IndiaMART InterMESH Ltd (INDIAMART) Q1 FY23 Earnings Concall Transcript

IndiaMART InterMESH Ltd  (NSE:INDIAMART) Q1 FY23 Earnings Concall dated Jul. 22, 2022

Corporate Participants:

Ravi Gothwal — Executive Director

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Brijesh Kumar Agrawal — Whole-Time Director

Prateek Chandra — Chief Financial Officer

Analysts:

Vivekanand Subbaraman — Ambit Capital — Analyst

Pranav Kshatriya — Edelweiss — Analyst

Abhishek Banerjee — ICICI — Analyst

Anmol Garg — DAM Capital — Analyst

Ratik Gupta — Guardian Asset Management — Analyst

Amit Chandra — HDFC Securities — Analyst

Manish Gupta — Solidarity Advisors — Analyst

Ajay Modi — Piper Serica Advisors — Analyst

Presentation:

Ravi Gothwal — Executive Director

So, we’ll start this session now. Good evening, ladies and gentlemen. I’m Ravi Gothwal from Churchgate Partners. And on behalf of IndiaMART International Limited, I would like to welcome you all to the Company Q1 FY ’23 Earnings Webinar. [Operator Instructions]

Joining us today from the management side, we have Mr. Dinesh Agarwal, Managing Director and Chief Executive Officer; Mr. Brijesh Agarwal, Whole-Time Director; Mr. Prateek Chandra, Chief Financial Officer; and Mr. Kushal Maheshwari, Head of Investor Relations. Before we begin, I would like to remind you that some of the statements made in today’s webinar may be forward-looking in nature and may involve risk and uncertainties. Kindly refer to slide number 3 of the earnings presentation for the detailed disclaimer.

Now I would like to hand over the call to Mr. Dinesh Agarwal for his opening remarks. Thank you, and over to you, sir.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Thank you Ravi. Hi. Good evening, everybody, and welcome to IndiaMART’s Q1 FY ’23 earnings webinar. We have already circulated our earnings presentation, which is available on our website as well as the website of the stock exchanges. I’m sure you would have gone through the presentation, and I would be happy to take any questions afterwards. I’m pleased to report that IndiaMART has delivered consolidated collection from customers of INR254 crores and revenue from operations of INR225 crores this quarter.

Consolidated deferred revenue increased to INR961 crores and paying subscription suppliers increased 179,000, representing a net addition of 10,000 in this quarter. These numbers also include INR10.5 crores revenue and INR25 crores of deferred revenue from Busy Infotech business as the acquisition has been completed in this particular quarter.

Ravi Gothwal — Executive Director

Sorry to interrupt Mr. Dinesh. Could you speak a little bit louder or closer to the mic, yes? Thank you.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

In the IndiaMART business, growth in the revenue collections and deferred revenue was primarily driven by improving macro economy as well as a result of recent growth investments we have made in products, sales and servicing and building the organization. We will continue to make these investments as needed to maintain the growth momentum. Total traffic on our platform and resulting unique business enquiries remained stable at 257 million and 22 million, respectively. Our 90-day peak buyers stands at approximately 54% which represents the continued trust on the platform. Total business enquiries delivered stood at 115 million for the quarter.

As we discussed in the previous earnings call, the reduction in the total business enquiry is an outcome of certain volatile changes to increase the efficiency for our management team and improve the relevancy of products used, being delivered to the users. During the quarter we have completed the acquisition of Busy Infotech as well as 100% acquisition of Busy Infotech and 51% of the Livekeeping resulting into the addition of the Accounting Software segment in addition to the existing IndiaMART Web Services business.

We have done segmental reporting also from now on, and I’m extremely positive about scaling up this particular segment over the years leading to the augmentation of new revenue streams at IndiaMART. Overall, I believe we have started off the new fiscal year on a positive note on all performance indicators, and we will remain committed to enhance our value proposition and deliver value to the customers, which will help consolidate our leadership position in the investing.

Now, I will hand over the call to Mr. Brijesh to discuss a little bit more details about Busy Infotech. Thank you, and over to you Brijesh.

Brijesh Kumar Agrawal — Whole-Time Director

Thank you. Good afternoon, everyone. The Busy transaction was consummated on April 6. And since then Busy now is a wholly-owned subsidiary of IndiaMART. And being a subsidiary, we shifted the accounting standards from IDAC to IndAS for reporting the financials right from this quarter onwards. In this quarter, we delivered a billing of INR13 crores and the revenue from operations of INR10.5 crores.

Please note that because of this change to IndAS, the revenue, P&L, these numbers may not be comparable with the previous periods. Busy also sold about 9,000 new licenses in this quarter, taking the overall licenses sold to about 3.11 lakhs. This being the first quarter of acquisition, our focus in Q1 essentially was to assimilate people, partners and bringing the financial system that par with the reporting standards that we follow here at IndiaMART.

I think we’ve made very good progress on all of these three accounts. Now over the next two quarters, we would start focusing on expanding the team, expanding the partner network and improve our penetration in those areas where it is still very underpenetrated. We hope that the next two quarters, once the focus gets on these other ones, we should be able to continue to build on the growth momentum that we’ve achieved in Q1.

Now with this, I’ll hand over the call to Prateek so that he can discuss the financial performance.

Prateek Chandra — Chief Financial Officer

Thank you, Brijesh, and good evening, everyone. I will take you through the financial performance for the quarter ended June 2022. Consolidated revenue from operations was INR225 crores in this quarter, a growth of 24% year-on-year, primarily due to 23% increase in paying subscription suppliers as well as a addition of INR10.5 crores from the Accounting Software segment. On a like-to-like basis, and standalone collections from customers, revenue from operations and deferred revenue were at INR241crores, INR213 crores and INR935 crores, representing a year-on-year growth of 42%, 18% and 31%, respectively.

