Friday, 18 March 2016
 

Infibeam Incorporation

Offers integrated e-commerce solutions

IPO seems to value the company based on its retail e-commerce web site, which does not enjoy much brand visibility and is a very small player

CM RATING 35/100
Infibeam Incorporation is promoted by Ajit Mehta, Vishal Mehta, Malav Mehta and Jayshree Mehta. The company owns and operates the Infibeam BuildaBazaar (BaB) e-commerce marketplace, which provides cloud-based, modular and customizable digital solutions and other value-added services to enable merchants to set up online storefronts. As part of an integrated e-commerce ecosystem, it operates Infibeam.com, a multi-category e-retail website. The company's integrated business model enables it to provide comprehensive, multi-channel and multi-screen value added services to merchants.

The business operations are broadly divided as:

  1. Infibeam BuildaBazaar e-commerce marketplace:- The BaB marketplace provides customizable online storefront solutions on a scalable platform, including mobile applications, digital product catalogue, content management, promotions handling, access to payment gateways as well as fulfilment services. The BaB marketplace enables merchants to access customers across multiple sales channels and provides cost-effective marketing and distribution solutions. As of December 31, 2015, it had 48,724 registered merchants, increasing at a CAGR of 273% from 350 registered merchants as of March 31, 2012. Infibeam.com e-retail operations provide it with access to customers, market analytics and other synergistic operating efficiencies and offerings and an additional sales channel for BaB marketplace merchants. The company has provided various enterprise customers and established brands with comprehensive digital business solutions. The customers include Unitech Amusement Parks, Panasonic India Pvt Ltd, Crossword Bookstores Ltd, Spice Retail Ltd, Adlabs Entertainment Ltd, Gulf Oil Lubricants India Ltd, Hidesign India Pvt Ltd, Eros Electricals Llc, Axiom Telecom Llc and Mumbai International Airport Pvt Ltd.
  1. Infibeam.com e-retail site:- Infibeam.com is a multi-category e-retailer in India. As of December 31, 2015, the e-retail business included more than 15 million SKUs of products across 40 product categories. The company directly sells a wide range of products on Infibeam.com, particularly focused on fast moving product categories. It has strategically followed an asset-light inventory model. In addition, as of December 31, 2015, it had more than 5,000 registered merchants on Infibeam.com e-retail website, comprising manufacturers, distributors, aggregators and retailers ranging across various industries, including media and entertainment, travel and hospitality, publishers, lifestyle products and technology providers. As of December 31, 2015, it had more than 7.8 million active users on Infibeam.com (based on last login in the immediately preceding 12 months). The active user base has increased at a CAGR of 29% from 3 million as of March 31, 2012 to more than 7.8 million as of December 31, 2015.

The sophisticated technology platform supports multiple channels and screens, including mobile screens, and has enabled it to introduce application framework solutions including customized e-commerce applications that enable near real time product tracking and supply chain management.

As of December 31, 2015, it had 12 logistics centres across 11 cities in India including in Mumbai, Bengaluru, Delhi, Gurgaon, Kolkata, Hyderabad, Jaipur, Pune, Lucknow, Ahmedabad and Chennai, and currently selectively outsource some of logistics services. In addition, as of December 31, 2015, it had six warehouses located in Delhi, Gurgaon, Bengaluru, Ahmedabad, Mumbai and Kolkata. The company intends to significantly expand its logistics network in the future to strengthen its fulfilment capabilities for the BaB marketplace as well as Infibeam.com e-retail operations.

The company has strategically launched its .ooo top level domain registry as part of its merchant acquisition strategy. It has also set up a joint venture company with Sony Entertainment Ltd to develop, build and own software applications by offering downloading and streaming of licensed digital music content.

The company generates revenue from traded products which represent sale of products on its Infibeam.com purchased by it from a wide range of suppliers. It also generates commissions based on a percentage of the gross merchandise value (GMV) of transactions effected by registered merchants on its BaB marketplace and the Infibeam.com e-retail site.

