Sourcing Cash

The Indian economy may be facing slowdown blues, but there’s one company that has been bucking the trend. The country’s largest online B2B service and product platform, IndiaMart, reported sales growth of 30% YoY in Q1FY20. This was boosted by an increase in the number of suppliers, who pay to list their products on the platform. It also posted a profit of Rs. 324 million compared to a loss of Rs. 564 million in Q1FY19. While stocks linked to consumption and industrial sectors have fallen a victim of economic slowdown, IndiaMart has remained an outlier.

After listing on the bourses in July at Rs 1,180, the stock hit an all-time high of Rs. 2,310 in October. Taking cognisance of the rally, director Rajesh Sawhney sold shares worth Rs 1.8 million on September 30. But he’s not the only one who is cashing in. Since the listing, top management and employees at IndiaMart have sold shares worth Rs. 326 million.

Despite a steep stock price, analysts are of the view that the valuation is justified. “We see value in the stock owing to high entry barriers, network effect-driven pricing power, and negative working capital (Rs. 7.5 billion cash on books),” stated a recent Edelweiss report. Giving IndiaMart ‘Sector Outperformer’ rating, analysts estimate the company’s earnings to grow at 50% CAGR between FY19 and FY21 led by strong revenue growth (24% CAGR) and high operating leverage on the back of fixed cost structure.

Mutual funds and foreign investors are also bullish on the company’s prospects. While mutual funds hold 4.71% stake in the company, foreign portfolio investors have 5.77% stake. According to Value Research, the two biggest MFs in the company are Aditya Birla Sun Life MF and ICICI Prudential MF with 0.64% and 0.71 stake respectively.