The company continued making growth investments in increasing manpower across functions, leading to an addition of 163 new employees in this quarter, taking total employee headcount to 3,835. Consolidated EBITDA for the quarter stood at 29%. We recorded significant decline in other income from INR30 crores till this quarter to INR1 crore this quarter, primarily due to mark-to-market losses on treasury portfolio owing to a significant increase in bond yields during the quarter. As most of our credit investments are in high grade securities and have been done with the perspective of holding two to three years, we believe that this notional loss will reverse in its due course.

As a result, net profit for the quarter stood at INR47 crores with a margin of 21%. Cash generated from operations during the quarter was INR75 crores. During the quarter, in addition to cash generated from operations, we have utilized cash in making payments for Busy and Finlite acquisitions as well as completing INR100 crores share buyback and the certain tax expense of INR35 crores. As a result, consolidated cash balance stood at INR1,882 crores as of June 30, 2022.

Thank you very much. We are now ready to take any questions.

Questions and Answers:

Ravi Gothwal — Executive Director

Thank you, Prateek. We will now begin the Q&A session. [Operator Instructions] First question is from the line Vivekanand, Ambit Capital. Please go ahead.

Vivekanand Subbaraman — Ambit Capital — Analyst

Hi, thanks for the opportunity. And first question is, could you help us understand your distribution model now? How much of the new customer addition is happening via channel partners versus your own employees? And why is the outsourced sales cost still rising despite a Q-o-Q decline in collection?

Second question is on the competition. We are seeing competition from two areas. One is the new age B2B marketplaces like Zetwerk, Moglix, or even large corporate groups like L&T and Grasim. And secondly, the government is talking about its own ONDC marketplace. So, Dinesh Ji, just wanted to understand, is it fair to assess that IndiaMART is focused mostly on SMEs at both ends, which is buyers and suppliers whereas most of the peers are focused on large enterprise buyers? Thank you.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Thank you. On the new channel versus sale, I think the channel has been developed over a period of 18 months and we continue to invest behind channel development. Currently, I think new sales acquisition is slowly and slowly [Technical Issues].

Ravi Gothwal — Executive Director

Sorry, can you mute yourself, please?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Slowly and slowly approaching towards half in half, so half of them are coming from the people who are completely managed by IndiaMART. They are still on different third party payrolls and the second part is the channel [Technical Issues] channel. On your question, why the channel cost is still increasing versus the collection from the last quarter? So collection from the last quarter is Q4 quarter. In Q4, most of our collection comes from existing customers. However, the channel is deployed to — for the new customer acquisition.

If you see channel cost will probably start to stabilize in some quarter or so, but for now [Technical Issues]. On the competition segment, to some extent, you’re right that we are more of a market place, we are more of a network business where buyers and supplier both comes and many of the names that you took are typically focusing on trading our goods rather than matchmaking and network effect. So to that extent, we are very different. However — but after matchmaking also, the buyers and suppliers transact with each other. So that — from that perspective, we are similar.

And none of them are actually solving full discovery issue. So, currently, if you look at whether it is price discovery, product discovery, model discovery, supplier discovery, I think there is no better platform than IndiaMART with the [Technical Issues].

Ravi Gothwal — Executive Director

Sorry, Dinesh, there is some disturbance from your side. If you could just repeat that?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. [Technical Issues] 7.2 million suppliers or whether it is 86 million products, we get a wide variety of the products and suppliers on IndiaMART platform. So in that respect, I think we continue to perform better year-on-year over any other platform that we’ll see, right now.

Vivekanand Subbaraman — Ambit Capital — Analyst

This is very helpful, sir. Just small follow up. So, one is on the — your own employees acquiring new customers versus channel partners. So last I remember, I think you had said that around 500 of your own employees were also acquiring customers. Is that number similar or is that come down now? Secondly on the explanation you gave on competition, just wanted your thoughts on the government’s ONDC marketplace, because that comes up for discussion very often.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

So, on the employee side, [Technical Issues] managers who are overseeing the channel, there are managers who are overseeing the branches. So those are the people on the IndiaMART payroll, and rest everybody is on channel and other third party. On the ONDC, it is something as a concept evolving and very early and as an when more clarity will emerge, we will try and see where to collaborate and where to compete. But I think, it will be more of a collaboration if at all it becomes positive. So, and it is mostly for B2C consumers. For B2B consumers, I think it still will be five years away after we become successful on B2C side.

Vivekanand Subbaraman — Ambit Capital — Analyst

Great, thank you. Appreciate it.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Just a minute, Ravi, are we properly audible?

Ravi Gothwal — Executive Director

Now you are audible. There was some disturbance in between. But I think it’s all clear now.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Thank you. Let’s proceed.

Ravi Gothwal — Executive Director

So next question is from the line of Abhishek Bhandari from Nomura. Abhishek, go ahead with your question. So sorry Abhishek, we cannot hear you. Please unmute yourself. No, still we can’t hear you. We can see you, but we can’t hear you. So, we can move on to the next participant, Pranav from Edelweiss. Pranav, please go ahead.

Pranav Kshatriya — Edelweiss — Analyst

Hi, thanks for the opportunity. My first question is regarding the cost. The cost we typically used to see some decline in Q1 from Q4, but this quarter, there was an increase. So how should we see in the next couple of quarters cost going up, so that’s my first question?

And secondly if I look at two factors, one is the unique business enquiries and traffic, that does sort of plateaued and sort of started declined. Can you give me some more color on what is happening, if there are any cuts which are actually leading to decline or how is the underlying traffic behaving?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

So let me address the second part and then I will hand over to Prateek for the first part. From the traffic and unique business enquiries, there have stabilized that. I don’t think there is 1%, 2% decline with it of any meaning. And thankfully it is [Technical Issues] aside what had happened is that a lot of stress items were in demand during the COVID times. Thankfully, there are, I mean, whether it is mask, whether it is sanitizer, whether it is medical equipment, whether it is medicine. A lot of that demand has wane away.

