Focus On User Experience Will Reduce Churn Among Platinum And Gold Customers

Key Takeaways

• Simplifying the platform to improve user experience may reduce churn and stabilize revenue from high-margin customers.
  
• Strategic investments and focus on higher quality suppliers could enhance ARPU and support long-term revenue growth.
  
• Challenges in customer acquisition and high churn rates may impact revenue growth and net margins amidst competitive pressures and market saturation.

Catalysts

Operates an online business-to-business marketplace for business products and services in India and internationally.

• IndiaMART's focus on improving quality and simplifying the platform to enhance user experience and engagement could help reduce churn among platinum and gold customers, potentially stabilizing or increasing revenue from this high-margin segment.
  
• Efforts to onboard higher quality suppliers, despite a slight decline in the number of paying suppliers, may lead to an overall increase in average revenue per user (ARPU) as these suppliers are likely to derive and contribute higher value, impacting overall revenue growth.
  
• Changes in the investment approach by reducing spending on sales and marketing are intended to address churn issues first, potentially improving long-term net margins when the focus shifts back to customer acquisition.
  
• Strategic investments in subsidiaries like Busy Infotech, which has shown significant revenue and deferred revenue growth, could lead to sustained earnings growth as these businesses scale and integrate within the broader IndiaMART ecosystem.
  
• Potential future buybacks or dividend policies, with a strong balance of cash and treasury as indicated, could enhance earnings per share (EPS), providing additional value to shareholders and potentially supporting stock valuation.

IndiaMART InterMESH Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IndiaMART InterMESH's revenue will grow by 13.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 34.8% today to 29.7% in 3 years time.
• Analysts expect earnings to reach ₹5.9 billion (and earnings per share of ₹97.43) by about March 2028, up from ₹4.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹5.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.7x on those 2028 earnings, up from 26.7x today. This future PE is greater than the current PE for the IN Trade Distributors industry at 27.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.18%, as per the Simply Wall St company report.

IndiaMART InterMESH Future Earnings Per Share Growth

Risks

• The decline in the number of paying suppliers, attributed to a reduction in gross supplier additions, suggests challenges in customer acquisition, which could impact revenue growth.
  
• With core growth depending heavily on the highly competitive terrain of digital marketing and lead generation, execution challenges affect customer collections growth, potentially challenging revenue streams and profits.
  
• High churn rates particularly within the 'silver bucket' customer category and the challenge in management suggests operational inefficiencies, which may affect net margins.
  
• The potential market saturation in terms of supplier growth and the resulting emphasis on ARPU (Average Revenue Per User) growth might limit revenue expansion.
  
• Despite efforts to improve lead quality and product platform, sustained collection growth might be dampened by external macroeconomic factors affecting certain business categories, impacting earnings.

Valuation

• The analysts have a consensus price target of ₹2474.316 for IndiaMART InterMESH based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹3600.0, and the most bearish reporting a price target of just ₹1705.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹19.7 billion, earnings will come to ₹5.9 billion, and it would be trading on a PE ratio of 37.7x, assuming you use a discount rate of 14.2%.
• Given the current share price of ₹2089.15, the analyst price target of ₹2474.32 is 15.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.