IndiaMART InterMESH Ltd (INDIAMART) Q3 FY22 Earnings Concall Transcript

IndiaMART InterMESH Ltd  (NSE:INDIAMART) Q3 FY22 Earnings Concall dated Jan. 25, 2022

Corporate Participants:

Ravi Gothwal — Executive Director

Dinesh Chandra Agarwal — Managing Director

Prateek Chandra — Chief Financial Officer

Brijesh Kumar Agrawal — Whole Time Director

Analysts:

Mihir Damania — Ambit Investment Advisors. — Analyst

Kushagra Bhattar — Old Bridge Capital — Analyst

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

Ajay Modi — Piper Serica Advisors Pvt. Ltd — Analyst

Prateek Kumar — Antique Stock Broking — Analyst

Manish Gupta — Solidarity Advisors — Analyst

Amit Chandra — HDFC Securities — Analyst

Sumit Pokharna — Kotak Securities — Analyst

Presentation:

Ravi Gothwal — Executive Director

Good evening, ladies and gentlemen, this is Ravi Gothwal from Churchgate Partners. And on behalf of IndiaMART InterMESH Limited, I would like to welcome you all to the Company Q3 FY ’22 Earnings Webinar. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions once the presentation concludes.

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 who has recently joined as Head of Treasury and 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 risks and uncertainties. Kindly refer to slide number three 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

Good evening, everyone, and welcome to IndiaMART’s quarter three FY 2022 earnings webinar. I hope you and your loved ones are staying safe and healthy. We have already circulated our earnings presentation, which is available on our website as well as on the stock exchange’s website. 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 our consolidated revenue from operations has been INR188 crores in the third quarter and deferred revenue of INR790 crores, representing a growth in the deferred revenue, up 25% year-on-year. Collections from the customers for the period have grown by 24% to INR222 crores in quarter three FY22. During the quarter, we also added 5,833 paying subscribers, closing the total count at approximately 156,000 during the quarter. Unique business inquiries stood at 23 million, with our 90-day repeat buyers standing at about approximately 55%. As communicated last time, we are improving our algorithms for better matchmaking and higher efficiency in the system for easing the efforts of buyers and sellers. Our average match-making per unique business inquiry reduced to 5.3 times as against 6.3 times earlier.

Further, we are very excited to share that we have strengthened our value proposition in the accounting software space by acquiring 100% stake in Busy Infotech Private Limited for INR500 crores in cash. Busy was founded in 1997 and currently is one of the largest accounting software company in the Indian market with over 2 lakh users. The business is cash positive with a revenue of INR42.4 crores and PAT of INR11 crores in FY ’21. Also, Vyapar, one of our investee company offering mobile accounting software has announced the Series B Investment, the round led by the WestBridge Capital wherein we have invested an additional INR63.5 crores and have raised our stake from 26% to 27%.

Let me also brief you about some of the strategic investments that we made in the previous quarter. We have acquired 7.7% stake for INR32 crores in Mynd Solutions which runs M1xchange, an invoice discounting exchange, one of the trade platform as approved by RBI. We have also acquired 26% stake for INR13 crores in EasyEcom, which offers AI-driven omnichannel inventory and warehouse management solution to D2C e-commerce merchants. Looking ahead, we continue to see increasing adoption of Internet by businesses, which will fuel the long-term growth at IndiaMART. We remain committed to enhance our value proposition and leverage these opportunities.

Now, I would like to hand over the call to Prateek to discuss the financial performance in a little more detail. Thank you and over to you, Prateek.

Prateek Chandra — Chief Financial Officer

Thank you, Dinesh, and good afternoon everyone. I will take you through the financial performance for the quarter ended December 2021. Consolidated revenue from operations was INR188 crores in the quarter, a growth of 8% year-on-year, driven by both the increase in ARPU and paying subscribers year-over-year. Consolidated EBITDA was INR79 crores, representing a margin of 42%. Expenses have increased primarily in the manpower costs due to increase in headcounts and re-rating of salaries across the markets and our investments behind growth. Net profit for the quarter was INR70 crores with a margin of 33% and cash generated from operations during the quarter was INR84 crores. As of December 31, 2021, total cash and investment balance we have was at INR2,523 crores.

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]. The first question is from the line of Mihir Damania. Mihir, please go ahead with your question.

Mihir Damania — Ambit Investment Advisors. — Analyst

Yeah, hi. So my first question is relating to a sharp drop in site visits if you see on a quarter-on-quarter basis. So what has actually resulted in the same and what are we doing to mitigate the drop in traffic?

Dinesh Chandra Agarwal — Managing Director

Thank you, Mihir. The sharp drop in the traffic generally you see in quarter three, we have historically have 10% lower than the quarter two traffic. However, this time I think because of the pent-up demand from the wave two, there was a much higher traffic in quarter two and that’s why we are seeing this. I am seeing good 90 million kind of traffic on month-on-month basis, so I think we will stabilize back to 272 million odd visits per quarter.

Mihir Damania — Ambit Investment Advisors. — Analyst

Okay. My second question is relating to the acquired business. So once it is acquired, is the business [Technical Issues] Hello, am I audible?

Ravi Gothwal — Executive Director

No, Mihir. Sorry. You broke up. So can you repeat your question?