The other part is that especially in the month of April, for the both adjacent quarter, there has been huge price rise in various commodities. And that probably led to some tapering of demands but this is very seasonal I guess, we should not have any much worried on both side. We should be fine on the buyer side. From pre-COVID levels, we are up almost 33% to 40% on the buyer KPIs. If we can maintain this for next couple of quarter, then it start to grow only at 10% to 20% per annum, that should be fine. Prateek, you want to add how are the people side and cost?

Prateek Chandra — Chief Financial Officer

Sure. So, Pranav, as I’ve already spoken about the technic, we continue to invest behind growth and therefore, I’ve also added manpower in this quarter. So almost 163 new employees have been added. Because of it, you could see the total manpower cost — sorry [Technical Issues] crores last quarter. [Technical Issues] of which like INR2 crores is on account of SMBs and will remain based an account of addition of accounting and software verticals into the business.

Other than that, the cost have been moving up largely in line with the customer additions whether it is the hosting of the new customers, so all those volume [Indecipherable]. Overall for the going forward, INR44 crore is that cost will increase in line with the revenues and we expect to maintain similar 28% to 30% [Technical Issues].

Ravi Gothwal — Executive Director

Sorry to interrupt, Prateek, once again, the audio is not very clear. It’s breaking up. So can you just double check connectivity at your end, It’s — is it good?

Prateek Chandra — Chief Financial Officer

Sure. So, Ravi, should I repeat the answer again or we could hear only part of that what I spoke?

Ravi Gothwal — Executive Director

So I think we heard half of it. So, if you could just repeat last couple of lines.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Just a minute, Ravi, let us check the connection once again.

Ravi Gothwal — Executive Director

Yes, please. Yes.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Just give us a minute.

Prateek Chandra — Chief Financial Officer

So let me just repeat — answer Pranav to your question on the cost. What I was explaining about the cost was last quarter, we had a total cost of INR144 crores, it increased to INR160 crores in this quarter and that will be increasing [Technical Issues] last quarter to INR93 crores this quarter, of which almost INR4 crores has been on account of addition of accounting and software vertical and the other is because of the normal increase in the manpower of close to 150-odd people in this quarter, which we added. And we continue to make these investments and continue to add employees which will be needed for the growth in the business. On the overall basis, we expect our margins to remain stable at 20% to 30% for the next two, three quarters, till the time, we continue to grow it in the same pace.

Pranav Kshatriya — Edelweiss — Analyst

Okay. And I also wanted to ask a bit about Busy. So Busy shown good margins. So how should we see the growth for this business going forward? And have you started seeing any benefit because of the integration, cross-selling et cetera, which will aid growth of margin?

Prateek Chandra — Chief Financial Officer

So, Pranav, as I mentioned, the focus in Q1 for us has been that given that acquisition causes anxiety amongst people, amongst the partner networks. And we also need to go ahead and strengthen the basic financial systems. Our focus is actually have been on doing that well. And as I said, they have come out fairly well. We should be able to start focusing on building up the sales team in Q2 and then start to build up on the partner network in Q3. And I think these two quarters, Q2, Q3 put together, I think should give us very good view on how the business will move going forward. We should be able to come back to you with a lot more clarity, once we’ve sailed through this initial period where it is important to ensure that acquisition and this whole transition actually happens very well.

Pranav Kshatriya — Edelweiss — Analyst

Okay. Sure. Thank you. Wish you all the very best. I’ll come back in the queue.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Thank you, Pranav.

Ravi Gothwal — Executive Director

[Operator Instructions]. Abhishek Banerjee, you can go ahead now.

Abhishek Banerjee — ICICI — Analyst

Hi, this is Abhishek Banerjee from ICICI [Phonetic]. Sir again, really sorry I couldn’t hear your explanation on the cost saving. Are you saying that manpower costs and outsource sales cost are going to be in the same — are they going to be continuing the same trajectory going ahead?

Prateek Chandra — Chief Financial Officer

Yes, what I was saying was that the manpower cost and the outsourcing cost, both of them will grow in line with our overall customer growth. So what we are anticipated is that as we have continued to invest behind these growth for the next two, three quarters, our overall money will remain [Indecipherable] to where they are.

Abhishek Banerjee — ICICI — Analyst

Okay. So, for the next two, three quarters, they should remain elevated and then it will be in line with revenues?

Prateek Chandra — Chief Financial Officer

Yes. If you are comparing them with the previous year, then obviously yes, they will remain elevated. But if you are comparing them from Q-on-Q level, I think as the revenue growth is now on a standalone versus at IndiaMART is about 5%, 6% Q-on-Q, I would say that similar increase you should assume in the manpower cost and the sales cost. So that we will maintain about similar 30% EBITDA margin.

Abhishek Banerjee — ICICI — Analyst

Got it. So, do you share any numbers for average order values that your paying customers are seeing? This — and you saw slide on ROI for you? Can you share any metrics on the ROI that a paying subscriber is making on your platform.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes, I think many quarters ago, I had shared some data around this. Average order value because IndiaMART is a horizontal platform. Is very difficult to say average but — because there are clothing, there are machinery and there are grains and there are raw materials. However, whatever little information that we get from our own survey, we get to see anywhere between $500 to $1,000 average dollar value. Our own payment platform Payment IndiaMART, where people use that for the smaller orders inbound orders because for larger orders, they typically do not use our payment gateway kind of a system.

There we see a average order value of about INR25,000. However the larger orders are not processed through the Payment IndiaMart. As against this in certain reports, I had read that average order value on Amazon is about $13, $14 versus average order on Udaan was about $60 to $75. So, our average order value would range almost 10x of that. And in terms of ROI, ROI is separated based upon the number of value we delivered for customer. [Technical Issues]

Ravi Gothwal — Executive Director

Sorry to interrupt Dinesh Ji, again your voice is breaking up. So maybe let’s take a moment.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

I’m sorry. Some internet — intermitted internet problem is happening.

