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The company boasts of a strong network effect, resilience to supplier ROI, diversified exposure, and a robust Search Engine Optimization strength – which, according to Motilal, are its key differentiators.
KEY HIGHLIGHTS
- The brokerage bets on the resilience shown by the company on the margins front
- IndiaMart reported an expansion in margins on significant rationalization in operating costs
- IndiaMart is the country’s largest B2B online classifieds marketplace
Mumbai: Shares of IndiaMart continued the winning streak for the fourth consecutive session, with a 5% gain so far this week. The company was in the limelight today as Motilal Oswal initiated its coverage on the stock, calling it a “play on digitizing MSMEs”.
IndiaMart is the country’s largest B2B online classifieds marketplace, with more than 70% market share. The platform has more than six million supplier listings for 68 million products across one lac plus categories from 1000 plus cities.
The company boasts of a strong network effect, resilience to supplier ROI, diversified exposure, and a robust Search Engine Optimization strength – which, according to Motilal, are its key differentiators.
According to the brokerage, IndiaMart operates in a sweet spot, wherein high-growth SMEs fuel the top line and a subscription-based model limits the risk of default.
Analysts believe the margins of IndiaMart mirror the positive operating leverage from revenue growth in the business. The brokerage bets on the resilience shown by the company on the margins front.
Despite a 50% decline in collections for Q1FY21, IndiaMart reported an expansion in margins on significant rationalization in operating costs. Motilal forecasts a sharp turnaround in FY22 operations on account pent-up demand, a stable base of suppliers, the need for out-of-the circle buyers, and increased internet penetration. The company too is banking on increased digital adoption among SMEs.
According to Motilal, the underlying market is expected to grow at a 25% CAGR over the next five years, thereby, opening up an immense opportunity for growth.
The analysts at Motilal bet on the strong moats shield from disruption, high FCF yield and the strong balance sheet of the B2B classifieds player.
They forecast an 8 percentage points margin expansion over FY20–23 on account of the better management of cost structure and operative leverage in the business, as they initiate their coverage on the counter with a ‘Buy’ rating and a target of Rs. 3,550 apiece.