Elara initiates coverage in the Internet space; lists Justdial and IndiaMart as top picks; here’s why

As digital penetration increases in India and more and more companies turn to the internet to help support their businesses and drive demand, local brokerage Elara Capital has initiated coverage of the area with buy calls. IndiaMart InterMESH and: Just collect.

As more and more Indian businesses go digital, the percentage of online MSMEs (Micro, Small and Medium Enterprises) has increased from 32 percent in FY16 to 55 percent in FY20, the brokerage said, citing data from RedSeer. However, it added that this is far behind other countries. In comparison, 54 percent of small businesses in the United States used email in 2017.

As far as brokerage is concerned, this shows a significant growth opportunity in terms of digital connections in India alone.

It also noted that currently only 4 percent of SMEs in India are truly digitally engaged. According to RedSeer, India’s MSME digital services market will grow 6x in the next five years, leveraging a market opportunity of $1.5 billion to $9 billion by FY25 at a CAGR of 43 percent. About 73 percent of the growth is estimated to come from an increase in the number of digital businesses and 27 percent from average spending on digital services, he added.

“SME business dynamics are witnessing a paradigm shift driven by nuanced policy support and post-Covid recovery. Improvement in MSME credit growth, revival of manufacturing, supportive policies of the government/MFI and rural demand attraction allow for a fertile ground for MSMEs. Furthermore, a climax occurs. The rapid digital adoption of MSMEs was disabled by Covid, adding that the Open Network for Digital Commerce (ONDC) variable can accelerate MSME digital adoption,” believes Elara.

For UPI, too, transactions picked up at a slow pace initially, but have grown exponentially since 2020 or four years after launch (528 percent growth in UPI volumes since March 2020). UPI has grown over 200 percent in 2020 with over 1.5 billion transactions in December alone, the petition highlighted. This trend has continued in subsequent years, with further growth in UPI transactions driven by the growing adoption of digital payments and the convenience offered by the platform. Elara expects a similar push for mass participation in online transactions.

The brokerage also stated that India’s B2B e-commerce market is still in its infancy. Although IndiaMart was launched two decades ago, not many players have followed suit in the emerging market, observed Elara. According to Redseer, India’s B2B e-commerce market is estimated at $18-19 billion in CY23, with an estimated CY22-25 CAGR of 81 percent to $60 billion in CY25.

On the back of growing digital penetration in India, the brokerage prefers IndiaMart and Justdial in the digital space.


Indiamart and JDMart operate in the Internet B2B (business-to-business) classification space/B2B e-commerce space, the brokerage said. These are the first of their kind “Internet” companies from India in such areas. Thus, Elara believes it is fair to compare such companies valuation wise with new age internet companies like Affle, Nykaa, Yelp, Bharat Matrimony (Matrimony), Zomato and Infoedge (larger peers).

While the business/revenue model is different, they are all Internet-based business/brand aggregators at their core, which makes the valuation comparable, he added. However, it cautioned that the underlying domains of these businesses are diverse and thus serve as limited comparable peers.

“Profitable peers trade at an average of 81.4x FY25E P/E, with a wide range of 16-115x (Marriage at the lower end and Nykaa at the upper end). In his view, BUY-rated IndiaMart, which trades at a forward P/E of 43.3x12m (compared to its four-year average since listing of 49.2x), is reasonably valued. Also, Justdial’s current one-year forward P/E is 19.8x, in line with the last five-year average of 21.1x and well below the 10-year average of 33.9x,” the statement said.

Justdial’s core business (excl ₹:3,930 crore cash) trades at 12-13x P/E, which is much lower than that assigned to other internet businesses such as Affle, Nykaa, Indiamart and Infoedge (41.1x/254.9 x/43.3x/55x moving forward 12 months P/). E), emphasized the mediation.

Source: Elara Capital

IndiaMART InterMESH:

The brokerage firm has a “buy” call on the stock with a price target ₹:5,700, indicating a potential upside of around 20 percent. According to the broker, Indiamart’s leadership and strong business moats backed by strong network effect and low digital penetration of MSMEs offer exciting growth prospects in the long term. The main risk is disruption from an unfavorable technology market, he added.

“IndiaMart is the market leader enjoying 60 percent market share in B2B digital marketing or classifieds industry. The company’s superior matching engine, robust network (74 lakh suppliers, 16.5 million buyers and 9 million products) and deep insight into India’s online network. trade and commerce is strengthening its business moats to tap the structural opportunities of MSME digital adoption,” the brokerage noted.

It also believes that the digitization of MSMEs (6x growth in FY20-25, according to Redseer) is creating a structural growth catalyst for the company. Also, the Government of India’s ONDC (Open Network for Digital Commerce) initiative will boost the pace of digitization of MSMEs by facilitating digital commerce infrastructure, it added.

It forecasts a revenue CAGR of 24.5 percent in FY23E-25E, supported by a renewed sales engine that has transformed during Covid. It also expects operating margin to stabilize in the last four quarters following a post-pandemic cost base correction and expects margin stability to restore EPS growth from FY24, marking a reversal from the -16 percent EPS decline in FY23E. It estimates 29 percent/21 percent EBITDA and EPS CAGRs in FY23E-25E.


The brokerage has initiated coverage with a “buy” call on the target price of the stock ₹:825, implying a potential upside of 42 percent given attractive valuations, strengthening fundamentals, abundant cash on the balance sheet and the strategic advantage of Reliance Retail Ventures’ (RRVL) pedigree.

“Justdial (JD), a pioneer in the local search and discovery business in India, is set to write a resurgence post-covid loss. It is on a steady “margin improvement” journey (post-Covid-led wipeout. ), led by reduced employee costs, lower ad spend and improved traffic. RRVL’s support is also expected to bring a strategic digitization push from parent Reliance, which augurs well for the fledgling JDMart business,” the broker explained.

Justdial has seen the highest quarterly margin of 31.7 percent in the last five years, but the broker informed that it fell to a record low of -10.4 percent in Q1FY22, led by: and 2) increased employee/advertising costs.

Now, with consistent improvement in YoY growth over the past three quarters (from 12.2 percent in 2Q23 to 39.3 percent), steady improvement in YoY growth in deferred revenue and overall improvement in operating parameters; EBITDA margin of 12.3 percent is forecast, set on a strong growth trajectory.

Elara further highlighted that after the acquisition by RRVL, Justdial’s balance sheet has seen a new lease of life after ₹:3,497 crore cash injection. The origination of RRVL will bring a strategic advantage to Justdial as Reliance has its own ecosystem of MSMEs in Jiomart with its own digital ecosystem of partner MSMEs/merchants. This could unlock the benefits of Justdial in the future, he observed.

Source: Elara

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