Prateek Chandra — Chief Financial Officer

Sir, now it is much clear.

Ravi Gothwal — Executive Director

It’s better Dinesh Ji. you can go ahead.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

So I was saying that that in terms of the number of enquiries per customer and the conversion and the average order value for that industry altogether will define the overall ROI for the customer. In general — generally, we have seen that in the last four, five years, our number of enquires have gone multi-fold up as compared to the number of customers. So the enquiries for customers is already at a quite healthy number. And that we are — that is why we are also trying to work more on the relevancy side. So that the relevancy-led improvement can happen. [Technical Issues] And typically customers are able to convert anywhere between 5% to 15% of the enquiries that they receive.

Abhishek Banerjee — ICICI — Analyst

Okay. That’s really helpful. [Technical Issues] Is there any commission-based charges that you charge sir?

Ravi Gothwal — Executive Director

Sorry, can you repeat your question? Your voice had broken up in between.

Abhishek Banerjee — ICICI — Analyst

So for your premium customers, the platinum customers [Technical Issues] average charges that you are getting from the [Technical Issues]. So, I’m guessing that is not a one-time subscription charge, right? Is there a commission that you charge, sir?

Ravi Gothwal — Executive Director

Sorry, your question is still not clear. [Technical Issues] So moving on then. The next question Anmol Garg. Please go ahead with your question. Please unmute your line.

Anmol Garg — DAM Capital — Analyst

Yeah. Hi, thanks for the opportunity. Sir, just had a couple of questions. Firstly, we added some 226 employees in product and tech this quarter. Will it be entirely related to Busy Infotech or we have also increased the intensity of our tech hiring? That’s one. And secondly, I wanted to have a view on margins that we are giving an estimate of adding 8,000 to 9,000 paid suppliers every quarter. So just wanted to understand that our sales in, like you said that our sales and employee costs will increase in that manner. However, can we expect any advertisement revenue also coming through into the company to increase that traffic share? And can that impact our margins as well in the next year or going ahead as well? So that are the two questions from my end.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

[Technical Issues]

Ravi Gothwal — Executive Director

Sorry, Dinesh ji, your voice is not audible once again.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Ravi, is it any better now?

Ravi Gothwal — Executive Director

It’s much better. Let’s start once again.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Okay. First, talking about the product and technology employees. In the last two years, we haven’t hired any product and technology employees and we have given offers to the campus in this entire last year. And people had started to join as a trainee from January. And most of the people, they completed their examination and became permanent in this particular quarter. And that’s why you are seeing a step function jump in the employee count. So we have actually beefed up our product and tech team, knowing that the market is going to be tough for product and tech.

We need more people. We have expanded multifold into different products. As you can see, our CRM has become quite mainstream, and we are also trying to do experiments around various more engagement features on the relevancy improvement, category-based improvement as well as trying to experiment more of the payment on credit side. On the Busy also, I think 180 total employees have been added.

Prateek Chandra — Chief Financial Officer

There are total 181 as of of 30th June. But [Technical Issues].

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Second question was around the margin. [Technical Issues].

Ravi Gothwal — Executive Director

Sorry Dinesh Ji. Not audible. Sorry to interrupt once again. So maybe you can now start answering the second question, please.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. The second question was around margins. So as we guided that margins will remain in the range of 30-odd percent. As we are adding these new customers, these new customers are added at the lowest ARPU in the [Technical Issues]. As the customer moves up [Technical Issues]. As the customer moves up, becomes older, then the margins improve. And you can see, the top 10% customers ARPU is around INR220,000 and top 1% customers ARPU is around INR790,000. However, the overall ARPU is about INR46,000 while the Silver monthly ARPU is about INR2,500 per month, which is about INR30,000.

Anmol Garg — DAM Capital — Analyst

Sure, sir. So just a follow-up on that. Just wanted to understand that can we expect IndiaMART to spend more on advertisement as well in coming years?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. As we have always guided if at all, we decide to do any advertisement, it will be to the tune of INR30 crores, INR40 crores per annum. However, we feel that last couple of years there’s been more buyers than sellers. We are trying to build more supply on the platform, more responsive supply, more — so I think current year or so, we don’t plan to spend anything on the brand building advertising or buyer acquisition. Our 100% buyer acquisition remains organic, and we believe that it will remain so for the next year or so. If at all, there are any advertising plan, we’ll let you know in advance.

Anmol Garg — DAM Capital — Analyst

Sure. Thanks for the call.

Ravi Gothwal — Executive Director

Thank you, Anmol. Next question is from the line of Ratik Gupta, Guardian Asset Management. Ratik, please go aheadd.

Ratik Gupta — Guardian Asset Management — Analyst

Yes. Hi, sir, good evening. So my first question is on the supplier front. So although we are seeing a 10,000 increase in the supplier front for this quarter so do we have a number if we have lost any?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. So if you are asking about the channel, we give the channel numbers quite frequently in every call. The top gold and platinum customers, the churn remains less than 10% per annum; in the silver annual segment the churn remains around 25% per annum. And [Technical Issues].

Ravi Gothwal — Executive Director

Sorry, sir. Your voice is breaking out.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

As I said the churn in the gold and platinum segment, the churn remains at less than 10% per annum. In the silver annual segment, the churn becomes about 20% to 25% per annum. And in silver monthly segment, the churn is about 5% per month.

Ratik Gupta — Guardian Asset Management — Analyst

Okay. And my second question is sir, on the current scenario, what we see is that the focus has been towards the manufacturing sector and the product sector. So are we looking forward to move towards the service sector as well as IndiaMART service?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. I mean on a large macro side, dividing that into manufacturing, I think many service providers are our customers also. We go by small category by category from business services, construction services, that kind of it. And I think we continue to expand into more and more categories to monetize better, and we will continue to do that. But are we going to go into B2C services, I don’t think so. We will continue to remain B2B services.

