Stock To Buy: Anand Rathi Recommends Buy This e-Commerce Stock For Over 30% Returns

Anand Rathi, the brokerage, firm, has put a 'buy' rating for the IndiaMart InterMesh Ltd, a B2B marketplace. The brokerage has set a target price of Rs 5,500.

Stock Outlook

The Current Market Price (CMP) of the stock is 4209.70. The stocks today fall 1.13%. As mentioned, the brokerage has put a target price of Rs 5,500, with the current market price and the target price, the stocks can gain 30.65% potential gains. In the last 1 year, the stock fallen more the 40%.

Near-term muted margins as investments continue for growth ahead

After adding ~13,000 (net) paying suppliers in Q4 FY22, IndiaMart has seen strong traction in subscriber additions and is guided to adding ~8,000-9,000 paying suppliers a quarter in FY23 (earlier, ~5,000-6,000). The churn rate has stabilised at pre-Covid levels. Like Q4 FY22, the next quarter (Q1 FY23) will see high costs and margins will be impacted, then gradually improve.

According to the brokerage, "The company ended FY22 with 40.9% margins (49% in FY21), as it significantly expanded sales and the customer-services team by ~722 in H2. Even outsourced sales increased, ~41% y/y. All these costs are recurring because, as the company increases the number of paying suppliers, it will need more sales and servicing people. But as efficiency ramps up, we think margins should start recovering owing to the business' operating leverage."

 

Why should you buy this stock?

"Strategic investments of ~$85m in accounting space. Since its share listing, IndiaMart has deployed ~Rs 9bn in over 10-12 investments in software startups for minority stakes/big buyouts (of this, ~Rs6.5bn has been deployed in four companies in accounting). Now, with these four investments in place, it has a portfolio of accounting products that cover the entire spectrum of businesses from micro to large. The company plans to use cross-selling opportunities to drive growth," the brokerage has said.

Anand Rathi Recommends buy for a target price of Rs 5,500

"With the recent fall in the stock price, we find the valuation attractive and revisit the stock with a Buy rating and a Target Price of Rs 5,500 (based on DCF basis, assuming 12% WACC & 6% terminal growth rate, implied PE of 45x FY24 EPS). We maintain our positive stance based on greater assurance, given growth in deferred revenue (reported 25% y/y in FY22); strong cash collections (reported 32% y/y growth in FY22); gradual economic recovery leading to better business conditions and healthy, ~Rs20bn, cash reserves," the brokerage has said.

According to the brokerage, the risks involved are Pirated, counterfeit, illegal products, loss of paying suppliers, and concentrated risk (top 1% customer contributes ~17% of revenue).

About the Company - IndiaMart InterMesh Ltd

IndiaMart Intermesh Ltd, Founded in 1999, is India's largest online B2B marketplace with 149 Million Buyers, 7.1 Million Suppliers, and 83 Million Products & Services. With 60% market share of the online B2B Classified space in India, the channel focuses on providing a platform to Small & Medium Enterprises (SMEs), Large Enterprises as well as individuals. The company has 3,672* employees located across 32 offices in the country.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.