Mihir Damania — Ambit Investment Advisors. — Analyst

Yeah. So my second question is relating to the acquired business. So the acquired business is in accounting software, so does it compete with Vyapar in anyway and if not, how are they different? And what is expected revenue and PAT for FY ’22 for the Busy Infotech which you acquired?

Dinesh Chandra Agarwal — Managing Director

So when we look at Busy Infotech, Busy Infotech actually is an accounting cum ERP software, which is available on-premise for companies to do their accounting. The product features that you typically go ahead and see are on the screen right now would give you an idea on the expanse of what all can be done within Busy.

When we look at Vyapar, Vyapar essentially is a cloud-based SaaS product which is being made available [Technical Issues] businesses which are trying to do accounting on their own. It’s a DIY kind of a model. So people generally would use this for the purposes of doing basic accounting on their own and therefore is a product that appeals to these micro and small businesses as a segment more, whereas Busy typically would be competing with Tally and Marg of the world, where you would look at small and retail businesses being the principle set of customers.

Ravi Gothwal — Executive Director

Second question was regarding the expected FY ’22.

Dinesh Chandra Agarwal — Managing Director

When we look at the current [Technical Issues] over the past three, four years period, their typical revenue growth rate has been within the range of 10% to 15% on a CAGR basis and their PAT margins have been around 25%, while we are of course going ahead and going to focus on taking over the business over the next one or two quarters and trying to stabilize the overall management team there, we think that we would want to go ahead and look at at least doubling the revenue growth rate from the current levels. And then as we get better understanding of the overall business and the operations and how things are working on the ground, we will be in a superior position to comment upon the future growth rates after this understanding has been built.

Prateek Chandra — Chief Financial Officer

So current FY 22 I guess we would be looking at INR44 crores to INR45 crores of revenue.

Mihir Damania — Ambit Investment Advisors. — Analyst

Okay. And my last question is relating to, can you just talk briefly about a few strategic investments and how they are scaling post our investment. The last time you talked about Vyapar, can we get a few other examples what they are currently up to?

Dinesh Chandra Agarwal — Managing Director

Yeah. So if you look at Mobisy Bizom, which operates Bizom. Bizom is one of the little scaled business which is running at around INR40 crores, crores of run rate and they have on quarterly basis being growing at 10% to 15% per quarter. They are near breaking — some quarters they make some losses, some quarters they don’t. The other ones are all of them were invested in the last nine months only. So all of them whether it is Shipway, Legistify, SuperProcure, Aerchain, all of them are very small. The only one which is a slightly bigger one is M1xchange; it is the RBI licensed entity which offers invoice discounting and bill discounting in an automated manner. It’s an exchange and you can only take up to 10% participation in an exchange. We have bought secondary shares from SIDBI. SIDBI was an early stage investor in that, one of their fund was getting over. So we have bought 7.7% there and this is again a very recent investment in November ’21. So all others are very new investments. So I don’t have much updates on them. I believe once FY ’22 completes and their numbers are there, I think in July quarter, I will be able to give you some updates on the investment made in the last nine months.

Mihir Damania — Ambit Investment Advisors. — Analyst

Yeah. Thank you very much and all the best.

Ravi Gothwal — Executive Director

Thank you, Mihir. Next question is from the line of Kushagra Bhattar, Old Bridge Capital. Kushag, please go ahead.

Kushagra Bhattar — Old Bridge Capital — Analyst

Sure. Thanks for the opportunity. Couple of questions to management. So first is, if you can give more sense on the rationale behind both the deals of Vyapar and Busy and also if you can cover, how you guys have valued both businesses, what all parameters you looked at and between both these businesses, how did you compare both of them. And also you mentioned in your opening remarks that it’s an on-premise model. So when all your offerings and your future strategy of going into SaaS which we have been hearing from past couple of quarters, why going for an on-premise model and being almost a big acquisition.

And the related question is, initially you have highlighted in the past that you generally go for smaller minority stakes and then see how the business is panning out, right. But this time you upfront invested 100%, not even testing for some period of time. So why different set of an approach this time. And if accounting is really that big opportunity, why not invest more in Vyapar instead of spending in two different softwares? This is more a broader question. I would have couple of follow-ups as well.

Dinesh Chandra Agarwal — Managing Director

Let me answer about Vyapar and then Brijesh will add more rationale behind Busy. So Vyapar, as you know has been growing well and Vyapar, as Brijesh also mentioned, it is primarily a mobile first and primarily a micro-sized businesses platform, which is self used platform, it is not meant for accountant or multi-location or complex manufacturing or sourcing kind of product. Vyapar itself has grown to almost 1 lakh plus customers. When we invested in them, they had around 15,000 customers and around INR20 lakhs monthly run rate, now they have over INR2 crores monthly run rate in terms of collections and that is why we have doubled down on Vyapar, where Vyapar has raised about INR200 plus crores from WestBridge. WestBridge is taking about 20% odd there and IndiaMART has maintained our position at 26%, not only maintained, but we have bought additional 1% from secondary shares where we are investing about INR63.5 crores.