Ratik Gupta — Guardian Asset Management — Analyst

Not specifically to B2B or B2C, sir. I’m talking about the services — the service segment sector. As we are focused towards the manufacturing sector like industrial plants, machinery or the construction or the machinery parts are we focusing on the service segment as well, supposedly IT services or the financial services segment?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. Not much on IT services and financial services, but we will see software many, many software companies, we will see many call center companies. We will also see many consultants, you will see many chartered accountants and logistic service providers, transportation, that kind of services.

Ratik Gupta — Guardian Asset Management — Analyst

Okay. That was my question. Thank you, sir.

Ravi Gothwal — Executive Director

Thank you, Ratik. Next question is from the line of Amit Chandra, HDFC Securities. Amit, please go ahead.

Amit Chandra — HDFC Securities — Analyst

Am I audible now?

Ravi Gothwal — Executive Director

Yes, you’re audible. Please go ahead.

Amit Chandra — HDFC Securities — Analyst

Sir, my first question is on the customer addition that is mostly on the — mostly on the monthly subscribers. So what percentage of the monthly subscribers get converted to maybe a long-term engagement with us. So if you can provide some colors on that, whether how many of them that we add that remain with us because you have mentioned that the churn is coming down. So what kind of impact this is going to have on our ARPUs over a longer period of time? And also in terms of the addition that if I see the incremental ARPU, that is obviously on the lower side. So obviously, are we providing some kind of discounts to get suppliers on our platform or the pricing remains the same?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

So, first let me answer the easier one first, on the long-term ARPU growth. On the long-term ARPU growth, we have tightened in the past also. Typically we try to take anywhere between 5% to 6% CAGR ARPU growth. And that has been in the past also and that will remain similarly [Technical Issues].

Yes, you are right that vis-a-vis that first of all about two-third of customers of ever month, we don’t have one-third of the customer come in the annual one. And from the silver customers, many customers upgrade to the gold and platinum over a period of time. Approximately, I know for sure that approximately 20% of the customers typically upgrade in a year’s time. So if you look at the cohort-wise, [Technical Issues] and so on. So approximately 20% in the year’s period. And that is how the ARPUs increase over a period of time.

[Technical Issues]. And currently because of the [Technical Issues] addition is going to happen on the silver side so in the near term, ARPU will remain flattish or even could be even muted for some time. But over a long period of time, they will increase by way of upselling, by way of upgrades. Are we giving discounts? I think there are no — on the silver side, we don’t [Technical Issues] fixed price product. When it comes to the platinum side, we definitely offer customized packages for larger customers.

Amit Chandra — HDFC Securities — Analyst

[Technical Issues]

Ravi Gothwal — Executive Director

Sorry to interrupt, Amit. Your voice is not audible. Amit, can you repeat your questions, please? [Technical Issues]. Maybe, Amit, you can turn off your camera. It will save some bandwidth and repeat your question then.

Amit Chandra — HDFC Securities — Analyst

Am I audible?

Ravi Gothwal — Executive Director

Yes, you’re audible.

Amit Chandra — HDFC Securities — Analyst

Yes. So my question is on the channel partners. So how the channel partner economics actually work in terms of commissions that we’re giving to channel partners because what I’m seeing is that as you have mentioned that the cost will actually go up in line with the supply additions. So is it that most of the sales that is coming or sales, like I mean in terms of customer additions that is coming is mostly through the channel partner ecosystem or our in-house sales is also adding [Technical Issues]?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. As I said earlier, about 50% — more than 50% of the sales currently come from in-house sales channel. And our endeavor is to keep it at 50%-50%. And the cost on the employee front will rise because our cumulative customer base is increasing, and we need client servicing and renewal and upsell employees. And those are 100% in-house employees. We have not yet tried channel partners there. We will probably start to think about goals especially in the Tier 3 towns. And how the commission works is very — like when a standard DSP mechanism, which you see in the banking sector, which you see in the telecom sector [Technical Issues]. So the commission on the sales to the general partners are per sales basis and is right that based upon the historical cost we have added in a month.

Ravi Gothwal — Executive Director

All right. So I think Amit have left. So we will move on to the next participant. Manish Gupta from Solidarity Advisors.

Manish Gupta — Solidarity Advisors — Analyst

Thanks for the opportunity. I’m sorry, I’m coming back to a question, other participants have also raised. You made a statement, I hope I’ve understood that right, that employee cost will stay roughly proportionate to how your revenue increases. That’s kind of very counterintuitive because of two reasons. One is one would expect that there would be some productivity of the sales force over time.

And secondly, you do mention that people come in, in the lower tier and then they upgrade to higher revenue per supplier as they move into the gold and the silver — the silver and the gold and the platinum programs. So it’s very counterintuitive why your employee to revenue ratio just for the standalone business should not decline over time?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. See — can you see the current slide on the — out there? [Technical Issues].

Manish Gupta — Solidarity Advisors — Analyst

Sorry, Dinesh, I can’t hear you. Dinesh, it’s a very bad line. One request is just to see whether this is an issue of bandwidth or it’s an issue of the software platform you’re using because this is really a terrible line. One has been barely able to understand anything on this call.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Are we audible now?

Manish Gupta — Solidarity Advisors — Analyst

Yes. Yes. It’s audible now.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

[Technical Issues] On a long-term basis, the margins will improve and [Technical Issues].

Manish Gupta — Solidarity Advisors — Analyst

Sorry to interrupt Dinesh ji. It’s a very bad line. Not able to hear you at all. Dinesh, I think it’s just a conference room that [Foreign Speech]. May I offer a suggestion that we reschedule this call because we get to talk to you only once a quarter, and I think there were some very interesting questions that people asked. So if it’s not too much of a bother Dinesh, could we reschedule the call and do it again?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes, we’ll talk about it internally and see if…

Manish Gupta — Solidarity Advisors — Analyst

Otherwise, I’m happy to do a call offline with Prateek or something. Yes. What I heard you say was that over time, the reduction in employee benefits, we should continue to see that over time. Is that what you said?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. [Indecipherable] for the next two quarters or so it will grow in line with revenue.

