IndiaMART’s IPO success: New day or false dawn?

There was a celebratory atmosphere at the Hyatt in Noida last Saturday. Drinks flowed and a cake was cut, but the highlight of the night was a speech from the man of the moment—Dinesh Agarwal, CEO of business-to-business (B2B) e-commerce firm IndiaMART. The 50-year-old Agarwal had, after all, just led IndiaMART InterMESH Ltd, which operates, to the brink of a successful initial public offering (IPO). The offering raised about Rs 475 crore ($69.3 million) and was subscribed over 36 times in the past week, landing IndiaMART a valuation of Rs 3,748.06 crore ($547.1 million).

First Investment

“My first investor came in about 10 years ago, Intel Capital. There were two options for us to give him an exit, either we could have taken another round of private equity or we could have gone public. For domestic businesses, I think an IPO gives you visibility and credibility both, which will help us attract better buyers, vendors, and employees,” IndiaMART CEO Agarwal said in a telephone interview.*

At the Hyatt event, Agarwal declared that now that its domestic listing was complete, it was time for IndiaMART to focus on Chinese conglomerate Alibaba Group. “Agarwal’s motive is to beat Alibaba. That’s what he tells us. We consider them the main competition,” an employee told The Ken. He declined to be named as he wasn’t authorized to speak to the media.

IndiaMART was started by cousins Dinesh Agarwal and Brijesh Agrawal in 1996 and is now to the B2B market what e-commerce giant Flipkart is to the B2C market. Its target—billionaire Jack Ma’s Chinese conglomerate Alibaba Group, which operates domestically through B2B platform Alibaba India—has a valuation of over $450 billion. When Alibaba listed on the New York Stock Exchange in 2014, it raised nearly $21.8 billion, giving it a market cap of about $168 billion. IndiaMART gearing up to fight Alibaba is a real David versus Goliath battle.

Having an insight into the reality

Several analysts such as BP Wealth and SMC Global said IndiaMART’s stock was “aggressively priced” and gave it an ‘avoid’ rating. “On the valuation front, at the upper end of the price band, IndiaMART is valued at a P/E of 140X to its FY19 earnings, which is aggressively priced given the intense competition from emerging players and new entrants,” said BP Wealth in its IPO note.

The stock market, however, begged to differ. IndiaMART listed on both the NSE and BSE on 4 July, and opened at Rs 1,180 ($17.2) a share, a premium of 21.3% on its issue price of Rs 973 ($14.2). It closed at Rs 1,302.55 ($19) a share on BSE, 10.4% higher than its opening price of Rs 1,180 ($17.2) and 33.9% higher than its IPO price.

But a Rs 3,748 crore valuation for a 23-year-old company with a 60% market share in the B2B digital classifieds space is considered high by many. Especially since VC-funded B2B startups have comfortably eclipsed IndiaMART’s current valuation. Udaan, one such B2B e-commerce marketplace, is a prime example. Started in 2016, it took less than four years to become a unicorn (companies valued at $1 billion or more)—the first of its kind in the Indian B2B space. (Read about Udaan here.)

What do the logistics convey?

Similarly, Bengaluru-based BlackBuck, a B2B logistics firm providing trucking services, raised $150.6 million in May, according to data research platform Tracxn. This puts it within touching distance of the unicorn club.

Investor interest in B2B e-commerce players has not always been this strong, with B2B businesses often relegated to the shadow of their business-to-consumer (B2C) counterparts. But that started to change around 2015, when big-name investors like Tiger Global, Yuri Milner’s DST Global, Sequoia Capital, and Qualcomm Ventures jumped into the fray.

Government regulations have also propelled B2B e-commerce into the limelight. In 2016, the government permitted 100% FDI (foreign direct investment) in B2B e-commerce trading, while clamping down on B2C e-commerce firms for excessive discounting and restricting ownership structures, among other measures.

Suddenly, it did not just venture capitalists who were looking at B2B e-commerce; B2C companies such as Amazon, Walmart-owned Flipkart, and Indian conglomerate Reliance Industries also announced B2B intentions. In an environment where newer B2B companies are the flavor of the season, is IndiaMART really overvalued?



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