IndiaMart IPO opens for subscriptions - What makes this issue special? Should you invest? Find out!

With just a couple of hours left for the completion of the first day, the IndiaMart’s initial public offering (IPO) has received 14% subscription of its total issue. Data compiled by NSE showed that, cumulative bid for IndiaMart’s IPO was around 3,68,715 equity shares at around 1502 hours, compared to the issue size of 26,92,824 shares. A day ahead of the IPO, IndiaMart which is currently India’s largest B2B marketplace for business products and services, bagged Rs 213 crore from 15 anchor investors who allotted 21,95,038 shares at an equity price of Rs 973. Generally, before the main IPO issue, a company offers another set of equity shares to anchor investors who are mostly qualified institutional buyers (QIB). The IndiaMart IPO commenced from Monday onward, but will be available for subscription until June 26, 2019. 

Objective of this IPO issue is to avail benefits of listing the shares on stock exchanges and for the offer for sale (OFS). The company expects that listing of shares will equity shares will enhance its visibility and brand image, at the same time providing liquidity to shareholders. Notably, proceeds arriving from this IPO will not be availed by the company, however, will be transferred to the selling shareholders in the issue. 

Price band for this IPO has been fixed at lower end of Rs 970 per piece and upper end of Rs 973 per piece. At the upper price band, the company plans to raise about Rs 475 crore from investors in this issue. 75% of the IPO issue is set aside for QIB which includes both foreign and domestic institutional investors, while 15% is meant for non-institutional investors (NII) who are companies and individuals other than retail investors. While remaining 10% is kept for retail individual investors (RII) aka common man. 

What is IndiaMart? 

Being incorporated since 1999, the company provides a strong two-way discovery marketplace connecting buyers and suppliers. Buyers locate suppliers on its marketplace, including both Indian SMEs and large corporate houses by viewing a webpage containing the supplier’s product and service listings (supplier storefront) or by posting requests for quotes (RFQs). 

At present, the company enjoys ~60% market share of the online B2B classifieds space in India. As on March 2019, IndiaMart has  82.70 million registered buyers and 5.55 million supplier storefronts in India. In FY16-19, paying subscription suppliers grew at 21% CAGR while revenue from operations grew 25.9% in the same period.

Revenue for this company is derived from the sale of subscription packages, sales from RFQ credits,  advertising from IndiaMART desktop, mobile optimised platforms  and  payment facilitation services. In FY19, the company  has 129,589 paying subscription customers in its three different packages, while  reported an aggregate of 723.5mn visits in FY19 out of which mobile traffic constituted 76% of total traffic.

Competitions: 

According to Reliance Securities, Tradeindia.com and Alibaba India are some of the key competitors for IndiaMART. Its other indirect competitors include: 

• Just Dial, a provider of business-to-consumer phone and web-based local search services in India, typically based on the immediate geographic proximity of businesses to the consumer. 
• Google and other search engines – these services allow buyers to locate suppliers, provided such suppliers have a web presence.
• B2B transaction-based platforms i.e. Industry Buying, Power2SME, Moglix and Bizongo. 
• Traditional trading channels i.e. trade show organisers, trade magazine publishers, the yellow pages, classified advertisements and outdoor advertising.

What makes the IPO special?

Expert at HDFC Securities in their research note for IndiaMart said, “IndiaMART’s offerings are well suited to the needs of buyers and enable them to receive comprehensive information on a variety of products and services, and communicate effectively with a large number of suppliers.” 

Devang Bhatt and Deepti Tayal, Research Analyst at ICICI Securities cited investment rationale for the company. These are: 

Strong network effects and brand recognition  - Strong brand recognition and market position creates the following positive effects as- 1) Strong network effects as a large number of buyers on online marketplace results in more enquiries for suppliers, which, in turn, attracts more suppliers to register, create supplier storefronts and list products and services, consequently attracting more buyers; 2) creating community effects through large numbers of product and service listings on its marketplace, focus on B2B commerce and targeted customer acquisition initiatives, thereby increasing organic traffic to company’s marketplace. IndiaMart’s vast and vibrant network of buyers and suppliers allows it to act as an enabler of scale in the Indian B2B e-commerce sector. 

Efficient, effective platform for suppliers & buyers - IndiaMart’s offerings are well suited to the needs of buyers and enable them to receive comprehensive information on a variety of products and services, and communicate effectively with a large number of suppliers. Similarly, its service offerings are well-suited to the needs of suppliers seeking to search newer markets in an effective and economical platform to market their products and services in the following respects.

Deep understanding of online trade and commerce in India - With ~19 years of experience in online trade and commerce, the company has a deep understanding of the online commerce landscape and its participants. Its multi-tenant seller catalog management system (CMS), was developed internally and helps suppliers manage their product and service catalogs on IndiaMART. The company utilises data analytics to improve its understanding of the behaviour of suppliers and buyers on its marketplace. 

Should you subscribe? 

BP Equities in its research note for IndiaMart said, “IIL is India’s largest online B2B market places for business products and services with approximately 60% market share. The company earns revenues from the sale of subscription packages, sale of request for quote or “RFQ” credits, advertising from India MART’s digital platforms and payment facilitation services. On valuation front, at the upper end of the price band, IIL is valued at a P/E of 140x to its FY19 earnings which is aggressively priced, given intense competition from emerging players and new entrants. Considering the overall industry environment, we give an “Avoid” rating on this issue.”