Target: ₹5,500

CMP: ₹4,380.55

We recently met the IndiaMart management. 1) With about 38 per cent of India’s MSMEs using the internet for business (vs 90 per cent in China), e-classifieds holds substantial growth potential; focus on growing collections at a 20 per cent CAGR ahead; FY23 margins should be about 28-28.5 per cent; and expand from next year with revenue growth.

As the company will add 8,000-10,000 paid suppliers every quarter, it will need more sales and servicing people. But as efficiency ramps up, margins should start recovering owing to the business’ operating leverage.

We see value in the stock owing to network-effect, healthy cash-flows, negative working capital, asset-light model and healthy cash balance of ₹2,000 crore (15 per cent of market cap). We expect 28.3 per cent/29.6 per cent/32.6 per cent margins in FY23/FY24/FY25.

We retain our Buy rating and introduce FY25, with a TP of ₹5,500 (based on DCF, an implied PE of 40x FY25e EPS).

Risks: Loss of paying suppliers; concentration risk (top-1 per cent and top-10 per cent paid suppliers bring about 18 per cent and 47 per cent to revenue, respectively).