Professional Documents
Culture Documents
India I Equities
Company Update
Change in Estimates Target Reco
9 February 2018
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
built up to support growth acceleration. We maintain our Buy rating. Risk:
Extreme competition. Source: Bloomberg
Anand Rathi Share and Stock Brokers Limited (hereinafter “ARSSBL”) is a full-service brokerage and equities-research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
certifications are present in the Appendix.
(`) ($)
900 70
ITECH
800 60.1
60 56.9
700 53.1
49.6
50
600
40.1
500 40
400 30
300
20
200
100 10
0 0
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Feb-18
Aug-13
Nov-13
Aug-14
Nov-14
Aug-15
Nov-15
Aug-16
Nov-16
Aug-17
Nov-17
May-13
May-14
May-15
May-16
May-17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
Result Highlights
Q3 FY18 Results at a Glance
Fig 7 – Segment-wise results
Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q/Q % Y/Y %
Revenues ($ m) 42 32 40 44 52 17.9 25.6
Growth y/y % 6 17 22 36 26
Orders (m) 1.02 0.60 0.70 0.73 1.04 42.5 2.0
Volume growth, y/y % 32.9 13.0 12.3 9.0 2.0
Revenues (` m) 2,818 2,161 2,602 2,870 3,383 17.9 20.1
Eff. exchange rate 67.5 66.7 64.5 64.5 64.5 0.0 -4.4
Number of vendors 1,833 1,900 1,950 2,000 2,050 2.5 11.8
Orders per vendor (average) 556.1 315.8 359.0 365.0 507.3 0.39 (0.09)
CoR (2,288) (1,817) (2,177) (2,399) (2,849) 18.7 24.5
As % of revenues -81 -84 -84 -84 -84 -62 bps -303 bps
Employee costs (55) (63) (56) (54) (50) -7.1 -9.0
COGS (2,233) (1,754) (2,121) (2,346) (2,799) 19.3 25.4
SG&A (442) (351) (385) (408) (461) 13.2 4.3
As % of revenues -16 -16 -15 -14 -14 57 bps 206 bps
S&M (406) (310) (349) (373) (427) 14.6 5.2
As % of revenues -14 -14 -13 -13 -13 36 bps 179 bps
G&A (36) (41) (36) (35) (34) -2.4 -5.4
Growth yoy % 39 13 12 -11 -5
EBITDA 88 (7) 39 63 72 15.2 -17.5
EBITDA margin % 3 0 2 2 2 -5 bps -97 bps
EBIT 83 -12 34 58 68 16.7 -18.7
EBIT margin % 3 -1 1 2 2 -2 bps -95 bps
Other Income 16.4 17.7 18.7 13.4 4.5 -66.7 -72.7
14.0% 35.0%
12.0% 30.0%
10.0% 25.0%
8.0% 20.0%
6.0% 15.0%
4.0% 10.0%
5.0%
2.0%
0.0%
0.0%
Q1FY18
Q2FY18
Q3FY18
FY14
FY15
FY16
FY17
H1FY18
10.0% 19.0%
8.0%
18.0%
6.0%
17.0%
4.0%
16.0%
2.0%
0.0% 15.0%
-2.0% 14.0%
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
D-Mart Intrasoft Technologies D-Mart Intrasoft Technologies
Source: Company, Anand Rathi Research, Notes: D-Mart no’s is from Bloomberg estimates Source: Company, Anand Rathi Research, Notes: D-Mart no’s is from Bloomberg estimates
Note:
1) Intrasoft’s incremental RoCEs are high and likely to match D-Mart’s in the next two years
2) Intrasoft, arguably, is playing in a bigger target market than D-Mart and is likely to have an edge in pricing, the premium of which is offset
by its dependence on a large operator in the market
Factsheet
Fig 15 – Revenue
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
Revenues ($ m) 41.7 32.4 40.3 44.5 52.4
E-commerce business ($ m) 40.9 31.8 39.8 43.9 51.6
Greetings business ($ m) 0.8 0.5 0.5 0.6 0.8
Source: Company, Anand Rathi Research
Note: Data estimated for the last two quarters as the company has stopped disclosing exact figures
Valuations
We value Intrasoft on a PE of 25x FY20e EPS (same as before) and
retain our Buy recommendation, with a revised target price of `750
(earlier `710). We are valuing it on PE as it has consistently been
profitable and does not intend to rely on external capital (or
continuous losses) to generate growth. Given the immense e-
commerce market and the current company size, growth doesn’t seem
to be a problem. We see the growth momentum persisting in FY19 and
FY20. Management believes that the growth rate will be 30-35% in
FY18.
Over the years, the company has evolved into one of the faster-
growing 3P retailers in the US by building strong relationships with
vendors, and through its superior customer service and logistics
abilities. We expect it to deliver good returns to investors as its sales
momentum endures and it achieves meaningful scale. The company is
right now prioritizing growth over profits and hence, some margin
volatility cannot be ruled out. This we are factoring into our FY20
estimates, where lower tax rates are assumed to be partially passed on
to customers in order to stimulate growth.