Manish Gupta — Solidarity Advisors — Analyst

Okay. Thank you.

Ravi Gothwal — Executive Director

Right. So, we’ll move on to the next participant then. Amit, are you there? Yes, Amit, we can hear. Please go ahead with your question.

Amit Chandra — HDFC Securities — Analyst

Sir, actually, my line got lost. So on the cost part of questions have been asked on the cost aspect. But if I saw the adjusted EBITDA margins that you have given, so that is excluding the ESOP cost, if I’m not wrong. And if I exclude the ESOP cost and if I include the acquisition impact, then the margins come to around 33%, right? So what you are seeing here is that the investments that you are planning and we’re targeting 30% margin because the margins of like Busy is on the higher side, right? So typically it should have a — like positive impact on the margins. So how do we see the cost aspect and also the ESOP cost, what was the ESOP cost for the full year, if you can give that? And also on a standalone basis, how the costs will move up or it will be stable at these levels?

Prateek Chandra — Chief Financial Officer

Sure. So one clarification, when we said about 30% margin that was on the EBITDA and not adjusted EBITDA. That was actually including the stock comp expense. Regarding the ESOP prediction or as to how do we see this cost. So this cost is primarily on account of the — ESOP that we pick in the month of January. So, for first year, this cost will stay high, for the remaining two, three quarters, it will stay high. Next, after that, if any amount of the amortization [Technical Issues] come down slightly because [Technical Issues].

Amit Chandra — HDFC Securities — Analyst

Okay. And my last question is on…

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

On the Busy side, Busy is a very new and very small business as compared to the overall business. And we will make investments in product and technology and sales. So Busy, while you are seeing the current profitability as 40% to 50%, I think our immediate target on Busy is not about margins, but about expanding the sales and making the product available on mobile and cloud and those things. So I would say that, that INR5 crore would not have a larger impact on the operating margin on a consolidated basis.

Amit Chandra — HDFC Securities — Analyst

Yes, yes. So again, on the Busy side, sir, so obviously, the run rate that we are showing, it’s indicating around INR40 crores like full year for the next year. But when we acquired also the revenue was actually higher. So are we seeing Y-o-Y kind of a decline for Busy or there is some accounting changes that are impacting that? And in terms of how we are recognizing the revenue for Busy? And also in terms of longer term targets, how do you see the revenue growth for Busy and in terms of cross-sell, how the opportunity is panning out?

Brijesh Kumar Agrawal — Whole-Time Director

Amit, two things. One, the earlier financials, if you will see were based upon IDEA. From this quarter onwards, we have shifted to IndAs. And therefore, the whole policy of revenue recognition is now as per IndAs and not IDEA. When you look at comparable numbers [Technical Issues].

Ravi Gothwal — Executive Director

Sorry to interrupt, Brijesh, let’s just wait for a few seconds.

Amit Chandra — HDFC Securities — Analyst

The line is really bad. We’re not able to hear you. Most of the answers we’re not able to.

Ravi Gothwal — Executive Director

Maybe try Brijesh now.

Brijesh Kumar Agrawal — Whole-Time Director

Is it better now, Ravi?

Ravi Gothwal — Executive Director

Better, better, please go ahead.

Brijesh Kumar Agrawal — Whole-Time Director

So on a like-to-like comparison basis, if you look at last year, the revenues were based upon the billing. The billing in Q1 is at INR13 crores, which means it will be at a run rate of about INR52 crores higher than the revenues, which were there last year. Now having said this, when we look at the focus that we are having on the Busy business, as I mentioned, the first focus is to make sure that the people and the partners they continue to stick with our business and do not get alarmed by this change in management that has happened. We would be able to go ahead and start focusing on growth from Q2, Q3 onwards as we start to invest behind growing the team and growing the partner network. In the last call, we had mentioned that the [Technical Issues].

Ravi Gothwal — Executive Director

Just a minute. So could you just repeat the last statement?

Brijesh Kumar Agrawal — Whole-Time Director

So as we had shared in the last quarter, our top three priorities in this financial year would be one, to double the rate of growth from the erstwhile 10%, 12% to about 20%, 25% in this financial year. Second, is to increase the overall number of new licenses, which are being sold because that would be forming the foundation for accelerated growth in the years to come. And third would be to go ahead and invest behind building the team and including the overall awareness of the product so that we can ensure better penetration in markets all across India. So these would be three priorities [Technical Issues] for us.

Amit Chandra — HDFC Securities — Analyst

Okay. Okay, sir, thank you and all the best for the financial year.

Brijesh Kumar Agrawal — Whole-Time Director

Thank you.

Ravi Gothwal — Executive Director

Thank you, Amit. Next question is from the line of Ajay Modi, Piper Serica Advisors. Ajay, please go ahead.

Ajay Modi — Piper Serica Advisors — Analyst

Thank you, Ravi. Prateek and Dinesh ji, quick question. So are we saying that our quarterly employee plus outsourced manpower expense run rate is — which is now roughly about INR120 odd crores will go higher further? So that’s my first question.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Yes. As we discussed in the past, since we are adding manpower across [Technical Issues].

Ravi Gothwal — Executive Director

Sorry to interrupt once again. So let’s wait for 5 seconds or so. [Technical Issues] No, you can try and turn off your video and let’s see if it is better.

Brijesh Kumar Agrawal — Whole-Time Director

We’ve switched off our video, and we will continue with the presentation.

Ravi Gothwal — Executive Director

I think it’s better. Please go ahead. Yeah, it’s better. Kushal, your presentation, it’s not visible at the moment. So if you can just share your.