Now, learning with Vyapar is that it’s a very sticky and very large opportunity in the accounting space and we have been studying this space for a while whether it was Busy or Marg. Marg has been recently acquired by PharmEasy as part of their DRHP, it is disclosed and we have valued Vyapar at the similar multiples as Marg deal. Yeah, we have acquired Busy at the similar multiples as the Marg deal. Now valuation for early stage business versus valuation for a later stage business is very different. Also the revenue in Vyapar is customer revenue, most of the customers correctly pay to Vyapar, while in case of Busy, it is a transfer pricing revenue, dealer revenue. So Vyapar sells it to dealer and then dealers further mark it up and sell it to the customer. So the retail price MRP is different than the revenue realized in case of Busy. So I think taking into account multiple things, one focusing on self-use mobile side, SaaS and other focusing on slightly complex, more desktop kind of thing. I think these two are very complementary set of products and they will continue to have a good growth in the times to come.

And then Brijesh, Vyapar side — Busy side more item.

Brijesh Kumar Agrawal — Whole Time Director

So let me also just add on the rationale that we believe is driving this decision of going ahead and looking at multiple companies within the accounting space. When we look at accounting traditionally, its a business which is very, very sticky. Customers typically would not switch from one platform to the other very easily and we’ve seen that players like Tally, Busy, Marg have had a loyal and sticky customer base available with them. These are customers who have also been focused upon keeping their data in a fairly protective mode, not really going ahead and doing everything on a cloud basis. And a lot of this is also driven by how the chartered accountants really want them to go back and manage their accounting and auditing practices.

So overall, today when we look at the top three players in the accounting space which do on-premise, they have more than 2.5 million paying subscribers between Tally, Busy, and Marg. When we look at the mobile first cloud-based market, the number of subscribers, the paying subscribers there for each of these players put together is just a fraction of this number today. When we look at the overall GST registered businesses only here in India which is about 12 million, all of these numbers again suggest that we have only or these softwares have only been able to reach to a certain small percentage of the overall population.

The way we are seeing usage of mobile, acceptability of cloud and increased regulations and need for compliance which is being pushed by the government in the form of e-invoices, e-way bills, regular returns being filed. It is going to become almost mandatory for such businesses to go and adopt a software to manage their entire accounting and compliances and reporting. So the overall market in itself, according to us is poised for growth and there is going to be growth coming in for all kinds of these offerings put together. So for us, by having multiple, let’s say, presence across different kinds of products catering to different kinds of segments will mean that we would be able to address a larger chunk of this bucket, given the fact that accounting is the — or accounting software is the only product which is used at scale by small and mid-size businesses and this is a global phenomenon by the way if you really go and look at it. In India, it is far more prominent.

We think that this opportunity in itself allows us to go and reach to the widest possible SMB audience and therefore we are doubling down on this space. We have stated in the past also as to how strongly we feel about it. And in fact, given our experience of investing in Vyapar and what we’ve seen there that actually also gave us a lot of confidence to go ahead and look at doing a full-fledged acquisition at this point in time rather than just simply taking that root of minority investment and then look at taking a majority or doing an acquisition there. In fact we feel absolutely confident about this entire space. We would want to go back and continue to build a royal class product and make sure that this expansion that we are going to see in terms of market, in terms of the penetration of accounting software within SMB space, we should be leading that change here in the next decade to come here. So that is something why we believe that we need to invest behind on-premise accounting, why we believe we need to have multiple investments in the accounting space and also why we should go ahead and do an acquisition at this point in time rather than only taking a minority investment route.

Kushagra Bhattar — Old Bridge Capital — Analyst

Sure. Okay. This explains. Second, related question is now you are almost done with 70% of the fundraise which you did and pretty clear of going a little aggressive at this point of time. Any thoughts on how you guys are planning to monetize all these acquisitions, because a few quarters back you sort of highlighted that we’ll see how these businesses evolve and then we will see some sort of a monetization SaaS of — monetization plans on all these SaaS offerings. So any color on how you will price these, how will you club them in your current packages, go-to-market or how you are going to offer or sell to your clients all these new businesses, new offering which you have acquired?

Brijesh Kumar Agrawal — Whole Time Director

So as I said we take about a year to understand the businesses after we invest and then we start to experiment with any kind of cross-selling, any kind of a data-sharing opportunity there. And I think we have been doing some experiments with Vyapar. To some extent, those are showing some results, nothing very significant numbers that I can share you with.

In terms of Mobisy Bizom, we keep discussing what are the ways to further help each other. We haven’t yet found anything very substantial that can be immediately plugged in or — but all other investments are literally very small. We help them generate leads, but beyond that, they are still very small.

Kushagra Bhattar — Old Bridge Capital — Analyst

Okay. So last one from my side, on the Legistify, so you have increased the stake. Again a similar question what I asked on the Busy and Vyapar. If you can provide what changed basically in this business and how do you see this very specific, domain specific business to evolve going forward? Yeah, that’s it from my side. Thanks.

Dinesh Chandra Agarwal — Managing Director

So in this round, we’ve invested almost INR7.5 crores into Legistify. Legistify is a litigation tracking and the management software. Currently, it’s fairly at early stage in the terms of revenues, there would be approximately INR15 lakhs revenues a month. They have more than 100 customers who are the enterprise customers. So looks like [Indecipherable] promising startup. They were looking at doing the fundraise for funding their expansion and growth. And since we believe in the story there, we decided to kind of support them. So it’s more of a convertible evaluation and everything would be linked to their next fundraise. It’s more of a bridge around to the larger fundraise which they will plan after sometime.

