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Good evening, everybody, and welcome to our IndiaMART Second Quarter ending September 2019 Results Conference Call. We have already circulated our earnings presentation and it is also available on our website as well as stock exchange's website. I'm sure you will have gone through the presentation. And would be happy to take any questions afterwards on that. Just to summarize, we are happy to report that IndiaMART has achieved consolidated revenue from operations of INR 157 crores in the second quarter. This is about 28% year-on-year growth in the revenue. However, our deferred revenue has grown by 28% this quarter to INR 631 crores, which is much lower than 37% growth that we had in the same quarter last year. So overall deferred revenue growth has slowed down. Net customer addition for this particular quarter has been approximately 4,500, which is higher than the last quarter when we added only 3,300-odd customers. And it's still much lower below the -- our long-term average of last year's quarterly net customer addition of approximately 5,000 per quarter. We believe that this is primarily due to ongoing pain in the economy. This challenging environment calls for increased effort in our new sales acquisition as well as our upsell and renewal client servicing. And we'll continue to respond to this kind of economical challenge by way of strengthening our sales and service manpower, which may lead to a higher cost in the short run. And this may put our margin expansion under pressure for some time. So while government has taken multiple steps to infuse liquidity in the economy, but I think it will be certainly beneficial for businesses in the long run. Their impact in elevating the immediate term pain still remains to be seen. And lastly, as a strategy, we believe that marketplace has a very good fitment with fintech and software space and that will play an important role in expanding the reach of online marketplace, and make it more useful and sticky for the small businesses. Accordingly, if you remember, we had made an investment in Vyapar, an accounting and inventory and invoicing software for mobile for MSMEs. So that's about it. I would like to hand over this call to Prateek to discuss some numbers in more detail regarding taxation and other things. And thank you, and over to you, and I'll come back with your question and answers later. Thank you, Prateek.
Thank you, Dinesh, and good afternoon, everyone. As mentioned by Dinesh, our revenue from operations grew 28% year-on-year to INR 157 crores. This is driven by 15% growth in the number of paying subscribers to approximately 137,000 as compared to what it was in the last year and higher realizations from the existing customers. Consolidated EBITDA margins increased to 23% in this quarter as compared to 18% in the same quarter last year, driven largely by better revenues and also adoption of Ind AS 116 on lease accounting. Our tax expense for the quarter was at INR 42 crores, which is significantly higher than previous quarters primarily on account of onetime impact of INR 31.4 crores related to change in tax rates, primarily restatement of our deferred tax asset to the newer rate, and the reversal of MAT credits, as the company has opted to move to 25% tax regime as per the option given in the Taxation Amendment Ordinance 2019. Due to this onetime impact, the consolidated net profit for the period stood at only INR 9 crores as compared to the 23% EBITDA margin. Our cash flow from operations was INR 42 crores leading to a closing cash and investment of INR 780 crores as on September 30 as compared to INR 503 crores as on September 30 last year, representing an increase of 55% year-on-year. So thank you very much. We are now ready to take any questions.
[Operator Instructions] The first question is from the line of Sachin Hemnani from Perfect Research.
So I've got 3 questions with me. Question number one. If you look at Shopify outside, it keeps coming out with new SaaS-based products in order to create more customer stickiness. Is the acquisition of Vyapar in the same line?
Sachin, you continue with your other questions also. We can answer them together then.
Okay. Yes. So question number two is with Udaan now successfully scaling up. Don't you think the transaction -- transactional-based business should be started to offer more benefits to customers? Question number three. Since our company will be generating a lot of cash in the coming future. Would we look at investment opportunities outside SME space like Info Edge does? That's it.
So your first question was?
It is about Shopify outside providing products on the basis of the SaaS-based product, which creates more stickiness. So is the acquisition of Vyapar in the same line?
I would not say same line, but similar lines. Shopify has a very do-it-yourself model where they only provide technological tools, they do not run a marketplace. They are a website making tool. And in order to add multiple items on that website, such as CRM or payment gateway, other things, they provide different, different apps to do that. Whereas IndiaMART is by and large, a marketplace. So there is a big difference between Shopify versus IndiaMART. Shopify is a website creator, whereas IndiaMART is a marketplace of -- aggregated marketplace. Shopify don't aggregate products across multiple suppliers or multiple participants. So I'm sure -- I'm not sure if that answers your question, but these are the differences.
I was more concerned with the Vyapar thought process.