The company continues to increase its focus on introducing additional modular value-added services (VAS) for registered merchants on BaB marketplace and offering multi-channel integrated ecommerce solutions for large merchants and customers by leveraging its scalable and advanced technology infrastructure. Its VAS offerings include digital product catalog services, the BaB e-procurement platform, the BaB rewards and loyalty platform and programs, the BaB platform for institutional sales, mobile application framework which enables the web front to adapt itself to the device and browser used, the Omnichannel offering, which enables its suppliers seamless access to other marketplaces, and online and digital marketing services such as integration with Google tag manager. The company also intends to monetize significant advertisement assets in Infibeam.com, the BaB marketplace and the websites of the merchants on BaB Marketplace platform in the future.

Issues Size and Purpose

The company is coming out with an initial public offering (IPO) with issue size of Rs 450 crore at a price band of Rs 360 – 432 per share of face value Rs 10 each.

The amount of Rs 235.2 crore will be used for setting up cloud data centre and purchase of property for shifting of the registered and corporate offices; Rs 37.5 crore will be used for setting up of 75 logistics centres; Rs 67 crore for purchase of software.; and remaining for general corporate purpose.

Strengths

Integrated e-commerce business model with a large merchant and customer base. The integrated and operationally synergistic e-commerce business model, comprising the BaB marketplace, the Infibeam.com e-retail site, wide range of digital solutions and fulfilment services, as well as .ooo top-level domain registry provide it with a competitive advantage. The integrated technology platform enables it to develop modular, customizable, and cost-effective e-commerce solutions for large enterprises as well as small and medium sized merchants.

Established e-retail operations in India. As of December 31, 2015, the e-retail business included more than 15 million SKUs of products across 40 product categories. It had more than 7.8 million active users on Infibeam.com (based on last login in the immediately preceding 12 months)

Weaknesses

As per the financials available in the prospectus, the company incurred losses from FY2010-11 to FY2014-15. Only for half year ended September 2015 did it make a small profit.

Inability to manage the rapid growth in scale of operations or adapt to technological developments or e-commerce trends is a key industry specific risk.

The company's brand visibility among retail clients is poor.

The company faces intense competition. It competes with a variety of e-commerce and e-retail platforms. The e-commerce industry is intensely competitive. Competition in the industry is expected to continue to increase. The competitors may range from large and established companies to emerging startups, Indian as well as large e-commerce multinational companies operating in India. As the barriers to entry for e-commerce companies are relatively low, the company may also face increased competition from new entrants in industry. In addition to other e-retailers and traditional retailers, it also competes with a number of e-commerce platform providers for enterprise and SME clients that derive revenue from services including traditional technology solutions companies

Pricing is a significant driver in consumer decisions in this industry, and many competitors have deep pockets to sustain resultant large losses. Compared with them, the company's financial capacity is much smaller.

Some of the services offered by the company were introduced very recently. These include ShipDroid, a digital distribution platform for music, videos and digital media. Further, it has launched a new generic top level domain name .ooo. Mobile application has been introduced recently. As a result, these products and services have a limited operating history and it is difficult to evaluate their performance and prospects

New tax treatment of companies engaged in e-commerce may adversely affect the commercial use of its services and financial results. Several states have started imposing entry tax on goods purchased online. Uttarakhand, Bihar and Assam have already imposed an entry tax — a tax states impose on goods coming in from another state — on goods purchased online. Almost half-a-dozen other states, including Gujarat, Madhya Pradesh and Rajasthan, are considering a similar levy. This levy, which is imposed on the courier agent delivering the goods, leads to substantial increase in prices of goods sold online since it amounts to double taxation

Financial Highlights

The company's consolidated net sales for half year ended September 2015 stood at Rs 171.27 crore. As much as 72% of the company's sales came from sales of products (traded) and remaining 28% from services. The OPM stood at 6.8%. The net profit stood at Rs 6.58 crore. The BuildaBazaar business, which is service business, is the main contributor to profit and generated an OPM of 58% for the half year ended September 2015. The margin of e-retail site is very low at around 1%.

