Enthusiasm for Intel-backed platform reflects investor hunger for new listings
Shares of ecommerce company IndiaMART rose 25 per cent from their issue price on their Thursday debut in what marked the end of a drought for Indian initial public offerings following national elections in May.
IndiaMART is India’s largest online platform for selling products directly to businesses, backed by foreign investors such as Intel Capital, part of Intel Corp, and UK-based Amadeus Capital.
The company sought to raise $70m on Mumbai’s National Stock Exchange at an equity valuation of $400m, with its IPO 36 times subscribed.
Analysts said the demand for IndiaMART’s shares showed that Indian investors had become hungry for IPOs after the drought, with the country’s marathon elections in April and May pushing them to the sidelines.
The $1.5bn raised through IPOs in India in the first half of 2019 was down 65 per cent from $4bn the same time a year earlier, according to data from EY.
Dinesh Agarwal, IndiaMART’s founder, said that investor sentiment suffered after infrastructure group IL&FS defaulted on debt in September last year, sparking a liquidity squeeze that made companies reluctant to list. But he said the re-election of Prime Minister Narendra Modi with a stronger mandate helped to cure those blues.
“After last year’s IL&FS disaster, the economy has seen a problem, which can also be seen a little in IndiaMART buyer traffic numbers,” he said. “We do not see our revenues to be affected for long . . . [The crisis] ended by . . . May, when the government got re-elected.”
Indian shares rose to record highs in late May on the back of Mr Modi’s re-election, as investors bet his victory would provide the impetus for continued economic reforms.
But the economy has continued to show signs of stress. Gross domestic product growth fell to 5.8 per cent in the first quarter of 2019, a five-year low and down from 6.6 per cent in the final quarter of 2018. Consumption has also suffered, with car sales falling to multiyear lows.
Some analysts expect IPO activity to gather steam now that elections are over. “Last year the market environment was not very conducive,” said Rusmik Oza, head of research at Kotak Securities. “We might see larger . . . companies tapping the market this year.”
Others pointed to warning signs. Saurabh Mukherjea, founder of Marcellus Investment Managers, said the Indian stock market had become disjointed from the economy, with the country’s Nifty 50 index lagging behind GDP growth over the past decade. IPOs had become less effective as a source of growth capital for companies, he said.
“The link between economic growth and corporate profitability has also been broken in our country,” he said. “The relevance of the stock market from the perspective of economic growth has really gone now. It’s sad but that’s what it is.”
India’s top internet firms Flipkart, Amazon, Snapdeal, among a number of others are in the process of submitting detailed reports to the Ministry of Commerce and Industry, explaining their company structures and business operations in India, multiple people with knowledge of the matter told ET.
This is the first such instance of the government seeking such a clarification on the way new-age internet companies function, and comes on the back of several complaints being made by seller bodies and other rival players about Internet commerce firms allegedly violating laws that govern the sector. The development also coincides with the Competition Commission of India (CCI) conducting a survey on the e-commerce market in India.
“The Ministry had asked for details on the company structure during our meeting with Piyush Goyal, which we have submitted,” said an executive of a leading e-commerce marketplace on the condition of anonymity. “We have also given other details in the report like how many warehouses we are running, the number of sellers we work with, and our other investments in India,” the person said.
ET has learnt that Flipkart and Snapdeal have already made their submissions, while Amazon is still in the process of doing so.
While Flipkart and Amazon declined to comment, a Snapdeal spokesperson confirmed that the e-tailer had already sent its report to the Ministry.
The Commerce and Industry Minister, Piyush Goyal met representatives of about 25 internet and e-commerce companies on June 24, including Reliance Jio, Paytm, Flipkart, Amazon, Snapdeal, Urban Ladder, Udaan, Jumbotail, IndiaMart, UrbanClap, Zomato, Swiggy and Shopclues. During the course of the meeting, the Minister instructed all the parties present to submit reports explaining their company structures and business models, people aware of the matter told ET.
“The Minister didn’t specify which companies need to comply with this demand, so we took a conservative approach and have sent a detailed report on our structure,” said another executive from a company which was present in the meeting with Goyal.
Goyal had added that the submissions should be made within a week, after which it would be analysed by his Ministry and presented to him before their next meeting.
“It’s a pretty simple submission for us as we have a single brand retail license in which 100% FDI is allowed through the automatic route,” said Ashish Goel, CEO of online furniture retailer Urban Ladder. “All the details are already present with the Reserve Bank of India and Commerce Ministry, but we will make our submission soon,“ Goel who was present at the meeting last month told ET.
Goyal has taken a tough stand against online retailers and during his meeting last month, questioned the likes of Flipkart on its structure, while asking others about how they were facilitating discounts, since FDI guidelines in the e-commerce sector prohibit marketplaces from influencing prices of products sold on their platforms. Press Note 2, which was notified in December 2018 by the Indian government, bars online marketplaces and their group companies from owning their vendors and prohibits them from controlling the inventory sold on their platforms.
Earlier in June, Goyal had stated at another meeting with global technology and e-commerce firms that the government would not allow 100% FDI in multi-brand retail as the interests of small traders and merchants in the country would be hurt.
Flipkart and Amazon have maintained that they are in complete compliance with the laws of India. ET reported on July 3 that Flipkart Group CEO Kalyan Krishnamurthy said the company was open to any audit by the company’s statutory auditors to check for compliance with requirements under Press Note 2. Walmart International president and CEO Judith McKenna along with Krishnamurthy met Piyush Goyal on Wednesday, with a tweet from the Minister’s office stating that they discussed local sourcing and boosting sales of Made in India products.
