IndiaMART

NEW DELHI – When Dinesh Agarwal, founder and chief executive officer of IndiaMART InterMESH Ltd, returned to India from the US 26 years ago, the global e-commerce industry was in its infancy, with giants such as Amazon yet to get a foothold. 

As others focused on evangelising the new manner of commerce to individual consumers, Agarwal took a different route, creating an online marketplace where businesses could sell their products such as machinery and electric equipment to other businesses.

During this journey, IndiaMART’s focus on small and medium businesses has been a constant despite the subdued growth and uncertain business nature in this segment.

Encouraged by the steady adoption of digital technologies by small and medium enterprises, Agarwal continues to be bullish on the long-term growth prospects of this segment, despite the impact of the pandemic.

“I came back for SMEs, and we stand by SMEs,” he tells Informist in an interview. The company’s growth, however, depends on both SMEs and large businesses, he adds.

Following are edited excerpts from the interview:

Q. Since IndiaMART’s business revolves around SMEs, don’t you think the surge in inflation after the Russia-Ukraine war is affecting business and demand on the platform?

A. I don’t think that has had any short-term impact on IndiaMART. Short-term impact on our business happens only when SMEs are immediately affected with something, and they stop paying us. In the longer term, if internet adoption continues well and the economy does well, we as a product will do well. 

As a marketplace, we have never been concerned about the demand side, as that has always been there because of internet adoption. We always focus on building supply.

I came back for SMEs, and we stand by SMEs.

Q. How do you evaluate business growth in the September quarter compared to previous quarters? 

A. The Apr-Jun quarter has been affected for the last two years as subscriptions were hit and not renewed. There has been some recovery in July and August. I am sure Jul-Sep will be a bit better. A full recovery will most probably be seen after Jul-Sep, that is, in the second half of the current financial year. However, you might see less growth in the second half because of a higher base from the previous year.

Q. Do you think Open Network for Digital Commerce will create competition for the company? Do you plan to onboard IndiaMART?

A. No, it should help the company. I mean, let it come up, because initially it will come up for consumer goods such as mobiles, clothes and groceries. But I think once the basic consumer adoption happens, if that works well, it should help everybody in the system, just like Unified Payment Interface. 

If it is built well, in the next one-two years, it should help even business-to-business big time. We keep on reading about it, and we will onboard ourselves once it comes up for business-to-business marketplaces.

Q. How long will ONDC take to penetrate the market? 

A. I have no idea how the ONDC timeline will happen, whether it will succeed, how much it will succeed, in which categories it will succeed, because there are too many items there — such as logistics, payment, supply, demand, search, and aggregation. Given that we (as a country) have had some success around Aadhaar, some successes around UPI, I am very hopeful that it should succeed as people need low-cost solutions. 

Q. Currently, IndiaMART is more popular in the North. Do you think it has to improve supply penetration in the South?

A. From a supply penetration point of view, we are not that successful in Bengaluru and Hyderabad compared to Ahmedabad, Pune or Delhi. Markets in the West and North are very good in terms of penetration, followed by the South and East. We are well penetrated in Tamil Nadu, but not in other parts of south India. We are working on it. Our focus continues to be on tier-II (cities and towns).

Q. The company’s app has a 4.7 rating on Google Play Store, but there are a lot of complaints on fake leads, price mismatches, etc. How is the company trying to improve customer experience?

A. First, we ensure there are enough supplies. Second, we try to make sure the categorisation, product specification, and pricing are right.

Price mismatches mostly happen, for instance, when a supplier has written a quantity of 1,000 and the customer wants only two pieces. The supplier would then quote a high price as we are meant for wholesalers.

Many people open a small factory and ask us to get customer leads for their products. You have to build a brand for yourself. We don’t build brands, we build categories here.

Having said that, we are continuously exploring how to use better technologies in search. We need to do a lot of matchmaking wherein we can list different specifications of a product and give options to compare different products.

Informist Media

NEW DELHI – India’s largest online business-to-business marketplace IndiaMart InterMesh Ltd plans to double its revenue in the next 4-5 years, leveraging both customer additions and growth in average revenue per user.

“Looking at 25% growth per annum, I think we should be targeting doubling our revenue in the next 4-5 years,” Chief Executive Officer and Managing Director Dinesh Agarwal told Informist.

The Noida-based company’s marketplace connects buyers and sellers of a wide range of products and services across various industries ranging from raw materials to machinery, components and finished goods.

In 2021-22 (Apr-Mar), IndiaMart clocked 7.5 bln rupees in revenue from operations, up 13% on a year-on-year basis.

The company largely generates revenue from subscription charges paid by suppliers. 

