digital India spirit.
• Due to FVTPL adjustments, it has shown inconsistency in financial performance for the last two fiscals.
• Offering Rs. 97 discount to eligible employees for 10000 shares reserved for them.
• The issue appears aggressively priced on P/BV and P/E parameters.
 ABOUT COMPANY:
IndiaMART InterMESH Ltd. (IIL) is India's largest online B2B marketplace for business products and services with approximately 60% market share of the online B2B classifieds space in India in fiscal 2017, according to the KPMG Report. It primarily operates through product and supplier discovery marketplace, www.indiamart.com or 'IndiaMART'. IIL's online marketplace provides a platform for mostly business buyers, to discover products and services and contact the suppliers of such business products and services. IndiaMART had an aggregate of 325.8 million, 552.6 million and 723.5 million visits in fiscals 2017, 2018 and 2019, respectively, of which 204.8 million, 396.9 million and 550.3 million comprised mobile traffic, or 63%, 72% and 76% of total traffic, respectively.
 
The company refers to sellers of products and services listed on IndiaMART marketplace as 'suppliers', and suppliers that subscribe to paid services on IndiaMART as 'paying subscription suppliers'. It refers to each visitor to IndiaMART, including, among others, each separate visitor from the same business entity or establishment, for whom it obtains basic identifying and contact information as IIL's 'registered buyer'. As of March 31, 2019, the company had 82.70 million registered buyers and 5.55 million supplier storefronts in India. These Indian supplier storefronts had listed 60.73 million products as of March 31, 2019, of which 76% of goods comprised products and 24% were services.

A total of 156.84 million, 289.98 million and 448.97 million business enquiries, respectively, were delivered to IndiaMART suppliers in fiscals 2017, 2018 and 2019. For the years ended March 31, 2018, and 2019 it had 52.59 million and 72.52 million daily unique buyer requests, respectively, of which 52% and 55% were repeat buyers calculated on the basis of the past 90 days, respectively. IndiaMART provides a robust two-way discovery marketplace connecting buyers and suppliers. Buyers locate suppliers on IIL's marketplace, including both Indian small and medium enterprises, or 'SMEs', and large corporates, by viewing a webpage containing the supplier's product and service listings, or a 'supplier storefront', or by posting requests for quotes called 'RFQs' or 'BuyLeads'. As of March 31, 2019, it had organized listings across 54 industries.

 
ISSUE DETAILS/CAPITAL HISTORY:
To achieve the benefits of listings and providing a partial exit to some of its existing stakeholders, IIL is coming out with a maiden IPO of 4887862 equity shares of Rs. 10 each via book building route. It has fixed a price band of Rs. 970 – Rs. 973 and mulls mobilizing Rs. 474.12 cr. to Rs. 475.59 cr. based on lower and upper price bands. The issue opens for subscription on 24.06.19 and will close on 26.06.19. Minimum application is to be made for 15 shares and in multiples thereon, thereafter. Issue constitutes 17% of the paid up capital of the company. Post allotment, shares will be listed on BSE/NSE.
 
IIL has reserved 10000 shares for eligible employees and offering them a discount of Rs. 97 per share. From the balance issue, it has allocated 75% of the issue for QIBs, 15% for HNIs and 10% for retail investors.
 
BRLM's to this issue are ICICI Securities Ltd., Edelweiss Financial Services Ltd. and Jefferies India Pvt. Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue.
 
Having issued initial equity at par, IIL raised further equity in the price range of Rs. 40 to Rs. 770 per share between November 2000 and May 2019. It has also issued bonus shares in the ratio of 1 for 1 in May 2018.
 
The average cost of acquisition per equity share for IIL's selling shareholders is in the range of Rs. 0.24 to Rs. 385.00 per share.
 
Since this is a secondary offer, IIL's post-issue equity capital remains the same at Rs. 28.77 cr.


FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, IIL has on a consolidated basis posted turnover/net profits - (Loss) of Rs. 331.94 cr. / (Rs. 64.35) cr.(FY17), Rs. 429.53 cr. / Rs. 54.76 cr. (FY18) and Rs. 548.39 cr. / Rs. 20.04 cr. (FY19). Company's top line has sown consistent growth. While it posted robust turnaround in FY18 due to differed tax provisions coupled with FVTPL process, its bottom line suffered in FY19 due to pending onetime FVTPL adjustments for preferential shares conversion and ESOP as claimed by the management. Since it has done away with all such adjustments, it is confident of maintaining around 16% margins it achieved in FY19 with continued growth in the top line.
 
For the last three fiscals, it has on a consolidated basis posted an average EPS of Rs. 4.70 on a fully diluted basis and an average RoNW of 9.20%. The issue is priced at a P/BV of 17.40 on the basis of its NAV of Rs. 55.92 as on 31.03.19. If we consider FY19 earnings as stated in offer documents and attribute it on fully diluted equity of Rs. 28.77 cr. then asking price is at a P/E of around 140, thus prima facie making the issue priced very aggressively. As clarified by the management, if we take into account onetime adjustments done in FY19 then the net profit stands around Rs. 85 cr. that translates its P/E at around 33. Because of the deferred revenue model, IIL has around Rs. 600 cr. cash on hand that is parked in mutual fund investments.


COMPARISION WITH LISTED PEERS:
As per offer documents, it has no listed peers to compare with.

 
MERCHANT BANKER'S TRACK RECORDS:
On BRLM's front, three merchant bankers associated with the offer have handled 25 public issues during three fiscals (including current one) out of which 7 closed below the issue price on listing date.

IIL is a first mover in providing a platform for MSMEs as B2B online trading platform and is taking forward Digital India movement in a right spirit. According to a market survey, while an online B2B segment is growing, B2C is also expected to fall in line. Thus IIL being the largest online trading platform provider is set to ripe benefits. Based on P/BV and P/E basis (as per declared profits and pre-adjustment profits) issue is aggressively priced.

IIL is a first mover in providing a platform for MSMEs as B2B online trading platform and is taking forward Digital India movement in a right spirit. According to a market survey, while an online B2B segment is growing, B2C is also expected to fall in line. Thus IIL being the largest online trading platform provider is set to ripe benefits. Based on P/BV and P/E basis (as per declared profits and pre-adjustment profits) issue is aggressively priced.

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