What’s more, most of the PSUs have performed badly since their respective listings, with New India Assurance being the worst performer among the PSU IPOs.
Shares of about half of the companies that launched their initial public offerings (IPOs) since 2016 have been trading below their offer prices despite both the broader indices — Sensex and Nifty — yielding 51.1% and 48.5% in returns in the past three years.
Data analysed by FE showed 44 of the 95 companies that got listed since 2016 are trading below their offer prices. Of these 44, 37 have given negative returns in double digits, according to Prime Database. “In the recent past, issues have been priced aggressively, which has been an overhang on stock after listing. Poor performance of mid & small caps is also a reason why some IPOs have not done well,”said Rajiv Singh, CEO-stock broking, Karvy.
S Chand and Co, CL Educate, HPL Electric and Power, Precision Cramshafts, GTPL Hathway and New India Assurance lead the list of wealth destroyers, losing up to 88.3% since their listing. FE had earlier reported that the stock markets have given education sector a thumbs down. “There is quite often a frenzied approach to IPO promotion by those who promote such issues. This approach itself drives quite a large number of investors to book profits and exit once they see some premium. Their intention was never to stay invested. Thus, by itself pulls down the stock prices,”said K Joseph Thomas, head of research at Emkay Wealth Management.
What’s more, most of the PSUs have performed badly since their respective listings, with New India Assurance being the worst performer among the PSU IPOs. “We believe the divestment plan of Rs 70,000 crore has to be re-thought as the continuous sell-down through the ETF route has impaired fair value of strategic PSU companies,” said a brokerage house. According to Value Research, CPSE ETF has yielded only 0.45% in returns in the last five years. Interestingly, in FY19 PSUs dominated the buyback offers which was one of the divestment methods. “On account of the large issuance in the secondary markets, the primary market may remain subdued for a while. This means that only high quality issuers are likely to be able to raise funds via an IPO,” added Rajiv Singh.
In contrast, companies that have been listed in 2019 so far have given positive returns, in double digits. The last three companies that got listed this year include Polycab India, Neogen Chemicals and Indiamart Intermesh.These three listed companies having given 11.8%, 53.6% and 38.39% in returns against their respective offer prices.
Mumbai, July 04, 2019: The equity shares of IndiaMart InterMesh Limited (India’s largest online B2B market place) were listed on the bourses at a premium of 21.27% at 1180 level compared to its issue price of Rs 973 per share in a ceremony held at National Stock Exchange today.
The IPO of IndiaMart InterMesh was opened on June 24 and closed on June 26 with a price band of Rs 970-973 per share. The qualified institutional buyers’ (QIB) book was subscribed close to 30.83 times, non-institutional investors (NII) 62.12 times and retail individual investors (RII) 13.37 times.
IndiaMart InterMesh stock touched an intra day high of Rs 1339 on BSE.
Commenting on the successful IPO listing, Mr. Dinesh Agarwal, Founder and Managing director, IndiaMart InterMesh Limited, said, We are overwhelmed by the record response we received from the investors for our IPO. It is a matter of honor for IndiaMart to be a part of the popular stock exchanges. This would not have been possible without the trust shown by our investors, customers and employees. We are confident that together we will deliver value for all stakeholders in the times to come.”
He further added, “The Indian Tech space is growing and companies are turning profitable because of the impressive digital program in the country. The classifieds business model has found its feet in the Indian market. Investors are trusting the tech sector and starting to give the desired valuations to companies now.
Commenting on the occasion, Mr. Vikram Limaye, MD and CEO, NSE, said, “The listing of IndiaMART sets an encouraging tone for other similar technology and internet based companies to access the public markets. NSE, with its focus on technology, has been a pioneer in creating platforms to support new-economy companies as they begin their journey in the public markets. NSE is a strong supporter of creating viable fund raising opportunities as well as liquidity options for new economy companies through public markets and has carved out a dedicated segment, the Innovator Growth Platform. This Platform makes it easier for tech companies, across growth stages, to access the public markets.”
About IndiaMart InterMesh Limited:
IndiaMart InterMesh Limited is India’s largest online B2B marketplace for business products and services. The company primarily operates through its product and supplier discovery marketplace, www.indiamart.com or “IndiaMART”. IndiaMart’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.
As of March 31, 2019, the company had 82.70 million registered buyers and had 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. IndiaMart refers to an enquiry placed by buyers on IndiaMART through telephone, SMS, email or by posting an RFQ (as defined below) as a “business enquiry”.
Company also provides a robust two-way discovery marketplace connecting buyers and suppliers. Buyers locate suppliers on our 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”.
Company counts business enquiries received by a supplier, including each receipt of the same business enquiry by multiple suppliers, as a business enquiry delivered. 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 we 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.
A quick recap of the week gone by saw BSESENSEX gain 118.75 points or 0.30 per cent to close at 39,5163.39 points while NIFTY was up 22.30 points or 0.19 per cent to close at 11,811.15 points. The broader indices saw BSE100, BSE200 and BSE500 gain 0.14 per cent, 0.06 per cent and flat respectively. BSEMIDCAP was down 0.56 per cent while BSESMALLCAP was down 0.68 per cent. The indices had gained on the first four days of trading and lost on the presentation of the budget. What was heartening was the fact that the Indian Rupee gained 60 paisa or 0.87 per cent to close at Rs 68.42 to the dollar. June series futures expired flat with a gain of 0.85 points at 11,946.75 points. The shares of Indiamart Intermesh Ltd listed and registered gains of Rs 353.25 or 36.31 per cent to close at Rs 1,326.25.
