IndiaMart is an old hand in the e-commerce business and its founder and CEO Dinesh Agarwal would tell you that it is as difficult, if not more, to survive the booms as it is to stay afloat in bursts.
Started in 1996, the B2B marketplace survived the 2000 dotcom burst and has adjusted well to the dizzying heights India’s e-commerce has reached today. Standing on the cusp of listing on the bourses, IndiaMart is striving towards capturing the retail market with its 100% subsidiary Tolexo and expanding its reach towards big brands, while retaining its focus on SMEs.
In a conversation with et.com, founder and CEO, Dinesh Agarwal talks about his journey, his appreciation of Flipkart’s Bansals for transforming the ecommerce platform and the upcoming IPO.
Economic Times (ET). Since starting the website in 1996 as a listing platform and to entering the B2B retail market in 2014 with Tolexo, IndiaMart has seen many ups and downs. How has the journey been?
Dinesh Agarwal (DA). I always say that the incumbents which survive the boom and the startups which survive the burst are the ones that go long. As an incumbent, every new boom brings some kind of difficulty for us. Our entire apple cart gets disturbed – the talent we harvest, the cost structures and the margin structures that we set, everything gets challenged. So, we have used the boom years to reduce inefficiencies and becoming more competent.
ET. What were the key changes that you made last year and any reversal that you had to effect?
DA. The biggest decision we took last year was regarding talent retention. Every new boom drives up the talent cost and demand, but we used this as an opportunity to become a better employer. When it is business as usual, you might have all the intention of becoming the best employer, however it is only when you have to guard your talent from external threats that you actually get down to taking necessary measures. Since I have gone through a few of the booms, I use such times to upgrade my HR practices, talent acquisition and retention. And, if you survive the boom, all the benefits of these measures stay with you.
Alternatively, when a new boom is driven by customer acquisition then the incumbents have to defend their customer base as well. In those times, your efforts veer more towards becoming a customer-centric company.
Although we do not face competition in the direct B2B SME space, but startups like JustDial, SnapDeal, UrbanClap do overlap into our territory. So, last year we took some good measures and upgraded our customer systems even more.
ET. The e-commerce boom has increased competition in the entrepreneurial space with a spate of new players. How do you handle this pressure?
DA. It is not all pressure. The boom does have its share of positives. Once a boom settles, the industry is left behind with a larger user base, better technology, talent base, etc. During the boom, everyone is racing towards acquiring assets and in such times, a lot of irrational decisions also get made by both entrepreneurs and investors. It is only after a few years that you realise what worked and what did not. These cyclical turns also act as breathing space for the stakeholders.
ET. So, did IndiaMart take any irrational decisions during the boom years?
DA. We started Tolexo in 2014 and I distinctly remember telling my team in January 2015 to ‘set things on fire’ by getting into an acquisition frenzy. At that time, Amazon was launching its Amazon Supply and a lot many B2B companies were getting attention as the B2C space had got overvalued. I told them that no corner should be left un-acquired, no product should be left untouched. Around November, I called a halt to the acquisition activities.
Admittedly, it took a lot of time to douse that fire, but I also feel that if we had not set our sights high, we would have not crossed that orbit. Similarly, in 2010 we were acquiring a lot of customers and we decided to open 40 new branches in 20 cities. The idea was that there should only be 30 minutes of travel time between SME and a branch. Unarguably, it was a tall order for a company which had not even opened 14 branches in 14 years. Then, I raised the stakes to 52 branches in 52 weeks. We went about opening branches but I had track back to 40 branches.
ET. What was IndiaMart’s revenue in the last fiscal and how much did Tolexo contribute to it?
DA. IndiaMart’s revenue was a little over Rs 300 crore and Tolexo’s share in it was a little less than Rs 10 lakh. We burned close to Rs 100 crore last year in Tolexo. We started in January, 2014 and completed less than 10,000 orders a month, which we increased to 1 lakh a month now. This year, we plan to double or triple the scale, but keep the burn rate at the same level. Last year the burn rate per unit was very high, we burned Rs 6-7 crore every month even when orders varied between 10,000- 1 lakh units. We will continue to invest Rs 100 crore every year and if we keep doubling or tripling our customer base or revenue, than it will automatically reduce burn per unit.
ET. The burn rate of Tolexo is quite high. Why is Tolexo so important to IndiaMART?
DA. It solves a problem where there is a need. Availability is not an issue with most of the products which are sold on most e-commerce websites. However, a buyer does not even have the information of where to buy niche electrical equipments. You have to come to IndiaMart just to get that information. The products I sell on Tolexo are not driven by discount, but by availability. While IndiaMart and Tolexo are same in that respect, the difference lies in the quantity of supplies. Tolexo is a separate unit because it provides delivery, payment, variety and return services to its customers. Thus, what IndiaMart is to B2B as a wholesale, Tolexo is to B2B as retail.
It was important to capture the entire market. I wanted to start Tolexo in 2010, but the market was not yet developed. Tolexo has been possible only because of the five years of e-commerce boom. It is because of the pioneering initiative taken by FlipKart’s Bansals that the market developed. They developed the ecosystem and took courage to take initiatives like cash on demand, 30-day money back guarantee. If I have to thank anyone for starting Tolexo, it would be the B2C people.
ET. What rate of growth has IndiaMart clocked during the last year and when is it expected to break-even?
DA. We registered 45% growth rate during 2015-16 and it has stayed between 40-50% this year as well. The CAGR was also close to 40%. We would most probably break even sometime during the calendar year 2017 on the standalone basis of IndiaMart. With regards to Tolexo, we will still be in the investment mode for a few more years.
ET. You have grown at a good rate, but what are the new growth engines that you are targeting?
DA. We are targeting revenue from three streams. IndiaMart will obviously provide the bread and butter with its listing business, but there are two new growth engines that will drive our growth.
After we crossed 100 lakh monthly visitors on IndiaMART, we started getting some interest from big brands like Godrej Interio, Finolex Pipes in the form of advertising. So we decided to create a separate vertical to focus specifically on Big Buyers, Big Suppliers and Big Business. It looks promising and will be a considerable stream of revenue. Last year it was on a small base with Rs 2-4 crore, but this year we will increase it to Rs 20-25 crore.
The third stream and the second growth engine will be Tolexo. Last year, Rs 30,000 crore worth of GMV was transacted through IndiaMart so the aim will be to transact at least 10% of that from Tolexo. This year given that we are in the consolidation phase, we are targeting 200-300% growth.
ET. There is a buzz in the markets about IndiaMart’s upcoming IPO. Can you share details on this?
DA. It is every company’s dream to roll out IPO and so is ours. We are in talks with our investors, some of whom invested in us in the recent round. We are intent on rolling out our IPO, but before that we need to settle on a timeline, decide how much we want to disinvest and firm up plans. We are trying to announce it this year.
ET. How much do you expect to raise from the public offering?
DA. There is no point in speculating on this. For us, public listing is not merely about raising money from the public, but being accountable through good governance and ensuring liquidity to investors. We are not a very cash-consuming company. In fact, a substantial part of the $30-35 million which we raised through funding rounds is still in the bank.
We also have to figure out the percentage which investors want to divest. Currently, we are only at the stage of preparing the Draft Red Herring Prospectus (DRHP) and intend to complete it at the earliest. The entire procedure takes a lot of time.
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