Brijesh Kumar Agrawal — Whole-Time Director

1 minute, 1 minute, 1 minute. Is it visible now, presentation?

Ravi Gothwal — Executive Director

Visible. Please go ahead.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Okay. So coming back to the question on the employee front, as we discussed right now that we will continue to add people. And as the people will get added, this cost will increase. However, as a percentage of revenues, it’s likely to stay same because the revenues will also grow quarter-on-quarter.

Ajay Modi — Piper Serica Advisors — Analyst

Understood. But then Prateek and I think Dinesh ji can come in here. So our expenses, which were largely flat, we did not do any large hiring, team to increase team size back at 2020 and 2021, which we’ve started doing now. My question here is, shouldn’t we be sweating these employees more? Shouldn’t the growth rate be higher? I mean, for example, you just said that target is to do 25% kind of IRR or CAGR for Busy. But for INR40 crore sales, 25% growth is about INR10 crores, which is way too small for a company of our size, right?

So what my understanding that I’m trying to seek here is what is stopping us from higher growth? Right now, we are at 179,000 active users in the IndiaMART platform compared to 7.2 million store fronts, which is roughly about 2.5% paid to overall subscribers. So what is — I mean, if we have money, if we are spending, if we are hiring, what is stopping us from saying that, look, I will drop my ARPUs lower and I will increase my subscriptions far, far, far higher. I mean, we are the market leaders. So why are we not cleaning out this market completely?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

So let’s look at the leading indicators of the growth. So there are two leading indicators of the growth. One is the number of customers. And the second is the collections in the — if you look at FY ’21, FY ’21, we neither added customers nor added any collection. So if you look at the collection of FY ’21 versus FY ’23, it was a flat collection. And if you look at the number of paid subscribers, it was a flat year. In the FY ’22 also, the first half was marked by Covid. It is only whatever growth has happened, happened in the second half of the year. Now if you look at the current trends, so from — we are trying to double our customer growth from 20,000, 22,000 per annum.

Now we are saying that we will go to 35,000 odd per annum at about 8,000 to 9,000 customers per quarter. So I think we are investing behind growth. Now why can’t we go even higher, that limits my ability to manage — and the people’s adoption of Internet and business adoption, I think we remain committed to a profitable growth business. As we said earlier so even before the pandemic, our revenue used to grow at 25%, 30%, cost is to grow at 15% to 20%, and that it resulted into margin expansion. I think for now, given that we have not done any investment in the last two years currently, the margins will remain flat at around 30%. However, as we achieve a higher trajectory, we will again start to focus on margin expansion.

Ajay Modi — Piper Serica Advisors — Analyst

Understood. Quickly, Dinesh ji, so you said that why can’t we go higher, that limits your ability to manage. My question is that, look, for example, we acquired Busy. Busy has a revenue of INR40 crores. I mean, it’s doing a 25% growth, INR10 crores doesn’t even move the needle for IndiaMART as a platform. Specifically for busy why are — I mean, at what point would we expect a little more aggressive growth here?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

As I mentioned, we would be able to come back with much better view on the overall Busy business from next year onwards because you would have seen through this entire time of integration and assimilation of people and partners. And we will bring visibility on acquisition and revenue growth going forward. I have already reiterated this multiple times during the Busy acquisition process itself that first year, my entire focus would be to make sure that we do not go burst with the acquisition. So I think we’ve most important factor is that this year, let us focus on retaining the revenue, retaining the employees, retaining the partners, retaining the customers, understanding the business inside out. And then next year onwards, let’s put the focus on growth.

Ajay Modi — Piper Serica Advisors — Analyst

So then if I were to ask you what is a three year or five-year view with this business? I mean, what size can — should it become not can, but what size should it become?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

I’ve given the long term, my own expectation that over a period of time, over the next 10 years can this become a INR500 crore business instead of INR50 crores business.

Ajay Modi — Piper Serica Advisors — Analyst

Okay. Thank you.

Ravi Gothwal — Executive Director

Thank you, Ajay. Next question is from the line of Vivekanand. Vivekanand, do you have a follow-up question?

Vivekanand Subbaraman — Ambit Capital — Analyst

Yes, Ravi, I have two follow-ups. So one is on the investments. There are several start-ups where IndiaMART stake is less than 20%, like M1 exchange or Bizom. So do you see an opportunity to increase your stake in these companies anytime soon? Also in the next 12 to 18 months, how do you envisage the utilization of cash? Will there be any major new investments or material follow-on rounds that you expect? Second question is on the shift to weekly salary payout. Is that having any bearing on attrition? Is there anything else to call out in terms of attrition? Thank you.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

So on the weekly salary it has been received very well. And I believe that the kind of things that we are listening in the market about attrition, we are not that tightly affected. But I don’t think that this can be the only reason for — so maybe we — if our attrition if we had monthly salary, the addition would have been 1% higher. So I think everything adds up to be attrition. On the minority investment side, you’re right that we wanted most of the investments to be around 26%. In many cases, we probably had either found it too early to go 26% or the availability to be less than 25%, 26%. And Bizom, over the time, we have increased our share.

In Vyapar also, we started with 26%, now we are at 27.5%. In the [Indecipherable] also we started with 10%, 11%, now we are at 15%. So as is then, we continue to assess businesses. And as and when there are any things we will continue to look for opportunities to increase our size. In 9 out of the 14 investments that you see here are about 25% or more. About — specifically about M1 Exchange, it’s an RBI controlled regulated entity and no single entity can take more than 10% being an RBI controlled banking exchange. So we are only allowed to take up to 10% there. We already have 7.7%. And as when we will find the opportunity, we will increase it to 9.9%.