Coming to the budget presented by India’s first full time woman Finance Minister Nirmala Sitharaman, it clearly passed the muster in delivering the message of continuity and taking the nation forward. There were no major surprises whether pleasant or unpleasant and it has broadly laid out the government’s desire to be a 5 trillion economy in the next five years.
Some of the key features of the same affecting the market could be enumerated below.
– STT or Securities Transaction Tax on options would now be levied on the difference between the strike price and the market price.
– A tax of 20 per cent plus surcharge has been levied on buyback of shares by listed entities with immediate effect. This would result in the tenderer of shares getting back the amount tax deducted. This effectively means that in the current year the divestment proceeds targeted by the government of Rs 1.05 lakh crore would be bereft of buybacks.
– The government has recommended to SEBI that the minimum public share holding in listed entities be increased from the present 25 per cent to 35 per cent. While this is a recommendation and would take a year or thereabouts to be formalised if accepted, it implies a three-year roadmap thereafter and would entail roughly Rs 4 lakh crore fresh paper hitting the markets. Some MNCs may choose to delist instead of diluting. This would help investors getting quality paper without valuations going up. Further this would also ensure that the primary market valuations would be reasonable as these issuers would be competing with the listed entities offering shares through the OFS route.
– Customs duties have been imposed or increased on consumer durables like tiles, marble slabs, split air conditioners and optic fibre cables amongst others. This is good news for the manufacturers of these products as any undue pressure on margin would reduce and there would be a boost for Make in India. It’s a different story that stocks of these companies actually fell in trading on Friday.
– The customs duty on gold and precious stones has been raised. This is negative for the jewellery sector in the short term only. The real negative for this sector is that there would be a bigger incentive for smuggling as the differential at 12.5 per cent makes it attractive for smugglers to make an attempt at smuggling.
– The issue of NBFC has been tackled with PSU banks being encouraged to buy quality paper of NBFC’s and the government providing an insurance of 10 per cent for six months on diminution in value of the same. Further, the housing finance NBFCs are being brought under the ambit of RBI.
– PSU banks would be given Rs 70,000 crore for recapitalising during the year. Further, after the mega-merger of Bank of Baroda with Dena Bank and Vijaya Bank, another such one or two mergers in the current year are on the anvil. This will reduce the number of banks and also make them that much stronger.- Focus to be given on ETF’s and one on financial services to be introduced on PSU’s. Government to focus on them for divestment, looking at the success last year of CPSE ETF and Bharat 22,- Affordable housing given a boost with further interest deduction on buying first home. This will go a long way in helping realty space in tier 2 and tier 3 towns.
– The decision of the government to borrow in foreign currency through sovereign bonds will help the country in getting money for long term requirement of infrastructure spending at cheaper rates without affecting the local bond market. Bond yields have softened on this news over the last two days. The longer-term effect would be a stronger currency and an opportunity for foreigners/foreign institutions to invest in India without the currency risk.
The Finance Minister has announced a massive drive to upgrade rural roads with an outlay of 80,000 crore over the next five years. Similarly, a scheme for infrastructure involving roads and railways would be stepped up on the PPP model with private partnership playing a key role in the development.
The surcharge on income above Rs 2 crore and Rs 5 crore has been raised while all other slabs have been kept unchanged. While this would impact a fraction of a percentage of India’s taxpayers, this would help the government not tax the larger population.
The fine print of the budget would continue to emerge over the coming week, but it appears that losses of 395 points on the BSESENSEX and 135 points on NIFTY suffered on Friday, the day the budget was presented, would certainly be made up in the coming week. The focus of the market would now shift to quarterly results with TCS announcing them on July 9 followed by Infosys on July 12. The growth in corporate performance is imperative as the same as been eluding markets for just too many quarters. Buy select PSU stocks and look for surprises in the results to build a portfolio.
(This story was auto-published from a syndicated feed. No part of the story has been edited by The Quint.)
Away from the limelight of the press and the frenzy of fundraising, a tech startup in India has achieved a feat that few of its peers have managed: going public.
IndiaMART, the country’s largest online platform for selling products directly to businesses, raised nearly $70 million in a rare tech IPO for India this week.
The milestone for the 23-year-old firm is so uncommon for India’s otherwise burgeoning startup ecosystem that, beyond being over-subscribed 36 times, pent up demand for IndiaMART’s stock saw its share price pop 40% on its first day of trading on National Stock Exchange on Thursday — a momentum that it sustained on Friday.
The stock ended Friday at Rs 1326 ($19.3), compared to its issue price of Rs 973 ($14.2).
IndiaMART is the first business-to-business e-commerce firm to go public in India. Its IPO also marks the first listing for a firm following the May reelection of Narendra Modi as the nation’s Prime Minister and the months-long drought that led to it.
Accounting firm EY said it expects more companies from India to follow suit and file for IPO in the coming months.
“Now that national elections are over and favorable results secured, IPO activity is expected to gain momentum in H2 2019 (second half of the year). Companies that had filed their offer documents with the Indian stock markets regulator during H2 2018 and Q1 2019 may finally come to market in the months ahead,” it said in a statement (PDF).
The fireworks of the IPO are just as impressive as IndiaMART’s journey.
The startup was founded in 1996 and for the first 13 years, it focused on exports to customers abroad, but it has since modernized its business following the wave of the internet.
“The thesis was, in 1996, there were no computers or internet in India. The information about India’s market to the West was very limited,” Dinesh Agarwal, co-founder and CEO of IndiaMART, told TechCrunch in an interview.
Until 2008, IndiaMART was fully bootstrapped and profitable with $10 million in revenue, Agarwal said. But things started to dramatically change in that year.
