Margin will slowly start to inch up to 33-34% soon: Dinesh Agrawal, IndiaMART

The Economic Times

So, for the next foreseeable one or two quarters, I think we will remain around that 28%, 30% and then we can start to improve year-on-year and reach 33-34% soon,” says Dinesh Agrawal, Founder & CEO, IndiaMART.

Let us first talk about the numbers and if I am looking at the margins for the last four quarters, the margins have been below your 30% mark. The Street was expecting margins to almost touch 35%. Could you share with us the growth levers and if at all you also sense this improvement to 35%?

I had already clarified this in the beginning of the year last year itself that now we are in a growth phase after two years of lull due to COVID. We had not invested in manpower and salaries also got re-rated heavily and that is why the margins have come down from upwards of 40% to 25%, 27%, 28%. And this was to be continued for this entire financial year and that is where we are. Once this entire backfill of the investment and backfill of the people is done, then I think margins can start to improve further from here on. So, for the next foreseeable one or two quarter, I think we will remain around that 28%, 30% and then we can start to improve year-on-year and reach 33-34% soon.

Looking at increasing your investments, is there a specific thought which is backing this thesis?

Yes because there was a backfill of the people which was needed and we did not hire people during the COVID times because there were so many uncertainties and now that whole backfill exercise is more or less getting complete and from here on the cost structure will increase as per revenue increase. And since revenue has been increasing upwards of 25%, I think the margin will slowly and slowly start to inch up.

To the subscriber or I would say customer base, there are a lot of dynamic changes which have happened because of COVID to SME and MSME sector, now that China has closed down, lot of changes are happening again, so in terms of the total base of your total customer because last three-four years have been extraordinary interesting, challenging and volatile times, is there a profile change? Is there a mix change?

So what has happened is if you look at 1.25 crore SMEs that are registered on GST, we take only GST-registered businesses as our paying subscribers and 99% of them are GST registered. So at the bottom of the pyramid, there is a lot of churn happening while the established SMEs have started to realise the benefit of internet and realise the importance of internet. So, they are becoming more stickier while at the bottom of the pyramid 50% SMEs are still trying to find their new business model because their business models got disrupted during the COVID and many of them have changed their business model. So, I think this particular trend will continue for some time. As the economy stabilises, I think the bottom of the pyramid has also understood very clearly the importance of internet and the adoption of internet and usage of internet. So, I think things will become very-very good probably after this FY24.

Given that you are so optimistic then walk us through your outlook then on your paying subscriber additions that has grown up about 6.6 thousand on a sequential basis, that has been a little bit lower due to the fewer working days in Q3. So, are you confident now of an uptick here in your subscriber addition? Will there be a bounce back?

Yes if you see traditionally our subscriber growth has been in the range of 15 odd percent even before COVID. Now, for the last one year or so, our subscriber growth has been around 25% and we will probably continue to add about 8000 plus customers every quarter for the next foreseeable two-three quarters. So, this subscriber growth will bring in revenue in times to come.

Nearing the completion of the catch up on employee hiring that had not been done during COVID, do you think that the integration can be completed by Q4 because that had been a bit of a stumbling block for the company and what could be the incremental top line that we can expect?

So, as you can see, on quarter-on-quarter our collection from customers has been increasing at around 25-28% so is the deferred revenue which has in this last quarter has increased at 29%. Revenue from operation, because it also includes the busy integration, otherwise on the like-to-like basis that is also in the similar range. Given that by the end of quarter four or by the end of quarter one next year, our all employee-related catch-up should be over and then this growth margin will probably settle down at 25-30%, as well as the cost margin will start to increase as I said earlier.

You raised money at a good price when you raised money via the public market via the QIP route. How much of that cash has been utilized? How much of the cash is being utilized as you expand your business?

So we raised about Rs 1070 crores and we have invested about Rs 665 crores into accounting businesses across, Rs 500 crores have gone into Busy and the other part has gone into the Vyapar and Live Keeping. So effectively 66% of that money has been deployed into the accounting segment which we are completely bullish upon over the next many years. The rest of the amount has gone into smaller investments, minority investments, which are available on our website.

Whom would you say is your biggest competitor? I mean, are you getting any kind of competition from what Amazon is trying to do or the way Flipkart is now trying to migrate?

So these are continuous things, they have certain advantages of being able to deliver consumer goods, smaller value items; while at IndiaMART we have 100,000 odd categories and those categories are highly commercial in nature and highly industrial in nature. A lot of customizations happen. These are truckloads of items. These are heavy-duty items. So, I think we are at a very sweet spot between Google and Amazon while we maintain an advertising business similar to Google and we maintain our catalog which is similar to Amazon. So, I guess there is a need for this kind of platform that is neither served by both the advertising or e-commerce giants.