Now coming to Vyapar, there is one similarity that Shopify tries to find which portion of their core customer is more likely to use other apps and that's a very similar argument that goes in IndiaMART case, where we are saying that IndiaMART also handles or benefits SMEs and Vyapar also benefits SMEs. And accounting is accounting, invoicing, inventory is one of the second most important need beyond lead gen. So we think -- we feel that Vyapar has done a good job in making it an easier product, which can be handled by the SME themselves rather than having an accountant who understands debit, credit, balance sheet, profit and loss, receivables and things like that. Now coming to your second question, about moving towards a transaction-based model or not. So we have a very different approach to going towards transaction. Yes, we should always make it easier for our people to be able to go closer to the transaction or close the transaction on the platform. However, we represent a large number of categories, 1,38,000 different categories are there. There are a lot of times B2B sourcing happens where the products are customized between buyer and seller, where the products are nonshippable also. So we have products like trucks, products like cranes, products like elevators, JCB machine. So yes, a small portion of the products which may be readily transacted. We feel that the transaction has 2, 3 parts. One is the accurate cataloging and pricing being available, which we are continuing to work and make sure that across 1,38,000 categories, instead of picking up a few categories and going deeper there, we have taken an approach that let's open all the categories for pricing and better cataloging. And over the time, see, find out a minimum common denominator which can work across the category. Second, offering some kind of a payment facilitation. I think at IndiaMART, we have taken Pay with IndiaMART payment gateway solution. That particular payment gateway solution helps our sellers to receive payment from their buyers. So we are going one step closer there. And another one I missed, we have -- after lead generation, there is a lead management system, which helps you close those leads because you have to find a specification that the buyer is looking for beyond a buy now product. So I think we are slowly, slowly moving in that direction. Do we want to become a courier company to pick up the goods, collect the payment on behalf of the people and do a cash on delivery? I think, no. I think we will continue to remain a technology-based platform, which will help buyer and seller meet each other, interact with each other, facilitate payment, provide credit financing whenever possible. So we'll continue to move closer towards the transactional route. But in a very different fashion than saying that we will work only for few categories, but we'll do the cash on delivery, pickup the goods as well. Now coming to the third thing. Cash on our balance sheet. So we have about INR 780 crores of cash on our balance sheet. And we will continue to look for adjacency and those adjacency, as I said, could be in SME SaaS space, could be in business SaaS space, B2B SaaS space, could be in fintech space and see if we can partner with them by way of financial partnering or a strategic partnering. Do I want to go beyond SME, say something like, in health care or something like -- no, I don't think so. We'll continue to focus on our adjacencies to deploy this cash. And in any case, we have INR 675 crores of deferred revenue on our balance sheet. So we need to conserve cash in order to service our deferred revenue for that matter. And third piece is when this year completes, we have already announced a policy for dividend distribution. When the year completes, Board will take a decision how much dividend to be distributed. Thank you. We can move to the second question.
The next question is from the line of Pranav Kshatriya from Edelweiss Securities.
My first question is regarding the employee cost. If we look at -- I mean there is a sharp acceleration in the employee cost. And I just wanted to know how we should look at it? And more specifically, if I look at the collection for this quarter vis-à-vis collection for the -- a year back for the same quarter. Collection has increased by around INR 22 crores, and similar is the increase in employee cost vis-à-vis that quarter. So how should we see the unit economics of higher employee coming onboard? After this, I'll go to the sixth question.
Sure. Mr. Pranav, you're right saying that the employee cost has increased. In fact, employees and outsourced sales cost combined stood at almost INR 87 crore in this quarter as compared to the number of INR 65 crore last quarter. This increase has happened, one, is on account of the increments whatever we have announced during the year. We have the increments coming in effect from 1st of June, so this was the first quarter in which the full effect of increment has come in. The second reason of the increase was the head count increase, which has primarily happened in sales and the servicing functions. So as compared to last quarter, we had a total workforce of almost 4,200 people. As of now, we have a total workforce of 4,500 people. And this 300 people addition has happened either in the new sales side or on the servicing side. I think going -- sequentially going quarter-by-quarter, we may not increase the manpower cost significantly. But on a year-on-year basis, as the economy requires more effort on the new client acquisition as well as requires more effort in collecting higher realization for customers, this year we can safely assume that overall manpower cost would be higher than what we had in the previous years.
I mean, my question is more related to are we -- I mean we are seeing employee cost increase at a faster pace than the revenue. And so I mean should we see this trend continuing for this year, maybe because of the economic challenges or this quarter is more one-off and should normalize in the coming quarters?
It should normalize. But all in all, if you see we had 2 portions of the cost. One is the employee cost and second is the other cost. I think the total cost by the year-end probably may go up by almost 20-odd percent, as opposed to the total revenue increase of what we're looking at a 25% plus. So we would see our cost would be going slightly higher than what we anticipated earlier, but it will not go over and above our revenue growth.