“The Indian rupee became very strong against the dollar, which dwindled the exports business. This is also when the stock market was collapsing in the West, which further hurt the exports demand,” he explained.
By this time, millions of people in India were on the internet and, with tens of millions of people owning a feature phone, the conditions of the market had begun to shift towards digital.
“This is when we decided to pursue a completely different path. We started to focus on the domestic market,” Agarwal said.
Over the last 10 years, IndiaMART has become the largest e-commerce platform for businesses with about 60% market share, according to research firm KPMG. It handles 97,000 product categories — ranging from machine parts, medical equipment and textile products to cranes — and has amassed 83 million buyers and 5.5 million suppliers from thousands of towns and cities of India.
According to the most recent data published by the Indian government, there are about 50 to 60 million small and medium-sized businesses in India, but only around 10 million of them have any presence on the web. Some 97% of the top 50 companies listed on National Stock Exchange use IndiaMART’s services, Agarwal said.
That’s not to say that the transition to the current day was a straightforward process for the company. IndiaMART tried to capitalize on its early mover advantage with a stream of new services which ultimately didn’t reap the desired rewards.
In 2002, it launched a travel portal for businesses. A year later, it launched a business verification service. It also unveiled a payments platform called ABCPayments. None of these services worked and the firm quickly moved on.
Part of IndiaMART’s success story is its firm leadership and how cautiously it has raised and spent its money, Rajesh Sawhney, a serial angel investor who sits on IndiaMART’s board, told TechCrunch in an interview.
IndiaMART, which employs about 4,000 people, is operationally profitable as of the financial year that ended in March this year. It clocked some $82 million in revenue in the year. It has raised about $32 million to date from Intel Capital, Amadeus Capital Partners and Quona Capital. (Notably, Agarwal said that he rejected offers from VCs for a very long time.)
The firm makes most of its revenue from subscriptions it sells to sellers. A subscription gives a seller a range of benefits including getting featured on storefronts.
4/4. So many Indian small businesses have so much to thank @DineshAgarwal for. And after the iconic IPO, so many Indian entreprenuers will have so much to thank him for – forever unlocking the Indian public markets to current & future generation of Indian internet companies 🙏🏼
— Kunal Bahl (@1kunalbahl) July 4, 2019
There are only a handful of internet companies in India that have gone public in the last decade. Online travel service MakeMyTrip went public in 2010. Software firm Intellect Design Arena and e-commerce store Koovs listed in 2014, then travel portal Yatra and e-commerce firm Infibeam followed two years later.
India has consistently attracted billions of dollars in funding in recent years and produced many unicorns. Those include Flipkart, which was acquired by Walmart last year for $16 billion, Paytm, which has raised more than $2 billion to date, Swiggy, which has bagged $1.5 billion to date, Zomato, which has raised $750 million, and relatively new entrant Byju’s — but few of them are nearing profitability and most likely do not see an IPO in their immediate future.
In that context, IndiaMART may set a benchmark for others to follow.
“The fact that we have a homegrown digital commerce business, serving both the urban and smaller cities, and having struggled and been around for so long building a very difficult business and finally going public in the local exchange is a phenomenal story,” Ganesh Rengaswamy, a partner at Quona Capital, told TechCrunch in an interview. “It keeps the story of India tech, to the Western world, going.”
Generally, it is agreed that there are too few IPOs in India and the industry can benefit from momentum and encouragement of high profile and successful public listings.
“There is a firm consensus that in India, markets will prefer only the IPOs of companies that are profitable. And investors in India might not value those companies. Both of these issues are being addressed by IndiaMART,” said Sawhney.
“We need 30 to 40 more IPOs. This will also mean that the stock market here has matured and understands the tech stocks and how it is different from other consumer stocks they usually handle. More tech companies going public would also pave the way for many to explore stock exchanges outside of India.
“Indian market is ready for more tech stocks. We just need to get more companies to go out there,” Sawhney added, although he did predict that it will take a few years before the vast majority of leading startups are ready for the public market.
The Indian government, for its part, this week announced a number of incentives to uplift the “entrepreneurial spirit” in the nation.
Finance minister Nirmala Sitharaman said the government would ease foreign direct investment rules for certain sectors — including e-commerce, food delivery, grocery — and improve the digital payments ecosystem. Sitharaman, who is the first woman to hold this position in India, said the government would also launch a TV program to help startups connect with venture capitalists.
IndiaMART has managed to build a sticky business that compels more than 55% of its customers to come back to the platform and make another transaction within 90 days, Agarwal — its CEO — said. With some 3,500 of its 4,000 employees classified as sales executives, the company is aggressive in its pursuit of new customers. Moving forward, that will remain one of its biggest focuses, according to Agarwal.
“Most of our time still goes into educating MSMEs on how to use the internet. That was a challenge 20 years ago and it remains a challenge today,” he told TechCrunch.
In recent years, IndiaMART has begun to expand its suite of offerings to its business customers in a bid to increase the value they get from its platform and thus increase their reliance on its service.
IndiaMART has built a customer relationship management (CRM) tool so that customers need not rely on spreadsheets or other third-party services.
“We will continue to explore more SaaS offerings and look into solving problems in accounting, invoice management and other areas,” said Agarwal.
The firm also recently started to offer payment facilitation between buyers and sellers through a PayPal -like escrow system.
“This will bridge the trust gap between the entities and improve an MSME’s ability to accept all kinds of payment options including the new age offerings.”
There’s an elephant in the room, however.