Kushagra Bhattar — Old Bridge Capital — Analyst

Okay. Sure. Thanks.

Ravi Gothwal — Executive Director

Thank you, Kushag. Next question is from the line of Pranav Kshatriya from Edelweiss. Pranav, please go ahead.

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

Yeah. Thanks for the opportunity. I have two questions. Firstly, can you throw some color on the flattish collection for this quarter, considering I think this quarter possibly the paying customer addition was decent compared to the last quarter. So in that sense, I also want to know that how the churn has been for the silver monthly customer, which has been a key issue in terms of the paying customer addition. That’s my first question.

Secondly, I would also want to know on the cost side, how should we look at the cost going forward and specifically, I mean you had talked about steady-state cost coming INR200 odd crores per quarter, we are at INR110 crores. So for FY ’23 should INR110 crores to INR120 crores should be the base or it could be even higher, considering the manpower costs are going up? So these are my two questions. Thank you.

Dinesh Chandra Agarwal — Managing Director

So Pranav, to answer your questions, you asked about the collection, the customer growth, which was the churn and about the cost.

So starting with the question on collections, this quarter we saw roughly around 24% growth in collection from customers, while you’re right that last quarter again we did the similar number which had a slightly higher percentage. However collections, we would recommend to look at more on a year-on-year basis as it would have little bit of a quarterly seasonal trends therein.

In the terms of customers, the growth and the churn, overall, on a net basis, we’ve been able to add 5,800 customers in this particular quarter, which had been higher than the previous quarters. It is a result of two things and certainly improvement in the acquisition of the customers as well as reductions in the customer churn that you were seeing. So this quarter churn was slightly better than previous quarter churn. We saw the churn stabilizing there. However, towards the end because of again the COVID wave, there is a bit of uncertainty about collection in customers. But overall, we saw things are pretty much improving and moving in the right direction. Specifically about churn I think as the monthly customer addition has been muted over the last two years, there has been relief on the churn side and that’s why the net customer addition is now showing up, because we have been working to expand our new client acquisition in the multi-direction with the channel sales and that has started to pick-up a little bit. And I think going forward also, we continue to believe that we will do better than 5,800 net addition, at least for the next couple of quarters that I have visibility — getting visibility on.

And in terms of the collection, last 15 days of December as well as the first 15 days of January, there has been some impact of the Omicron. Many of our employees are also not feeling well and their family members. But in general, I think this should be over by the month-end, February and March should be great months.

On the cost side, Prateek.

Prateek Chandra — Chief Financial Officer

Coming back to your third question, on the cost side, so as I said earlier, if you see the increase in the cost has primarily been in the manpower side and manpower side, again, there are two factors which are paying up. One is, as we look at investing behind the growth, we are increasing the headcount. This quarter we’ve added roughly around 225 more employees than the previous quarter and we look forward to continue building up this manpower by roughly around 100 employees every quarter.

The second factor, which is leading to the manpower increases also, the re-rating of the salaries, which have happened all across as what we see in the entire sector that has been in talent crunch and challenges on the talent retention. So if the market correction is taking place, we’ll have to come up to that market correction because it’s always advisable to retain the people rather than letting them go. So we would see some impact there.

On the cost base of 110 and for the next quarter as to what will it become, we announced our increments in the quarter four. So certainly, there would be a further cost increase you would see in the coming quarter. The exact number would be like — its a difficult to guide, but certainly the cost would increase in the quarter four as compared to quarter three. On the FY 23 guidance, I would say that let this JFM quarter complete and the JFM quarter numbers we will be able to give you the FY ’23 guidance on the cost.

Dinesh Chandra Agarwal — Managing Director

Yeah. However, if you look at from a margin standpoint, as we’ve guided that structurally, the margin had been more around 38% adding one quarter here or there. We think we should be able to maintain those margins on a yearly basis.

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

Okay, thank you. I mean, if I can just ask one follow-up question. So I understand that typically Q4 has the bonus payouts and so on and that’s why we should see the cost increase. But other than that, I mean should we expect what we have seen the cost base, how it has increased. I mean, for example, before COVID [Technical Issues] roughly 15% odd as a baseline increase in the cost, I mean is that a fair assessment?

Prateek Chandra — Chief Financial Officer

That’s where there is a difference Pranav. Pre-COVID, yes, you are right that we were typically having a overall cost increase at 15% to 18% barring a few years where it would have gone to 20%, but it has been 17%, 18% on an average. Now since last two years, we haven’t had — we have had a depressed cost, offices were closed and they haven’t given much of increment. We haven’t hired many people. People were not hired. So I think there is, one, there is a replacement hiring that is happening of the people who left in the last 18 months. And now I think we are almost at the same level as pre-COVID. And now if you see, we have to hire for growth also. So that is why, if you will compare this cost with the FY ’21 cost that won’t be correct. But yes, if you look at the FY ’20 kind of cost, assuming 15%, 18% growth over that for FY ’23 should be fine. So FY ’23 versus FY ’20, I think the 15%, 20% growth in cost should be assumed.