Vivekanand Subbaraman — Ambit Capital — Analyst

Okay. Thank you. Just one last follow-up. Any updates on Vyapar and how the offtake has been? And how you are thinking about it now alongside Busy?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Both operate in a very different segment. While Busy operates more of a small and medium businesses, Vyapar operates mostly at micro and small business. Vyapar, less than 50% of the Vyapar customers are just stayed in digital [phonetic] businesses. In Busy, I think more than 80% or 90% customers are just stayed with digital and not only [Indecipherable] but I think with good turnover. So Vyapar and Busy actually solving very different needs for very different customer segment. Busy probably is more to do with carry kind of a market, whereas Vyapar is the very self-accounting software or DIY accounting software.

Vivekanand Subbaraman — Ambit Capital — Analyst

All right. Thank you.

Ravi Gothwal — Executive Director

Thank you. Moving on to next participant. Ajay Modi, do you have a follow-up question?

Ajay Modi — Piper Serica Advisors — Analyst

Yes. Thanks, Ravi. Dinesh ji, a quick one. You have a very large exposure now to accounting. We have Livekeeping, Realbooks, Busy and Vyapar. Can you just throw some light on what is your long-term thought process with these — all these? And while I understand which pieces of the puzzle do they fit in. What are we looking at from a longer term? I mean what is the opportunity size that we’re looking at?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

So opportunity size, if you look at today, the today’s market about — about INR2,000 crores is what the customer pays. About INR1,000 crores is what the company’s revenues are because most of the companies have been working on box model, box license model and the transfer pricing model. So from the customer side, we — and I’m not talking stack and other — only the small business accounting. So that’s about INR2,000 crores of the market. And — this market has grown rapidly in the — after GST.

In the year, GST year, this market actually tripled from being at INR300 crore, INR400 crore market to INR2,000 crores. And ever since then it has been growing. And now with mobile and cloud, we believe that this market can become a $1 billion market over the next 10 years or so. Out of that, if you look at major market share has been Tally, and Tally has been primarily an accountant-led, Desktop-only accounting software. Our take is that, that is going to change. Vyapar came from a mobile-only and DIY accounting and now slowly and slowly started to offer a hybrid cloud onto Desktop as well as mobile. Realbooks is a multi-branch multi-location, simultaneous accounting system.

Busy, though it has a historically box-based pure Desktop model, but I think our vision is to convert that over a period of time into a mobile and multi-location cloud-based model. So we believe that this is a good — anyway, it has all the good business models like stickiness, customized stickiness is there. It has a recurring revenue stream. Earlier, it was in the name of AMC or upgrades. Now I think over a period of time, as we have seen most of the software is moving into a recurring revenue system.

So I think we are looking at — frankly, when we get businesses within IndiaMART, the ecosystem are using our software. So the bar is being used by almost 0.5 million people. Busy being used by — 3 lakh licenses have been sold. Many, many people have two, three funds being operated on the same license. And similarly, Tally as per published resources are about 5 million users on Tally. So I think this market is going to only grow. It’s been there for almost 50 years now. This market is going to grow only.

Ajay Modi — Piper Serica Advisors — Analyst

But have we — I mean, are we already seeing the kind of adoption here as in — from an expert point of view, what you would have expected in terms of adoption? Are you seeing that already?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

So in Vyapar, when we first saw Vyapar in the somewhere in the middle of 2019, it had less than 10,000 customers. Now we are just three years from then in July ’19 versus July ’22, there are already 120,000 odd customers. So they have added 1 lakh plus customers in three years.

Ajay Modi — Piper Serica Advisors — Analyst

Okay. That’s all from my side. Thank you.

Ravi Gothwal — Executive Director

Thank you, Ajay. So I’ll now read out a couple of questions from the discussion panel. The first question is, do you charge commission as a percentage of sales from your platinum subscribers to understand the ARPU of 7.0 [phonetic] lakh subscribers.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

No, we don’t.

Ravi Gothwal — Executive Director

Okay. And now moving on to the next question. What is the registered supplier versus paid supplier ratio? And what is your current conversion rate from the free supplier to the paid supplier?

Brijesh Kumar Agrawal — Whole-Time Director

So about 2 lakh — 1,70,000 paid customers and about 70 lakh free customer. So that makes about 2.5% of the customer base, which is paid. If you look at worldwide classifieds, they typically have anywhere been 2% to 5% penetration, whether you look at [Technical Issues] many of other 2% to 5% penetration. In our case, being B2B in certain, we look at GST data out of the GST data about 12 million people, there are about — there should be about more than 1 million possible customer base over a long period of time.

Ravi Gothwal — Executive Director

Okay. Sir, just a follow-up, sir, on this. What would be the strategic focus area or how do you plan to improve this conversion apart from advertising what would be the key drivers to improve this conversion rate?

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

We continue to expand — make it easier for people to do DIY as well as continue to expand our touch points, whether it’s online, telephone base or field base, now we have expanded through channels also. So we’ll continue to do that. I would say, one of the most important factors in this free to paid conversion is people’s own ability to take out value from a internet-based business. There are — within the same category, within the same geography, there are some people in the same geography, same industry, are able to take on better value from IndiaMART and some people are not because of the way they are adopted to internet. And as and when more and more people are adopting more and more businesses are adopted, that is also going to improve over a period of time. We have seen — it’s been only 5, 7 years when this mobile phone has become quite popular. And I think it will continue to improve over a period of time.

Ravi Gothwal — Executive Director

Thank you very much, sir. So maybe now I would like to hand over the call to you for the closing remarks.

Dinesh Chandra Agarwal — Managing Director and Chief Executive Officer

Ladies and gentlemen, thank you very much for joining our quarter one FY ’23 conference call. I’m sorry about the Internet disturbance that we have had. In case you have more queries, please feel free to reach out the Investor Relations department, and we will be happy to answer your queries one on one. And we will try to have a better connectivity next time. Thank you very much. Have a great day, and have a great evening.

Ravi Gothwal — Executive Director

[Operator Closing Remarks]