The consolidated net sales for the year ended March 2015 grew by 39% to Rs 288.28 crore. As much as 77% of the sales came from sale of products (traded) and remaining 23% from services. Sale of products (traded) increased by 25% to Rs 221.41 crore as the business on Infibeam.com e-retail site increased. Sale of services increased by 117% to Rs 66.86 crore as services provided on the BaB marketplace and other e-commerce solutions provided on integrated technology platform increased on obtaining several large registered merchants and contracts. There was operating loss of Rs 2.26 crore. The loss at the bottom-line stood at Rs 9.79 crore.

Valuation

Infibeam Incorporation is India's first e-commerce company to come with an IPO. At the lower price band of Rs 360 per equity share of Rs 10 face value, the P/E works out to 151 times the annualized EPS of Rs 2.4 and at the upper band of Rs 432, the P/E works out to 174.4 times the annualized EPS of Rs 2.5 for the half year ended September 2015. The company is looking at valuation of around Rs 2300 crore at the upper price band, when its revenues were just Rs 288.28 crore in FY 2015.

The company earns profits from its BaB marketplace business, which is essentially IT-product and related service business and cannot attract high valuations. However, the IPO seems to value the company based on its retail e-commerce web site, which does not enjoy much brand visibility and is a very small player.

There are no comparable listed companies. Until now, valuations and financials of ecommerce players have remained in the private domain and have generated lot of awe among retail and HNI investors due to seemingly high valuations being attributed to them based on fanciful expectations. Infibeam Incorporation is giving a taste of it in the public domain.

Infibeam Incorporation: IPO Highlights 

Sector IT - Software
Public Issue offer size (in Rs crore) 450
No. of shares on offer at Rs 360 per share(crore) 1.25
No. of shares on offer at Rs 432 per share (crore) 1.04
Price Band (Rs) 360-432
Post issue equity at Rs 360 per share(Rs crore) 55.17
Post issue equity at Rs 432 per share(Rs crore) 53.09
Post-issue promoter and promoter group stake at Rs 360 per share (%) 43.80%
Post-issue promoter and promoter group stake at Rs 432 per share (%) 45.52%
Issue open date 21st March 2016
Issue close date 23rd March 2016
Listing NSE & BSE
Rating 35/100

Infibeam Incorporation: Consolidated Financials

Particulars 1203(12) 1303(12) 1403(12) 1503(12) 1509(06)
Net Sales 127.88 151.15 207.34 288.28 171.27
OPM (%) -7.7 -14.6 -9.8 -0.8 6.8
OP -9.83 -22.02 -20.39 -2.26 11.57
Other Income 1.31 1.41 1.72 6.95 3.36
PBDIT -8.52 -20.61 -18.68 4.69 14.92
Interest 1.05 1.18 0.79 1.37 0.51
PBDT -9.57 -21.79 -19.47 3.32 14.41
Depreciation and Amortization 1.25 3.13 7.42 13.10 8.19
PBT -10.82 -24.92 -26.89 -9.78 6.22
Tax 0.00 0.00 0.01 0.01 0.00
PAT before MI and share from associates -10.82 -24.92 -26.89 -9.79 6.22
MI 0.00 0.01 0.96 0.57 0.36
Share from associates -0.01 0.00 -0.01 -0.57 0.00
Net Profit -10.83 -24.91 -25.95 -9.79 6.58
EPS (Rs)* # # # # 2.4
EPS (Rs)** # # # # 2.5
# - negative EPS
* Annualised on post-issue Equity of Rs 55.17 crore; Face value Rs 10 (issue price Rs 360)
* *Annualised on post-issue Equity of Rs 53.09 crore; Face value Rs 10 (issue price Rs 432)
Figures in crore
Source-Capitaline corporate database

Infibeam Incorporation: Consolidated Segmental Financials

Particulars 1203(12) 1303(12) 1403(12) 1503(12) 1509(06)
Sales of products – traded (in Rs crore) 122.88 139.11 176.55 221.41 122.80
Sale of services (in Rs crore) 5.00 12.04 30.79 66.87 48.47
% of products sales to total sales 96 92 85 77 72
% of service sales to total sales 4 8 15 23 28

Source-Capitaline corporate database