Pranav Kshatriya — Edelweiss Financial Services Limited — Analyst

So thank you very much. Very, very helpful. Thank you.

Ravi Gothwal — Executive Director

Thank you, Pranav. [Operator Instructions] Our next question is from the line of Ajay Modi. Ajay, please go ahead with your question.

Ajay Modi — Piper Serica Advisors Pvt. Ltd — Analyst

Thank you, Ravi. My question, Dinesh, is two-folds. First, on the growth. So while you’ve been guiding of quarterly new subscription addition of about 6,000 to 7,000 and you have met that kind of amount for this quarter, the growth still seems to be low in terms of both new subscriber, new paying subscriber addition and ARPU. Now, should I link it with the business inquiries because the business inquiries delivered were also seem to be subdued for this quarter. So is it that we are kind of losing market share or is it that a competitor is more competitive, which is why we are not able to kind of increase ARPUs or get more paying subscribers or is it because that we are not being able to add enough value to the free subscribers to convert them into paid. That is one question.

The second question is on the acquisitions or the investments that we’re making. Are we looking at these as more of financial investments, passive investors or are we looking at kind of using a lot of these products for our existing subscribers kind of adding value to our existing paid subscribers. In summary, what I’m trying to understand from of these questions is that, if I were to look at IndiaMART say three years, five years out, do I still look at IndiaMART as a company who is continuing to add subscribers and deliver inquiries, that’s it or are we trying to move to a more value addition model like the Chinese counterparts?

Dinesh Chandra Agarwal — Managing Director

Okay. Let me first answer your second question, I think I remember that part better now. So in terms of investment, you ask whether they are — pure financial investments are strategic in nature where we would be adding more value to either other customers or to their customers or to the entire ecosystem or will it help in increasing our ARPU or their ARPU or reduce our churn or their churn. So I think these are definitely not the pure financial investments. These are minority investments in the strategic spaces and we will continue to find ways and means to up-sell, cross-sell, partner and create the partnership into more meaningful partnerships. These are not for a three to five years investment and sale purposes.

And as I have been guiding that, we will probably take one or two minority investments every quarter and possibly one acquisition every year or so. And that is what, if you really see in February last year, mid of February last year we raised funds and we have been able to do by since then almost seven or eight investments so far in less than four quarters completed as well as we have been able to do one acquisition. I think for a first timer, that’s a pretty encouraging thing.

Now coming to the overall growth, I believe Internet has a very long runway, B2B has a very long runway, India has a very long runway and SMEs have a very long runway. We have seen this journey from 1996 till date. Every two, three years we find some or the other dampener as well as some or the other rocket-ship and it has been happening every now and then. Last two, three times there has been a GST, there has been demonetization, there has been COVID and some of them have positive impact on digitization, some of them have negative impact on unorganized SMEs. I continue to believe that it is still a very, very large opportunity. IndiaMART is very, very relevant and with all these investments being made, we will become even more thread to fabric that kind of relationship with the Indian businesses.

In terms of growth, as I said that in the past because of every nine months, there has been one lockdown or one wave, we have not had a continuous addition into the customers. If we had a 5,000 typical continuous — 5000 to 6000 typical continuous, we would have seen that growth, but you can see two quarters we add and then one quarter we have to sacrifice the growth. And so we cannot comment on that external world, but I think we are confident that our acquisition channel is working fine, our product is working fine and we should be able to add that 6000, 7000, 5000 customers every quarter.

And in terms of ARPU, whenever we have a customer growth, unique customer growth about 20% the ARPU is about 5%. When we have 10% customer growth, then the ARPU increases by 10%. So because the ARPU is nothing but the total customer revenue divided by the number of customers. So if the customer base increases because most of the customer base increases at the bottom of the [Indecipherable] at the lowest ARPU and then over the period of time, they upgrade to the higher services. So I don’t see an ARPU increase suddenly from here. If the entire next year is free of COVID, I’m pretty sure we would be able to get to 15%, 20% customer growth and maybe very less ARPU growth from here on. But whenever we have the lesser customer growth, then we get the ARPU growth. [Speech Overlap]

Brijesh Kumar Agrawal — Whole Time Director

So when you look at the entire model for us, the leading indicators for us would essentially be in terms of our collections and the deferred revenues and it is from the deferred revenue buckets that you will see revenue actually getting recognized. So over the last few quarters, now we have seen almost like a mid-25% kind of growth both in our collections as well has been deferred revenue and as obviously we move quarters ahead, this increase in deferred revenue or collections will reflect into our revenues. The current growth in revenue obviously is dependent upon what we did four, five, six quarters ago and therefore you may see that as subdued, but we definitely see that with the number of net customer adds getting back on track with the economy opening up, obviously this Omicron thing is a blip that has happened for about a month or so, we think we are probably in a very, very good shape to take advantage of all the improved Internet adoption that has happened because of COVID in this way, and we should be looking at decent growth for us even going forward.

