IndiaMART InterMESH shares drop over 8% on lower subscriber additions in Q1FY25

Shares of IndiaMART InterMESH plunged more than 8 percent in intra-day trading on Wednesday after the company reported a significant drop in subscriber additions for the quarter ending June 2024 (Q1FY25). The company added only 1,500 subscribers in Q1FY25, far below analysts' expectations, compared to 2,683 subscribers in the March quarter (Q4FY24). Despite this, IndiaMART reported strong earnings for the quarter, with notable margin expansion.

IndiaMART InterMESH posted a 37.18 percent increase in its Q1 net profit, reaching ₹114 crore compared to ₹83.1 crore in the same period last year. Revenue from operations also rose by 17.44 percent to ₹331.3 crore in the quarter under review, up from ₹282.1 crore in the corresponding period of the previous fiscal year.

The company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin surged to 36.1 percent in Q1FY25, exceeding the Street's expectation of around 30 percent. This is an improvement from the 28.1 percent EBITDA margin recorded in the March quarter. However, the management anticipates a 300 basis point impact on margins in the future due to hiring done in June and July.

The company also announced that its traffic saw a decline to 267 million from 269 million from the end of the March quarter. This was the third straight month of decline in traffic.

"We are happy to start the financial year on a positive note with a steady growth in revenue and deferred revenue, along with expansion in the operating margins. On the back of strong balance sheet and sustained cash flows, we will continue to make investments to further strengthen our value proposition, improving customer experience and leveraging growth opportunities. We are confident of the sustained long term profitable growth as more and more businesses adopt internet to grow themselves," said Dinesh Agarwal, chief executive officer.

Stock Price Trend

The stock dropped as much as 8.3 percent to an intra-day low of ₹2,884.50. It is now trading over 12 percent below its peak of ₹3,293.45, reached on September 7, 2023. Despite this, the stock has risen more than 29 percent from its 52-week low of ₹2,229.05, recorded on June 4, 2024.

Over the past year, the stock has been relatively flat, up just 1 percent, but has gained almost 9 percent year-to-date in 2024. It saw over 10 percent gains in both June and July, following an 8.7 percent decline in May.

Brokerage Views

Nuvama Institutional Equities maintained a 'Hold' rating with a target price of ₹3,070. It noted, "Paid supplier addition continues to be subdued as churn in the Silver category remains elevated. With no visible signs of recovery in subscriber addition, management has started cutting back on marketing expenditure, which would only end up impacting growth."

Nomura retained its ‘neutral’ rating with a target price of ₹2,520, citing that better-than-expected subscriber additions pose a key upside risk, while continued high churn over the medium term remains a key downside risk.

Ambit, however, has a ‘buy’ recommendation with a target price of ₹3,656.2. The domestic brokerage believes that the current challenges IndiaMART is facing are temporary and that the company is its top pick within the online classifieds space.

In the medium term, as churn lowers and the need to increase gross additions rises, IndiaMART expects to invest in its workforce, which may impact margins. However, over the longer term, the company is targeting a 33 percent EBITDA margin, according to the brokerage.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.