A bigger challenge that looms for IndiaMART is the growing interest of Amazon and Walmart in the business-to-business space. Several startups including Udaan — which has raised north of $280 million from DST Global and Lightspeed Venture Partners — have risen up in recent years and are increasingly expanding their operations. Agarwal did not seem much worried, however, telling TechCrunch that he believes that his prime competition is more focused on B2C and serving niche audiences. Besides he has $100 million in the bank himself.
Indeed, as Quona Capital’s Rengaswamy astutely noted, competition is not new for IndiaMART — the company has survived and thrived more than two decades of it.
“Alibaba came and gave up,” he noted.
An important — and unanswered question — that follows the successful IPO is how IndiaMART’s stock will fare over the coming months. A glance to the U.S. — where hyped companies like Uber, Lyft and others have seen prices taper off — shows clearly that early demand and sustained stock performance are not one and the same.
Nobody knows at this point, and the added complexity at play is that the concept of a tech IPO is so uncommon in India that there is no definitive answer to it… yet. But IndiaMART’s biggest achievement may be that it sets the pathway that many others will follow.
23-year-old B2B e-commerce behemoth IndiaMART has had a great day at the bourses. Celebrations, though, could be premature as the battle ahead is a tough one
IndiaMART, the country’s largest e-commerce firm, has gone public
IndiaMART has intentions to compete with Chinese juggernaut Alibaba, which has B2B operations in India
With funding in the B2B sector rising, IndiaMART could have a battle on its hands
IndiaMART has retained its dominant position while following a subscription model. Will it have to pivot?
There was a celebratory atmosphere at the Hyatt in Noida last Saturday. Drinks flowed and a cake was cut, but the highlight of the night was a speech from the man of the moment—Dinesh Agarwal, CEO of business-to-business (B2B) e-commerce firm IndiaMART. The 50-year-old Agarwal had, after all, just led IndiaMART InterMESH Ltd, which operates IndiaMART.com, to the brink of a successful initial public offering (IPO). The offering raised about Rs 475 crore ($69.3 million) and was subscribed over 36 times in the past week, landing IndiaMART a valuation of Rs 3,748.06 crore ($547.1 million).
“My first investor came in about 10 years ago, Intel Capital. There were two options for us to give him an exit, either we could have taken another round of private equity or we could have gone public. For domestic businesses, I think an IPO gives you visibility and credibility both, which will help us attract better buyers, vendors and employees,” IndiaMART CEO Agarwal said in a telephone interview.*
At the Hyatt event, Agarwal declared that now that its domestic listing was complete, it was time for IndiaMART to focus on Chinese conglomerate Alibaba Group. “Agarwal’s motive is to beat Alibaba. That’s what he tells us. We consider them the main competition,” an employee told The Ken. He declined to be named as he wasn’t authorised to speak to the media.
IndiaMART was started by cousins Dinesh Agarwal and Brijesh Agrawal in 1996, and is now to the B2B market what e-commerce giant Flipkart is to the B2C market. Its target—billionaire Jack Ma’s Chinese conglomerate Alibaba Group, which operates domestically through B2B platform Alibaba India—has a valuation of over $450 billion. When Alibaba listed on the New York Stock Exchange in 2014, it raised nearly $21.8 billion, giving it a market cap of about $168 billion. IndiaMART gearing up to fight Alibaba is a real David versus Goliath battle.
Several analysts such as BP Wealth and SMC Global said IndiaMART’s stock was “aggressively priced” and gave it an ‘avoid’ rating. “On the valuation front, at the upper end of the price band, IndiaMART is valued at a P/E of 140X to its FY19 earnings, which is aggressively priced given the intense competition from emerging players and new entrants,” said BP Wealth in its IPO note.
The stock market, however, begged to differ. IndiaMART listed on both the NSE and BSE on 4 July, and opened at Rs 1,180 ($17.2) a share, a premium of 21.3% on its issue price of Rs 973 ($14.2). It closed at Rs 1,302.55 ($19) a share on BSE, 10.4% higher than its opening price of Rs 1,180 ($17.2) and 33.9% higher than its IPO price.
But a Rs 3,748 crore valuation for a 23-year-old company with a 60% market share in the B2B digital classifieds space is considered high by many. Especially since VC-funded B2B startups have comfortably eclipsed IndiaMART’s current valuation. Udaan, one such B2B e-commerce marketplace, is a prime example. Started in 2016, it took less than four years to become a unicorn (companies valued at $1 billion or more)—the first of its kind in the Indian B2B space. (Read about Udaan here.)
Similarly, Bengaluru-based BlackBuck, a B2B logistics firm providing trucking services, raised $150.6 million in May, according to data research platform Tracxn. This puts it within touching distance of the unicorn club.
Investor interest in B2B e-commerce players has not always been this strong, with B2B businesses often relegated to the shadow of their business-to-consumer (B2C) counterparts. But that started to change around 2015, when big-name investors like Tiger Global, Yuri Milner’s DST Global, Sequoia Capital and Qualcomm Ventures jumped into the fray.
Government regulations have also propelled B2B e-commerce into the limelight. In 2016, the government permitted 100% FDI (foreign direct investment) in B2B e-commerce trading, while clamping down on B2C e-commerce firms for excessive discounting and restricting ownership structures, among other measures.
Suddenly, it was not just venture capitalists who were looking at B2B e-commerce; B2C companies such as Amazon, Walmart-owned Flipkart and Indian conglomerate Reliance Industries also announced B2B intentions. In an environment where newer B2B companies are the flavour of the season, is IndiaMART really overvalued?
The dichotomy between the valuations for B2B startups and more established companies like IndiaMART begins with their differing business models.