As of June-end, IndiaMart had 7.2 mln suppliers registered on its platform, of which 179,000 were subscription-paying suppliers.

Subscription contributes to over 95% of the company’s revenue from operations. In the year ended March, the company’s revenue per paying subscriber rose 2% on the year to 44,300 rupees.

Meanwhile, IndiaMart is witnessing robust growth in customer additions.

“Typically, customer growth is 15-17% CAGR (compound annual growth rate), but currently the growth is at 23% CAGR. So this year, a large quantum of growth is coming from new customer addition,” Agarwal said.

As the adoption of digital platforms increases for conducting business, online marketplaces like IndiaMart will be able to create more supplies, add more product varieties and categories on the platforms. 

Going forward, Agarwal said the growth will be led by a mix of both customer additions and an increase in average revenue per user. 

Most of the customer additions happen on IndiaMart’s platform at the entry level of its subscription package. Over a period of time, the company targets converting such subscriptions to higher pricing plans.

IndiaMart offers subscriptions to suppliers under Silver, Gold and Platinum categories on a monthly, semi-annual, annual and multi-year basis. The top 10% of the premium subscriptions account for over 5% of the company’s revenue.

Given the current purchasing parity, Agarwal believes a subscription fee of 2,500 rupees per month is a sweet spot for small and medium enterprises in India at an entry level.

MARGIN GUIDANCE

IndiaMart’s operating performance has been under pressure in recent quarters due to its focus on investments for growth.

In the June quarter, IndiaMart’s margin — calculated on earnings before interest, taxes, depreciation, and amortisation — contracted 20.2 percentage points to 28.58% from the year-ago period.

Going forward, the company is optimistic about improvement in its margins as it expects to leverage growth opportunities from the investments.

Agarwal has guided for expansion in the company’s EBITDA margin to around 30% in the current financial year.

“We have guided for a 30% margin for the year. Over time, it will improve, probably will settle down at around 35% in next 2-3 years,” Agarwal said.

IndiaMart’s margins were around 26% in the pre-pandemic period. In the past two financial years, the company’s profitability was high due to low business volumes and related cost savings that were temporary in nature.

Today, shares of IndiaMart ended nearly flat at 4,766.60 rupees on the National Stock Exchange. 

Informist Media

NEW DELHI – IndiaMart InterMesh Ltd, the country’s largest online business-to-business marketplace, will go slow on investments and mergers and acquisitions in the near term, Managing Director and Chief Executive Officer Dinesh Agarwal said.

“In the last two years, we have already met 200 plus companies, and we have invested in 10-12 companies out of that, I think the inflow has decreased now,” Agarwal told Informist.

IndiaMart typically makes small-ticket investments and has investible cash reserves of about 5 bln rupees a year. In the year ended March, however, the company invested about 9 bln rupees in small companies and startups. Of that, it spent 5 bln rupees on acquiring 100% stake in 25-year-old accounting firm Busy Infotech Ltd.

It also invested in a number of companies, including business accounting software companies like Vyapar and RealBooks, and retail intelligence platform Bizom. 

In addition to generating good returns in the long term, investment in companies across key categories will help IndiaMart expand its platform and attract more buyers. The e-commerce company is actively looking to expand its fleet in categories such as payments, logistics and tracking, and transaction financing, Agarwal said.

“I think the pace (of investments and acquisition) may not be the same as that in last 18-20 months…we will be generating 400-500 crore (4-5 bln rupees) every year, and we have to continue to look at capital allocation by M&As (merger and acquisitions) or investments,” he said. 

Asked if the company will raise funds again to make strategic investments, Agarwal said there was no need for that at present as it already had a cash reserve of 18.8 bln rupees. 

To expand its business primarily through strategic investments, the company had raised 10.7 bln rupees last year from qualified institutional buyers. 

“At that time, I only had 1,000 crore (10 bln rupees) and out of that, 700 crore was of customer (deferred revenue). So, I had 100-200 cr (1-2 bln rupees) of surplus cash,” Agarwal said, adding that raising the funds was important to acquire Busy and make other investments.

Deferred revenue is the amount a company has received for the services it is yet to provide. Since IndiaMart largely drives revenue by selling subscriptions, its cash reserves largely comprise deferred revenues.

The company will not make any further investments in Busy Infotech to scale up its operations. “Busy already has 50-60 cr (500-600 mln rupees) and is already profitable. So, even if they go into some investments, they already have an accrual,” Agarwal said.

In the June quarter, Busy Infotech generated revenue of 105 mln rupees, with a net profit of 40 mln rupees.

At 1358 IST, shares of IndiaMart were flat at 4,765.15 rupees on the National Stock Exchange.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Informist Media