Infibeam’s Rs 450-Crore IPO Subscribed 20 Percent on Day 1
India’s first e-commerce IPO may be valued a bit too high for investors’ comfort.
Infibeam Incorporation, the first Indian e-commerce firm to launch an initial public offering (IPO), saw its issue being subscribed 0.21 times on the opening day of the share sale on Monday.
According to data from BSE, the qualified institutional buyers portion was subscribed 0.22 times, with all the bids coming in from foreign institutional investors, while the retail portion was subscribed 0.17 times. The company is looking to raise Rs 450 crore at a price band of Rs 360-432 per share.
On Monday, #ProudofInfibeam was trending on social-networking website Twitter and a news article by online portal Medium’s Factor Daily pointed out that a digital media agency has been paying social media influencers to promote Infibeam.
Why is it Important?
Although a comparatively small IPO, Infibeam’s debut is widely expected to serve as an indicator of stock market investors’ appetite for future offerings in the e-commerce sector.
But what is more interesting is that the firm is eyeing a hefty valuation of Rs 2,250 crore. This is 7.6 times its March 2015 revenue and 167.34 times its profit. To put this into perspective, Infibeam’s valuation is only marginally less than that of Flipkart – India’s largest e-commerce company – after a 27 percent markdown by Morgan Stanley in February.
Highly Overpriced Compared to Peers
Online marketplace Shopclues is valued 1.33 times its gross merchandise volume (GMV). In the listed space, Just Dial is valued 6.19 times the annualised profit of the company for FY16. Info Edge, another company related to e-commerce, is valued at 10.69 times the annualised profits.
Why Did Two of Four Bankers to the Issue Walk Out Midway?
The high valuations also seem to have landed the company into unwanted controversy. In a rare instance, two of the four bankers to the issue, ICICI Securities and Kotak Mahindra Capital, walked out as they were not comfortable with the pricing and timing of the issue. The two remaining bankers are SBI Capital and Elara Capital.
Is it a Profit-making Company at Least?
Infibeam had reported a loss of around Rs 9.8 crore on a revenue of Rs 288 crore for the year that ended March 2015. The company turned profitable in the following six months, as per its IPO documents.
It reported a revenue of Rs 171.3 crore and net profit of Rs 6.6 crore for the six months period ending 30 September, compared to revenue of Rs 288.2 crore and a net loss of Rs 9.8 crore in 2014-15.
In contrast, its larger peers such as Snapdeal, Flipkart and Amazon have combined losses of Rs 7,884 crore for the year that ended March 2015.
What’s the Business Model?
Infibeam has two main businesses – the e-commerce marketplace called BuildaBazaar.com and the e-tailing business under infibeam.com.
BuildaBazaar.com: Manages and helps other players set up their e-commerce venture. It uses data analytics to help merchants target consumers and increase the rate of conversion from visits to transactions. This segment gives the company its competitive advantage.
Infibeam.com: This is just like any other e-commerce retailer. It contributed about 72 percent of consolidated revenue for the six months ending September 2015 (the rest from BuildaBazaar), but margins were only one percent in this period. This business has limited brand visibility among retail customers, and faces competition from the likes of Flipkart, Amazon and Jabong.
How Does the Company Want to Use Funds Raised Through the IPO?
The IPO proceeds will be used to set up a cloud data centre and purchase of property for shifting of the registered and corporate offices. The company also intends to set up 75 logistics centres and purchase software.
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