Broadly speaking, B2B e-commerce startups such as Udaan, agricultural marketing platform NinjaCart and wholesale food and grocery platform Jumbotail follow a transaction model. The likes of IndiaMART, JustDial and Alibaba India, meanwhile, follow a subscription model.
For all its growth potential, the Indian B2B market is still a largely fragmented and unorganised space, where most deals are struck offline and adaption to the internet is slow. Internet penetration in rural India has risen from 9% in 2015 to 25% in 2018, according to market research agency Kantar IMRB. This is a far cry from the situation in China, where some 788 million people are mobile internet users, of which 71% used online payments or e-commerce services.
For IndiaMART, its subscription model brings in almost all of its revenue, according to its prospectus. Since the company counts itself as a digital classifieds, suppliers or sellers are charged for listing their wares on the website and app. This gets them greater visibility and ‘buy leads’, where buyer requests are routed to the suppliers.
IndiaMART has six subscription packages, with its basic catalog costing Rs 30,000 ($437.6) a year and Rs 75,000 ($1,094) for three years. Its next offering—the ‘maximiser’ package—costs Rs 55,000 ($802) a year and Rs 1.65 lakh ($0.17 million) for three years. “Our focus has always been on B2B because of the fact that B2B has revenues from day 1, we have been profitable, we don’t have to depend on too much capital,” Agarwal said.*
In the transaction-led model, Udaan and its ilk also tackle the supply chain, collecting products from suppliers, placing them in warehouses, and then delivering these to the customer. B2B businesses also typically run on cash transactions, so many startups have teamed up with third-party lenders and NBFCs (non-banking financial companies) to offer credit to buyers and sellers. They earn revenue through commissions and logistics charges for each transaction.
Both models have their advantages, say analysts. A subscription model, for example, provides predictable, recurring revenue and is asset-light. As a result, IndiaMART has no debt. “Its working capital cycle is negative, on that basis it should do well. You don’t require that much debt and they don’t want debt,” said a source at one of the underwriters to its IPO, declining to be named.
“We are already sitting on cash of about Rs 685 crore ($99.7 million) as of March 2019. This year, we will again generate a good amount of cash flows. I don’t see any need for debt or company financing for the next 2-3 years,” says IndiaMART’s Agarwal.*
A transaction-led model, on the other hand, is more capital- and asset-heavy, but has higher chances of ‘stickiness’ thanks to discounts, free delivery and easier payment options.
Interestingly, IndiaMART isn’t just fighting transaction-led companies. It will also have to contend with a company that has mastered the subscription-based model—Alibaba.
This battle between subscription and transaction models is already playing out in China through Alibaba and JD.com, the country’s second largest e-commerce firm. JD.com went public in 2014, and is backed by marquee names such as Walmart, Alphabet Inc’s Google and China’s Tencent Holdings. At present, it has a market cap of $45.8 billion—a tenth the size of Alibaba. China, incidentally, is set to become the world’s top retail market in 2019, surpassing the US by more than $100 billion, according to eMarketer’s retail and e-commerce forecast.
JD.com sells an array of products from computers to home appliances. The business is capital intensive as it takes on buying, storing, transportation and delivery of products, in addition to payment options for vendors. Alibaba, meanwhile, charges sellers a fee to display their products and has little need for tangible assets. It even outsources deliveries to third-parties.
As a result of these divergent approaches, JD.com posted higher net revenues than Alibaba in the year ended March 2018. Alibaba’s total revenue for the period was $39.9 billion, an increase of 58% year-over-year. JD.com, however, posted net revenues of $67.2 billion. The rub, though, is in their respective bottom lines. JD.com’s net loss from continuing operations for the year was $0.4 billion, while Alibaba’s net income attributable to shareholders was $10.2 billion.
Similarly in India, IndiaMART’s subscription-based approach and the 60% market share it has garnered in the online B2B classifieds space, has allowed it to chase profitability. This is a far cry from the younger startups that burn cash with no clear timeline on profitability. But by spending VC money on customer acquisition, newer companies are gunning for a meaningful market share. Something which could see IndiaMART needing to pivot.
IndiaMART, however, isn’t focusing on the startups chasing it. Instead, it is bracing to fight Alibaba, whose B2B platform in India is geared towards new, growing and established businesses. Alibaba’s monthly charge for its most basic offering is Rs 7,691 ($112) while its premium package costs Rs 32,833 ($479) a month. Flush with cash and with a global supplier base spread over 190 countries and regions, it’s a rival unlike any IndiaMART has seen before.
To take on the Chinese conglomerate, IndiaMART plans to expand its supplier acquisition efforts by upselling higher-margin, higher-value subscription packages to its existing customers. It also wants to bring onboard more corporate brands, while upgrading its search results to include regional dialects like Hinglish—a colloquial cross between English and Hindi. In the meantime, it will also have to find ways to keep its biggest expense—employee costs—in check.
“We will continue to grow the classifieds business, improving it by increasing products, suppliers and geographies… If you are a business and you are doing any product, you must be available on IndiaMART. That’s the first goal. We now have started to attract medium-sized and bigger scale companies and suppliers, both,” says Agarwal.*
While both Alibaba Group and Udaan did not respond to The Ken’s request for comment, market analysts indicate that IndiaMART is well ahead of the chasing pack in terms of size. IndiaMART adds businesses by identifying suppliers and creating ‘supplier storefronts’ for them. It then notifies them of this through email or SMS, allowing them to delist from its platform if they so choose. This strategy has helped the company grow to 4.7 million supplier storefronts for the year ended March 2018—an increase of 49% year-on-year.
