Buy This Mid Cap E-Commerce Stock For 67% Potential Upside

BOB Capital Markets Ltd, a leading brokerage firm, has issued a buy recommendation on IndiaMART InterMESH Ltd's stock. The brokerage has set a target price of Rs 7,660, implying that the stock may rise 67 percent from its current market price of Rs 4,561.25 as of 9:45 IST on January 27.

Key investment rationale for IndiaMART according to the brokerage

• INMART reported Q3FY22 revenue growth of 3% QoQ (8% YoY), below our estimate of 7% QoQ. The number of registered buyers increased by 4% QoQ (20% YoY), with paying subscription suppliers also up 4% QoQ (5% YoY). ARPU remained flattish sequentially (3% YoY) and collections from customers were flat QoQ as well (25% YoY). Traffic growth was muted at 4% QoQ due to third-quarter seasonality. Deferred revenue grew 4% QoQ and 25% YoY, indicating a positive swing in momentum going forward.
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin fell 380bps QoQ to 43%. Manpower and other operating expenses were up 7% and 15% QoQ respectively. INMART added 225 employees in Q3 and aims to increase its headcount by 100 per quarter. Other income declined 30% QoQ. PAT was down 13% QoQ (9% YoY).
• During Q3, INMART acquired a 7.7% stake in Mynd Solutions for Rs 320mn (provider of computer software development, web design & web maintenance services) and a 26% stake in EasyEcom for Rs 133mn (AI-driven omnichannel platform for MSMEs). INMART's acquisition of Vyapar opens up a large opportunity in the accounting space. It has also bought 100% in Busy Infotech, the largest accounting software with a pan-India presence, for Rs 5bn. All these investments point towards INMART's strategic shift towards the SaaS ecosystem and provide synergies from cross- and up-selling.

Buy With A Market Price of Rs 7,660

BOB Capital has said in a report that "INMART has increased its stake in Legistify which provides internet-based software solutions and had a turnover of Rs 17.3mn in FY20 with over 160 paying customers. Legistify has delivered spectacular growth of 100- 200% over the last two years. It has a flagship product called Legistrak (SaaS tool) which allows businesses to manage legal workflows."

According to the brokerage "We cut FY22/FY23/FY24 EPS estimates by 5%/8%/8%, factoring in the Q3 results. On rolling valuations over to Dec'23, we arrive at a new TP of Rs 7,660 (vs. Rs 8,430), based on an unchanged P/E of 57.3x. Retain BUY given decent deferred revenue and paying subscriber growth."

Disclaimer

The stock has been picked from the brokerage report of BOB Capital Markets Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.