Fig 19 – PE band
100
80
60
40
20
0
Oct-15
Dec-14
Dec-15
Nov-16
Dec-17
Jun-15
Aug-15
Jul-16
Sep-16
Jan-17
Jul-17
Sep-17
May-16
May-17
Feb-15
Apr-15
Mar-16
Mar-17
Feb-18
Risks
Business-environment risk: Intrasoft sells products in the US
through its 3P re-selling brand, Stores123, on Amazon as well as
through its own website. Controlling the business environment
currently are e-commerce platform-owners such as Amazon; hence,
pricing power and customer loyalty lie with them. But 3P operators
also play an important role in a platform owner’s scaling up; hence,
there is a case for an enduring profitable business.
Client-concentration risk: There is the possibility of Amazon, the
largest customer and dominant in global e-commerce, dealing directly
with manufacturers (of popular products).
Product-liability risk: Intrasoft only sells brand-named products
registered with the US government. Even though its liability is only
limited to transit, a fault in products could damage perception in the
US of its brand.
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Feb-18
Anand Rathi Ratings Definitions
Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below:
Ratings Guide (12 months)
Buy Hold Sell
Large Caps (>US$1bn) >15% 5-15% <5%
Mid/Small Caps (<US$1bn) >25% 5-25% <5%
Research Disclaimer and Disclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
Anand Rathi Share and Stock Brokers Ltd. (hereinafter refer as ARSSBL) (Research Entity) is a subsidiary of Anand Rathi Financial Services Ltd. ARSSBL is a
corporate trading and clearing member of Bombay Stock Exchange Ltd, National Stock Exchange of India Ltd. (NSEIL), Multi Stock Exchange of India Ltd (MCX-
SX), United Stock Exchange and also depository participant with National Securities Depository Ltd (NSDL) and Central Depository Services Ltd. ARSSBL is
engaged in the business of Stock Broking, Depository Participant and Mutual Fund distributor.
The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi research have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
General Disclaimer: This Research Report (hereinafter called “Report”) is meant solely for use by the recipient and is not for circulation. This Report does not
constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The
recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice for the purpose of
purchase or sale of any security, derivatives or any other security through ARSSBL nor any solicitation or offering of any investment /trading opportunity on behalf
of the issuer(s) of the respective security (ies) referred to herein. These information / opinions / views are not meant to serve as a professional investment guide for
the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own
investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or
making any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by
ARSSBL to be reliable. ARSSBL or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy,
completeness, adequacy and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and opinions given are
fair and reasonable, none of the directors, employees, affiliates or representatives of ARSSBL shall be liable for any direct, indirect, special, incidental,
consequential, punitive or exemplary damages, including lost profits arising in any way whatsoever from the information / opinions / views contained in this Report.
The price and value of the investments referred to in this Report and the income from them may go down as well as up, and investors may realize losses on any
investments. Past performance is not a guide for future performance. ARSSBL does not provide tax advice to its clients, and all investors are strongly advised to
consult with their tax advisers regarding taxation aspects of any potential investment.
Opinions expressed are our current opinions as of the date appearing on this Research only. We do not undertake to advise you as to any change of our views
expressed in this Report. Research Report may differ between ARSSBL’s RAs and/ or ARSSBL’s associate companies on account of differences in research
methodology, personal judgment and difference in time horizons for which recommendations are made. User should keep this risk in mind and not hold ARSSBL,
its employees and associates responsible for any losses, damages of any type whatsoever.
ARSSBL and its associates or employees may; (a) from time to time, have long or short positions in, and buy or sell the investments in/ security of company (ies) mentioned
herein or (b) be engaged in any other transaction involving such investments/ securities of company (ies) discussed herein or act as advisor or lender / borrower to such
company (ies) these and other activities of ARSSBL and its associates or employees may not be construed as potential conflict of interest with respect to any
recommendation and related information and opinions. Without limiting any of the foregoing, in no event shall ARSSBL and its associates or employees or any third party
involved in, or related to computing or compiling the information have any liability for any damages of any kind.
Details of Associates of ARSSBL and Brief History of Disciplinary action by regulatory authorities & its associates are available on our website i.e. www.rathionline.com
Disclaimers in respect of jurisdiction: This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in
any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject ARSSBL to
any registration or licensing requirement within such jurisdiction(s). No action has been or will be taken by ARSSBL in any jurisdiction (other than India), where any action for
such purpose(s) is required. Accordingly, this Report shall not be possessed, circulated and/or distributed in any such country or jurisdiction unless such action is in
compliance with all applicable laws and regulations of such country or jurisdiction. ARSSBL requires such recipient to inform himself about and to observe any restrictions at
his own expense, without any liability to ARSSBL. Any dispute arising out of this Report shall be subject to the exclusive jurisdiction of the Courts in India.
Statements on ownership and material conflicts of interest, compensation - ARSSBL and Associates
Answers to the Best of the knowledge and belief of ARSSBL/ its Associates/ Research Analyst who is preparing this report
ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company, at the end of No
the month immediately preceding the date of publication of the research report?
ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company No
ARSSBL/its Associates/ Research Analyst/ his Relative have any other material conflict of interest at the time of publication of the research report? No
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation from the subject company in the past twelve months No
ARSSBL/its Associates/ Research Analyst/ his Relative have managed or co-managed public offering of securities for the subject company in the past twelve No
months
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for investment banking or merchant banking or brokerage services from No
the subject company in the past twelve months
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for products or services other than investment banking or merchant No
banking or brokerage services from the subject company in the past twelve months
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation or other benefits from the subject company or third party in connection No
with the research report
ARSSBL/its Associates/ Research Analyst/ his Relative have served as an officer, director or employee of the subject company. No