“Looking at the current picture—the segment in which IndiaMART is operating—there are no other players that have the scale, the network and brand it has built for itself,” says Umesh Mehta, head of research at Samco Securities. Alibaba Group does not provide specific numbers for its India operations. “I have seen it all in 23 years. I have seen Alibaba come in for the last 10 years, trying to enter into the Indian market. They haven’t yet gotten even 1% of the B2B market in India,” Agarwal claims. Foreign players, he says, struggle to understand the finer nuances of the Indian market.*
For Udaan, in a blog post in January 2018, the company pegged its number of buyers at 200,000. IndiaMART, for its part, had 59.8 million registered buyers for the year ended March 2018, but it’s worth noting that it considers all its suppliers as buyers.
The problem for IndiaMART, however, is that not all suppliers translate into paying customers. For the year ended March 2018, only 0.1 million of its 4.7 million suppliers were paying subscribers. This represented only a 13% year-on-year growth in 2018, down from 33% in the previous financial year, according to its prospectus. “As of now, the revenue model might work for a few years more. After that, if the competition increases, it will be really difficult for it to sustain, and it might have to diversify to other modes of revenue generation,” says Samco Securities’ Mehta.
For IndiaMART, a more apt comparison might not be the likes of Udaan or Alibaba but its B2B digital classifieds peer JustDial. Today, JustDial’s valuation stands at just over $735 million, a steep dive from the $1.8 billion it was valued at in 2014, a year after it went public.
Started to disrupt telephone directories like ‘Yellow Pages’, it was, in turn, disrupted by other digital offerings. Search engines like Google and vertical platforms like UrbanClap, where you can hire professionals for home services ranging from like pedicure or pest control, signalled the end of JustDial’s heydays.
Today, JustDial continues to operate on its original subscription model, but has had to adapt to the changing times by also including a transaction-led model. You can now book flight, train and bus tickets, make hotel bookings and buy movie tickets through JustDial, all of which bring in transaction revenues. The company has also upped its marketing spend and added a JD App that has features like map-aided search, videos and chat messengers.
All of this has seen JustDial’s revenue from operations for the year ended March 2018 grow to Rs 781.77 crore ($114 million). IndiaMART’s revenue from operations, meanwhile, was Rs 403.5 crore ($59 million). Unlike JustDial though, IndiaMART has had a negative net worth for the last three years, with its operating losses stemming from employee expenses, advertising, providing premium numbers to its paid suppliers and scaling its operations.
“Sulekha (a service similar to JustDial) and JustDial are B2B, but they aren’t growing in a rapid fashion. They are struggling and finding things to do. If you are on Sulekha and JustDial and not on IndiaMART, it could be because you can’t afford the subscription or do not have a high volume of transactions. At some point, IndiaMART might want to attract the smaller buyers as well and then they would have to consider a transaction model,” says Jessie Paul, founder and CEO of marketing advisory firm Paul Writer.
A transaction-led model could be the answer to IndiaMART’s problems. Take the example of restaurant discovery and food delivery platform Zomato. Initially started as a listing business for restaurants (a subscription-based model), it followed rival Swiggy’s path into the delivery business, thus adding a transaction-led model to its arsenal. In March 2019, Zomato raised$62.5 million, taking its valuation to around $2 billion.
Can IndiaMART be nimble enough to adopt a transaction-led model and see the sort of resurgence Zomato has enjoyed? All signs seem to indicate it must eventually do so, but its 23-year-old subscription model has bought it enough market share to not have to rush into this. “The classifieds or listings are a classic winner-takes-all situation. It’s very hard to come from behind in these kind of spaces,” says Rahul Chowdhri, partner at Stellaris Venture Partners. Chowdhri takes the example of Alibaba, which hasn’t really done much on the B2B classifieds side. “Unless, say, they get Chinese suppliers to India, which could be a huge disruptor. But in pure classifieds, it’s hard to break the monopoly,” he adds.
IndiaMART has already showed signs of adapting to the times. “We are now doing payment gateway and payment facilitation. Currently, SMEs don’t have access to newer age payment options like LazyPay, ePayLater and ZestMoney. We provide them with a payment gateway which helps them take money from buyers, either by way of debit and credit cards but also through LazyPay,” says Agarwal, adding that IndiaMART is also becoming a credit aggregator for SMEs.*
One would imagine that the money IndiaMART raised from its public offering would go towards gearing up for the fight ahead. In IndiaMART’s IPO, though, none of the proceeds from the offering went to the company. Instead, it allowed three of the company’s VC investors—Intel Capital, Amadeus IV DPF and Accion Frontier Inclusion Mauritius—a partial exit. Its promoters, including CEO Dinesh Agarwal and full-time director Brijesh Agrawal, trimmed their stake by 5% to 52.6%.
“Amadeus Capital Partners led the financing in IndiaMART as we identified a need for a marketplace focused on B2B buyers and sellers, that would address discoverability and trust. We are selling a small portion of our holding and continue to remain enthusiastic about the long term prospects,” said Bhavani Rana, partner at Amadeus, in an emailed response. He added that Amadeus will continue to fund opportunities in the B2B market.
But even while its older investors remain bullish, clouds of competition are gathering. B2C players, in particular, are eyeing the sector. Amazon already has its B2B segment, where it has 100 million products and handles logistics, delivery and payment options. Reliance, meanwhile, is planning toleverage its Jio telecom network to tie-up with kirana stores for an upcoming e-commerce offering. Walmart, too, which backs JD.com in China, has a similar bet in India with its acquisition of Flipkart and its plans to expand its cash-and-carry stores.
