India’s oldest e-commerce firm’s IPO is a rare way out for investors

Setting new benchmarks.
Setting new benchmarks.
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India is set for the first initial public offering (IPO) since prime minister Narendra Modi’s return to power last month.

IndiaMART InterMESH, which runs, a business-to-business (B2B) online marketplace connecting wholesale buyers with suppliers, is looking raise up to Rs475 crore ($68 million) from the three-day IPO beginning today (June 24).

Interestingly, the proceeds from this public offer will not go to the company. The IPO is an exit route for venture capital (VC) investors Intel Capital, Amadeus Capital Partners, and Quona Capital—all three of which are looking to trim their cumulative 24% stake in IndiaMART.

Exiting an e-commerce investment through an IPO is uncommon in India, given that only a few firms have achieved the scale to make this a viable option for investors to cash out. Usually VC and private equity (PE) firms rely on larger investors like Softbank or deep-pocketed rivals to buy out their stakes.

IndiaMART is only the second e-commerce entity to launch an IPO in India since Infibeam, which listed in 2016. 

“It’s an important event in the Indian startup landscape because it marks a healthier and more reliable exit path for (investors in) Indian startups. Walmart can only buy so many unicorns,” said Ray Newal, a serial entrepreneur and managing director of Techstars India, a startup accelerator.

Others point to the significance of the move for the sector as a whole. “The listing will bring a lot of B2B entities under the lens, and will provide an exit (path) for (their) early investors, creating more value and a larger capital base for most of the e-commerce sector,” explained Sameer Mittal, managing partner with Delhi-based firm Sameer Mittal and Associates LLP.

The IPO is also a milestone for the company that has often been compared with the Chinese behemoth Alibaba.

The rise

Dinesh Agarwal, a 50-year-old technology enthusiast, is the face of Noida-based IndiaMART, the country’s first e-commerce firm. It was launched in 1996, a year after Agarwal quit a coveted IT job with HCL Technologies in the US.

“There was little information available abroad about Indian manufacturers, and handicrafts. And any small and medium enterprise (SME) in India would have had a difficult time to market (their) products (in international markets through trade shows),” Agarwal, the company’s managing director, had told Quartz in July 2018. IndiaMART did not respond to Quartz’s recent email queries.

From those initial days, Agarwal and team have evolved to fit into a rapidly changing business environment. Given the growing dominance of China in international trade, IndiaMART relaunched its B2B marketplace with a sole focus on the Indian subcontinent in 2010, following a $10 million funding from Intel Capital.

The focus seems to have paid off. IndiaMART’s revenue from operations increased from from Rs245.7 crore in financial year 2016 to Rs410.5 crore in financial year 2018, the company claimed in documents filed with India’s market regulator Securities and Exchange Board of India (Sebi) announcing the launch of its IPO. It also posted an operating profit of Rs46 crore in financial year 2018. The company has nearly 60 million registered buyers and 4.72 million suppliers.

Given the forecasts for the sector, there is enough room to grow, too.

Advantage IndiaMART

The wholesale market in India is estimated to grow from $300 billion in 2015 to $700 billion in 2020, according to a recent KPMG report. Given it’s dominance (a 60% market share in India’s B2B e-commerce space) IndiaMART is better positioned to take advantage of this, compared to rivals like, Alibaba India, and Power2SME.

“With its huge network of suppliers and a recognisable brand, the company aims to get listed to expand its base, attract more buyers and suppliers, and attain the liquidity required,” said Umesh Mehta, head of research, SAMCO Securities, a Mumbai-based online stockbroker and retail solutions provider.

Competitors, too, acknowledge the company’s role in expanding the B2B space. “IndiaMART has created a listings website that attracts thousands of buyers and sellers, serving exporters and manufacturers. The IPO shows that Indian stock markets have started to accept digital organisations that have reached a certain scale and maturity,” said Satya Prabhakar, founder of Sulekha, a digital platform offering local product and services listings.

Yet, there are hurdles to clear.

Some say IndiaMART still has a long way to go before it can become an Alibaba. It must stay focused on the fundamentals and work on one key challenge, which is, “eliminating buyer-seller mistrust and underlining the brand as being a marketplace that fosters fairness and transparency,” observed Anil V Pillai, director of the independent marketing firm Terragni Consulting.

The buzz around IndiaMART’s IPO notwithstanding, there are other cautious voices as well. “The past few months have been very grim for the primary and secondary markets in general with investor sentiment at a five-year low. Though IndiaMART is a good company with reasonable valuations and strong growth potential, a bumper listing in this scenario looks highly unlikely,” said Abhijeet Ramachandran, co-owner, Tips2trade, a financial education and training firm.