Ajay Modi — Piper Serica Advisors Pvt. Ltd — Analyst

So Brijesh, thank you for that. And Dinesh, thank you. I would like to — so Dinesh, I am with you, I understand that this space is very large and we are becoming more and more digitized. The only problem is that having seen so many Internet companies, the problem is that look, a lot of these Internet businesses are in an exponential growth trajectory whereas IndiaMART as a company, we’ve been in a subdued growth environment right now and I can understand, look, the target market which we cater to, which is SMEs, they have kind of been in a little bad shape for a while now, but then my question again is look, are you satisfied. I mean is it that 6,000, 7,000 new customer addition and a little bit of ARPU hike is all that we should expect going forward. And I understand, look, so many acquisitions that you’re doing is definitely for some outcome. But having said that, whatever last four quarter acquisitions you’ve done, kind of still does not reflect so far. So, what I’m trying is just simply dig through is, is it because the base of 1,56,000 paying customers, is that base very large now from where growth of, say, north of 20% is going to be a little difficult?

Dinesh Chandra Agarwal — Managing Director

If you look at our collection from customers, it is still — last quarter it grew by 36%, this quarter it grew by 24%. So I don’t think — if you look at the revenue from operation that’s a 20-month moving average, when collections were minus 10% and minus 50%, then also revenue was minus 2% and plus 10%. So we are still growing at 30% plus minus —

Ajay Modi — Piper Serica Advisors Pvt. Ltd — Analyst

No. Sir, but your guidance always remains about 6,000, 7,000 quarterly new subscriber numbers.

Dinesh Chandra Agarwal — Managing Director

Now I am guiding that — I think we have been guiding at 5,000, 5,500. Now I’m guiding 6,000, 7,000.

Ajay Modi — Piper Serica Advisors Pvt. Ltd — Analyst

Okay. So when do we get to 9,000, 10,000 kinds of a number?

Dinesh Chandra Agarwal — Managing Director

That we will let you know next quarter or about a quarter or two.

Ajay Modi — Piper Serica Advisors Pvt. Ltd — Analyst

Okay, cool. Thank you. I will come back in the question queue if I have any.

Ravi Gothwal — Executive Director

Thank you. [Operator Instructions] Next question is line from the Antique Stock Broking. Prateek, please go ahead with your question.

Prateek Kumar — Antique Stock Broking — Analyst

Yeah. Good evening, sir. Can you hear me?

Ravi Gothwal — Executive Director

Yes, Prateek. We can hear you.

Prateek Kumar — Antique Stock Broking — Analyst

Yeah. So I had a question. One of the competitions mentioned about significant shift to monthly subscription plan from this quarter while we are sort of — I think what do we think about like change in like a subscription mix or a period mix for us?

Dinesh Chandra Agarwal — Managing Director

So we keep doing that. Sometimes it is 60-40, sometimes it is 60-40 and depending upon when we see where we want to keep it and where we want to acquire it. I think, for example, when the COVID hit, we didn’t want to do a monthly, and we could not have done monthly. A lot of people signing up a match remotely on a phone was much more difficult. So entire FY ’21 we hardly did at least for the first nine months, we hardly did monthly subscription and then we opened up monthly big time. I again remember that when 25th year of anniversary happened, then we ran anniversary for two, three quarters at annual subscription being at 10% discount. So I think that keeps on changing between 40-60 and 60-40. In terms of current client mix, currently, we have only one-fourth customer of the total 160,000 customers, about 40,000 customers are in Silver monthly. Rest all are in the annual or multi-year mode. And as I’ve been saying that almost more than 50% of our customers are in more than one year subscribed.

Prateek Kumar — Antique Stock Broking — Analyst

Okay. So there is no change in trend-wise, particularly related to industry shifting to monthly or industry or your customers wanting to shift monthly because they are sort of feeling the crunch and that’s why they want to pay less initially and then rest.

Dinesh Chandra Agarwal — Managing Director

If you remember, we had done some easing out on that side. Earlier the monthly subscription used to come with INR5,000 setup fee and then INR3,000 a month inclusive of taxes. So after the first wave or the first lockdown, we first tried to improve on that because the eNACH had become far more easier by then. So we removed the INR5,000 initial setup fee and converted it into an advance EMI kind of a thing, so INR3,000 as advance EMI. We also experimented with INR3,000 plus tax, but we found that that becomes too expensive at INR3,500 at the entry-level. So currently, the INR5,000 setup is gone and it’s INR3,000 inclusive of tax and we get about 50-50 annual and monthly plus minus depending upon any particular month when we run any promotion or something. So I guess the new customer acquisition will continue to happen at almost half and half between monthly and annual subscription.

Prateek Kumar — Antique Stock Broking — Analyst

Thank you. Second question is on like we have added like sales employee you mentioned and we continue to like sort of add them in coming quarters. So you remember that earlier, like pre-COVID, we had a significant dependence on on-field employees to ramp-up our business and we moved to offline mode and channel partners etc. So this increased hiring now will also go towards this on-field sales and which will also impact your costs?