And even as a deluge of competition looks set to come in, there is also the possibility of consolidation. “Each of these spaces go through this phase, where everybody goes crazy about an idea. But eventually only 2-3 of these players will survive. Amazon and Flipkart can’t do everything in-house because of competing priorities. So it leaves enough room for these vertical-focussed startups to either grow big or get acquired by Amazon,” says Sachin Dalal, ex-co-founder of e-commerce firm Infibeam.
When all of the dust clears, IndiaMART will be hoping the bastion it has built over more than two decades is still standing. As Dinesh Agarwal told the employees gathered at the Hyatt, in 15-20 years, everything will move online and there will not be any offline transactions and vendors. What remains to be seen is whether IndiaMART is nimble enough to adapt to an evolving B2B landscape and still be one of the top dogs when that day comes.
Clarification: The copy has been updated to reflect the premium on the issue price of IndiaMART’s stock.
*This story has been updated to include comments from an interview with IndiaMART founder and CEO Dinesh Agarwal shortly after the story was published.
The operator of Indiamart.com, which according to KPMG, is the nation’s largest wholesale online marketplace with about 60% market.
Shares of Indiamart Intermesh surged nearly 40% on their first day of trade on Thursday, underscoring investor confidence in the e-commerce firm following its Rs 476 crore initial public offering (IPO).
The operator of Indiamart.com, which according to KPMG, is the nation’s largest wholesale online marketplace with about 60% market, saw its stock rise to Rs 1,338, compared to its issue price of Rs 973.
The IPO, which saw investors such as Intel Capital, Amadeus and Accion Frontier Inclusion to sell their stake through an offer for sale, was subscribed over 36 times last week. Indiamart is also the first company to launch its IPO in the new term of Narendra Modi’s government.
IndiaMart Intermesh made a blockbuster debut on the exchanges on Thursday, as the shares listed at a 21% premium to issue price.
IndiaMart Intermesh made a blockbuster debut on the exchanges on Thursday, as the shares listed at a 21% premium to issue price. IndiaMart Intermesh which operates Indiamart.com online listing platform for small and medium businesses in India, listed at Rs 1,180 on BSE, implying a premium of 21.27% as compared to its issue price of Rs 973. IndiaMart Intermesh IPO which opened for subscription during June 24-26, recived a stellar response and was subscribed 36.21 times, receiving bids for more than 9.74 crore shares against issue size of 26.92 lakh shares. Notbly, the firm is India’s largest online B2B marketplace for business and services of mainly MSME segment. Through the public offer, IndiaMart Intermesh raised Rs 476 crore.
IndiaMart had fixed a price band of Rs 970-973 per equity share for the IPO. The public offer consisted of sale of up to 48,87,862 equity shares. Notably, this is the first IPO after Narendra Modi-led government won the LOk Sabha polls for the second time in July this year. Since the IPO was structured as an offer for sale by the promoters, IndiaMart will not receive any proceeds from the issue. Promoters Dinesh Chandra Agarwal and Brijesh Kumar Agrawal have successfully sold 14,30,109 shares through the issue. Post the IPO, IndiaMart’s promoters holding will fall to 53%, from 58% earlier. Other big investors Intel Capital (Mauritius), Amadeus IV DPF and Accion Frontier Inclusion Mauritius also offloaded their stake partly, as a part of the public offer.
As of March 31, 2018, IndiaMart had 59.81 million registered buyers. According to consulting giant KPMG, the growth in internet penetration across India is helping companies move their businesses online and reach out to a larger customer base. IndiaMart earns revenue primarily through the sale of subscription packages (available on a monthly, annual and multiyear basis) to suppliers.
“Based on FY20E and FY21E EPS, the stock is valued at a P/E multiple of 35.1 times and 25.9 times, respectively, which again is at a premium to the peer average of 21.5 times and 15.3 times. But 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,” Choince Broking had noted in its IPO note.
Sensex ended 69 points higher at 39,908, while Nifty closed 30 points up at 11,946.
NEW DELHI: Underpinned by gains in banking, IT and FMCG heavyweights, equity benchmark Sensex ended in the green zone for the fourth consecutive session on Thursday.
The Economic Survey 2019 depicted a stable macro environment, projected a healthy 7 per cent growth for this financial year and forecast a rebound in investment cycle in FY20, which kept the market temperament positive. Softer crude oil prices and rupee’s rise against the dollar also helped.
“There is a good amount of comfort on the support side of the market, which is waiting for a positive trigger to scale new high. The Budget may be a decisive factor,” said Pankaj Pandey, Head of Research at ICICI Securities.
IndiaMart gains 40% on debut
Shares of IndiaMart Intermesh surged nearly 40% in debut trade, underscoring investor confidence in the e-commerce firm following a Rs 476 crore IPO. The operator of Indiamart.com saw its stock rise to Rs 1,338, compared with its issue price of Rs 973. The IPO was subscribed over 36 times last week.
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YES Bank skids 4%
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Quess Corp tanks 14%
Shares of Quess Corp tumbled 13.77 per cent to close at Rs 446.80. The company recently deferred a decision on a fund-raising proposal. It said its board will take the decision at a later date. In an interview with ETNow, Quess Corp CMD Ajit Issac said the fall in the stock could be related to market perception.
Titan falls on MS downgrade
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Airtel gains on Dish TV stake buy buzz
Shares of Bharti Airtel ended 2.53 per cent higher at Rs 362.35 while those of Dish TV closed 0.80 per cent higher at Rs 31.55 after reports said Dish promoters were planning to sell a stake to Bharti arm Airtel Digital TV. Both the companies, later in the day, denied any such development in respective BSE filings.
72 stocks show bullish bias
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