Shares of Indiamart Intermesh experienced a significant drop of 19% to ₹2,447 during morning trading on October 21, despite the company announcing impressive second-quarter earnings. Investors looking to buy shares online were initially optimistic, given the remarkable profit growth. However, analysts have expressed a cautious outlook due to concerns over subscriber growth and collection trends, leading to a decline in share prices.
Impressive profit growth, but subscriber concerns
Indiamart reported a remarkable year-on-year increase of 94.7% in net profit, reaching ₹135.1 crore for the quarter ending September 30, 2024. The company successfully added 2,390 paid subscribers sequentially, a positive sign. However, growth in collections slowed considerably, falling to just 5% from the 14% reported during the same period last year.
Following these developments, Jefferies downgraded Indiamart’s rating from 'buy' to 'underperform', reducing its target price to ₹2,540 per share. The brokerage noted that while the Q2 results were in line with expectations, the weak subscriber growth is a cause for concern. The slow collection growth of just 5% year-on-year was highlighted as a key negative aspect of the quarter.
Analysts forecast collection growth slowdown
Jefferies also projected that collection growth is likely to be in the range of 10-15% unless subscriber additions improve. The firm has revised its estimates downward by 4-12%, citing an ongoing rise in subscriber churn. This trend has surprised analysts despite management's interventions to improve subscriber retention.
In contrast, the company's EBITDA margin saw an increase to 38.7%, up from 27.2% in the same quarter last year, indicating operational efficiencies. Additionally, deferred revenue rose to ₹1,483 crore, marking a 19% year-on-year increase.
The mixed outlook from brokerages
Nomura retained a 'Neutral' stance on Indiamart, setting a target price of ₹3,150. They pointed to weak collections and low subscriber additions as significant factors affecting the company’s near-term outlook. Unlike previous trends, the current weak growth in collections per customer is now aligned with consistently low subscriber additions, averaging around 2,000 per quarter over the last five periods.
At around 10:20 am, Indiamart's shares were trading at ₹2,585, down 14.2% from the previous close on the NSE. The stock is currently trading significantly lower than its 52-week high of ₹3,198.
Key takeaways
For investors looking to buy shares online, this situation highlights the importance of careful analysis and consideration of both financial results and growth trends.
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