Dinesh Chandra Agarwal — Managing Director

So, one is the — if you see at 147,000 customers, we had about 3,200 odd employees and we need employees for two things; one for acquiring new customers and other for servicing the existing customer. And servicing the existing customer, only Silver monthly and Tier 3 customers are served over the telephone. All Tier 1 Tier 2, gold and platinum customers are served on — annual customers are served by field sales force. So there itself we needed more people to serve these additional 15,000, 20,000 customers and more customers being added every quarter. Also the outsourced sales have increased to — this is in terms of crores, INR62 crore or what. So I think in terms of new client acquisition, you are right that we are slowly and slowly changing the mix. In terms of earlier, we had almost 1,000 plus our own people on the field and then about 300 people in the tele call centers and now we have almost — we are planning in a manner that 40% would be our own all field sales force, 40% would be probably in a channel field sales force and maybe 20% on the telephone. That’s the split that we are working towards. And on a overall basis, the increased customer acquisition would happen based upon the increase in the number of people in all the three channels.

Prateek Kumar — Antique Stock Broking — Analyst

Thank you, sir. And one last question on, do you still feel any need based on industry trend of increasing our ad spend or if you’re not still looking at incurring major ad spend to accelerate your growth [Indecipherable], a question mentioned earlier.

Dinesh Chandra Agarwal — Managing Director

I think on the ad spend side, if you see our traffic from the pre-COVID levels have grown from 60 million per month to almost 90 million per month. So that digital adoption itself has done a 50% increase in terms of our traffic on an annual basis if you see. So I don’t think there is a need for that, it’s more of trying to get seller side and on the seller side, ATL advertising is very expensive. I think you will be investing more on the sales and distribution rather than working on the ad spend. Some brand ad spend might happen as I have always been guiding, we can keep that INR20 crores, INR25 crores budget for annual but whenever that will happen, we will let you know.

Prateek Kumar — Antique Stock Broking — Analyst

Thank you, sir. These were my questions.

Ravi Gothwal — Executive Director

Thank you, Prateek. Next question is from the line of Manish Gupta, Solidarity Advisors. Please go ahead with your question.

Manish Gupta — Solidarity Advisors — Analyst

Hi Dinesh, just wanted to understand when should we start seeing more operating leverage in the model because in one of the slides you have shown your contribution at about 80% and over-time your technology headcount is not increasing much. So the current margin profile, if we look at the business a couple of years out, why should the EBITDA margin not expand from here from operating leverage?

Dinesh Chandra Agarwal — Managing Director

So last two years, if you take pre-COVID level EBITDA margin were 26%, 28%. From 26%, 28%, they are expanding to 38% in two years. Whether they will continue to expand given that there has been a salary re-rating and we haven’t had growth, so I think I’m guiding that for the next one year. Let us stabilize at 38%. After that again the same guidance will continue if we grow our 20%, if our cost grow at 15%, we will continue to see 1% per quarter margin expansion.

Manish Gupta — Solidarity Advisors — Analyst

1% per quarter you mean or —

Dinesh Chandra Agarwal — Managing Director

1% per quarter is what — if we grow at 15%, if your expenses grow at 16% and if your revenue grows at 20%, you will see a 4% margin expansion every year.

Manish Gupta — Solidarity Advisors — Analyst

Okay, excellent. Thank you.

Ravi Gothwal — Executive Director

Thank you. [Operator Instructions] Next question is from the line of Amit Chandra. Please go ahead.

Amit Chandra — HDFC Securities — Analyst

Yes, sir. Can you hear me?

Ravi Gothwal — Executive Director

Yes, Amit, we can hear you.

Amit Chandra — HDFC Securities — Analyst

Yeah. So thanks for the opportunity. So my question is on the investment side. I know you have explained a lot about the rationale behind the investment, but just to have some further clarity on this. So most of the investments are in the ERP space. So how are we actually looking to leverage these investments in our existing client base or our Platinum client. So for example, how many [Technical Issues] are actually using these softwares, specifically if you want to talk about Busy, is there a huge cross-sell opportunity in our existing client base where we can go and sell this software and if you can also highlight what is the pricing model there in terms of — because it’s an on-premise model, so whether we will be charging it as a license or a SaaS kind of model or it will be more of an offering, which will be more like a bundled offering, right, in which you will bundle it along with the yearly subscription charges. So if you can throw some light on that?

Dinesh Chandra Agarwal — Managing Director

So Amit, when we look at Busy as an accounting software, currently the on-premise model that they have, they offer subscription — they offer licensing model whereby you can take it for a single user for two users or for multiple users. The price typically would range anything between INR8,000, INR9,000 to about INR35,000, INR36,000. There are some of these users who would also go back and pay anything between INR3,000 to INR5,000 every year to get the upgrades that are launched by them. Currently about 25% of their customers essentially go for these services right now and that adoption has happened over the last two years specifically. Now, their current market share in the accounting software market, and specifically for businesses that are GST registered, they have about 10% market share and that is also fundamentally more on the manufacturing and the wholesale trading side of it. A sample dipstick between our customer base and the Busy customer base suggest that there is a current overlap of anything between 15% to 20% of the customers of IndiaMART customers using Busy accounting software.

So we definitely see that in terms of the target segment that is the existing overlap. However, as we go back and understand the operations of Busy far more deeply over the next year or so and we get a good hang on how they have been doing the overall sales distribution all these years, there is definitely an opportunity possible for us to look at bundling of these products. However, one important element that we must know is that at IndiaMART these subscriptions are for recurring payments typically. These are not one-time licensing fees. So therefore, when you look at closer bundling, we need to look at a subscription model rather than a one-time payment for that.

So better clarity on it of course will emerge as we go and build a better understanding of the business and also look at how to do we enable Busy in itself to look at a subscription model from the licensing fee by building up a cloud SaaS based application, but that is something which is a year or two away from where we are. And once we get into the business, I think that’s the time when we would be able to give you better clarity on when would this be sort of possible for us to go back and do. The current spread of customers that is already there with Busy suggest that they are fundamentally very, very strong in north, almost about two-thirds of their business comes in from the northern states itself and about 25% odd comes in from Maharashtra. So there is a lot of open space available in south, in east, in the central part of the country, where in fact their presence is very, very minimal currently. And I think that will of course be one of our priorities to go and use these white spaces to increase the overall customer base there.

Brijesh Kumar Agrawal — Whole Time Director

And, there, if you see their revenues until pre-GST were about INR10 crores, INR20 crores. It is only post-GST that they reached to this INR30 crores, INR40 crores. So their ability to expand massively on the sales force or a distribution network was also limited and I think they have done a very good job making a product, which is very stable and getting up to 2 lakh customer base. I believe, now we are a INR1,000 crore company, I think we have a lot more ability and lot more cash behind us to be able to expand sales force whether it is the dealer distribution sales force or whether it is new sales force or whether it is our existing sales force and we all know that sales has a lagging effect. Somebody with limited capital has that limited ability to press the pedal on the sales.

We have seen multiple times how Investing in sales can have a lagging effect on subscription businesses. So I think next nine months, I would say that we would not go and disturb [Technical Issues], we would just try and digest the business, understand the management, understand the product, make it a stable, smooth transitioning and then we would like to experiment with sales first and then going to mobile, and going to cloud and doing other things. So I think it will be year one, year two, year three kind of a thing. Let’s look at a five-year, 10-year horizon on this rather than looking at three quarter, five quarter.

Amit Chandra — HDFC Securities — Analyst

Okay sir. Fair enough. And sir, also the objective behind acquiring companies earlier was to increase our value-added services, maybe in terms of increasing more focus on the logistics, warehousing and no other ancillary services, which actually increases the ROI or the transaction capability for any seller. So what is the progress on that side. Why we are not acquiring or investing in that area, which can actually give a boost to our existing MSME penetration basically?

Dinesh Chandra Agarwal — Managing Director

We are investing. In the current financial year alone, April ’21 we invested in Shipway, March ’21, we —

Amit Chandra — HDFC Securities — Analyst

But these are very small investments. I’m talking about the kind of steps you are taking Busy like a big company and investing with full confidence, that kind of investment in those particular areas basically.

Dinesh Chandra Agarwal — Managing Director

After investing for two years, we have been able to make this courage to do a bigger investment. Let’s digest this one and then we will do one acquisition a year, over the — as I have been guiding, if we can do one acquisition a year for the next three years that should be our target and then we will look at, there are companies in the world who do one acquisition every month.

Amit Chandra — HDFC Securities — Analyst

Thanks, and all the best for the future. Thanks. Bye.

Dinesh Chandra Agarwal — Managing Director

Thank you.

Ravi Gothwal — Executive Director

Thank you, Amit. The next question is from Kotak Securities. Sumit, are you there?

Sumit Pokharna — Kotak Securities — Analyst

Yeah. I just wanted to know how is the competitive intensity and are we losing market share?

Dinesh Chandra Agarwal — Managing Director

I haven’t seen anything like that. Haven’t found any customers saying that I am going to x, y, z and even we sent many, many a times I think some of the research reports that you guys published had done customer diligence as our customer voices and there has been no overlaps and I’ve highlighted this earlier also, if the average order value on a B2C market place like Amazon or a Flipkart is $10, $15 versus the average order value on a B2B grocery marketplaces are like $50, $60. The average order value on Pay With IndiaMART that we see is around $400, $500 and Pay with IndiaMART only can use for lower value transaction, not for high value transaction. I mean if you see, say, one of our categories, say, diesel generators, now who’s who of the customer brands that you see and non-brands also are our customers and their average order values will run into the upwards of INR50,000 anywhere up to INR5 lakh, INR10 Lakh. So I guess we haven’t yet found any competitive pressure.

Sumit Pokharna — Kotak Securities — Analyst

Okay. And what will — how we should see the growth trajectory going forward from here for next two or three years?

Dinesh Chandra Agarwal — Managing Director

As I said, if these kind of every nine months some kind of lockdown or a wave does not happen, I think we should be good at anywhere between 20% to 30% growth rate.

Sumit Pokharna — Kotak Securities — Analyst

Okay. Thank you, sir. Thank you very much.

Ravi Gothwal — Executive Director

Thank you, Sumit. So due to time constraint, that was the last question. And with this, we come to the end of Q&A session. And now, I hand over the call to the management for their closing remarks.

Dinesh Chandra Agarwal — Managing Director

Thank you very much everybody for joining our Q3 FY ’22 conference call. We have tried to address all your queries. In case you have any more questions or follow-up questions, you can please contact our Investor Relation department and now Kushal is full time available to handle all your queries in much more detail. Thank you very much. Have a nice day and look forward to a great quarter again.

Ravi Gothwal — Executive Director

[Operator Closing Remarks]

Prateek Chandra — Chief Financial Officer

Thank you.