Okay. Very helpful. Second question is regarding taxes. Just want to clarify. So on operating income, we should assume a 25.2% tax rate and on the other income, that is income from investment, we should assume around 10%. Is that a fair way to compute tax?
Yes. So on the business income, you are right that we should assume 25%. On the other income, depending upon, say, short-term gains or it's a long-term gain because the investment is largely in the liquid funds, the taxation may range accordingly.
Okay. Any ballpark number for blended tax rate what we should assume?
Overall, if you see, I mean for the last 2 quarters, our effective tax rate has been pretty similar, doing around 31%. So all in all, this tax rate should certainly come down to more like 22%, 23%.
Okay. And last question, how should we see this relatively lower growth in the business inquiry delivered and the traffic have implications on the new customer addition?
So, Pranav, 2 separate things. On the buyer side, I think we get -- I'm not really worried. I think we get enough number of buyers. And if we build the supply side right, we'll be able to service the buyer to his satisfaction so that he returns more frequently. I don't think there is a universe -- too much universe left, which is not coming to IndiaMART. We are already catching a good portion of Indian Internet population every month. So I'm not too worried on the buyer side even flattening out on the number of inquiries. There is enough unfulfilled inquiries -- enough unfulfilled buyer base, which can become a regular buyer to IndiaMART if fulfilled properly. On building the supply side, there is a continuous progression that we made -- that SMEs and -- SMEs as well as large businesses. They are not adept to the Internet fully. They are habitual of either a dealer distribution-based sales mechanism or inbound call or inbound walk-in customer base. This whole generating of lead and doing a lead gen based system, most of the businesses, whether it's small or large, I mean I have seen small businesses struggling and even the largest of the businesses struggling to deal with this new era of finding a new customer and fulfilling them. And there, we continue to educate and continue to onboard many suppliers and many -- many survive and learn through this whole process of Internet and many say that this is not my cup of tea. So I think the supplier base addition and their maturity and what kind of tools we can provide them to make it easier for them to do a follow-up with the buyer or collect the payment with the buyer and how do we build a trust gap, remains the key challenge that we continue to solve for the economy and for the businesses. So just to reiterate, I think I'm not too worried on the buyer side. But the supplier side, if we are not able to do at least 5,000 net customer addition, that's a problem. And more so if we are not able to retain a majority of them over this -- over a 1- or 2-year period, that's also a problem.
The next question is from the line of Ankur Pant from Jefferies.
My first question is on payment side. So I understand that you're doing a lot on the payment facilities side. So just wanted to know how is the traction there? And how do you plan to scale that up? My next question is on realization. How do you see that evolving over the next couple of quarters or the year or so? And on a related note, if you could share anything on the strategy of differentiated pricing across geographies and categories, that would be very helpful. That's it.
Thank you. So on the payment and -- payment facilitation side, earlier we started from an escrow kind of solution, and then we went on to providing a bouquet of payment facilitation. There is too much happening in the payment space in India. There are UPI-based payments evolving. There are credit-based new payments evolving. Then there are wallets-based payment. I think currently, the market is very confused where to go, where not to go. So initially, we had found some good traction. But we are finding it difficult to scale up on the payment side. We currently do only about 5,000-odd payments transaction every month. And that has been in the product development stage. And these are the early days. We continue to tweak our product on a monthly basis or so to find where is the sweet spot, which will work with the buyer and seller better. So we continue to do a research and -- but we continue to have a great belief that payment and credit are very important ingredients to a marketplace success. Now coming to the realization of the -- or average revenue per customer. So as you can see over the last 3, 4, 5 years, our revenue per customer has been inching up slowly, slowly, around 5-odd percent or so. So we were at 33,000-odd and we are now at 39,000 or 40,000-odd on a yearly basis. As most of the customers come at the bottom of the pyramid, their ARPUs are lower. As the customers age over the period of time and they learn how to do business on Internet, their ARPU keeps on increasing year-on-year. So -- and ARPU is not a function of -- unlike in a telecom where everybody uses a same ARPU package. Here, the entire customer base is further divided into multiple silver, gold and platinum tiers and an ARPU is an average of all those. So on one side, we have a lowest level customer, which gives us INR 30,000. On the other side, top 10% of our customer base, which is about 14,000 customers, they give 40% of our revenue, where the ARPU goes as high as INR 160,000 or so. So realization will keep on improving over the period of the time for many years, albeit very slowly and more so given the collection being lower nowadays due to economical challenge. Now coming to the differential pricing, we did touch base on this, that this is an opportunity area. However, we need to very carefully plan and see where we are going to implement and when we are going to implement. We were thinking of doing some pilot in the second half of this year. However, given that there are too many fronts already open, where we are trying to -- where we are trying to match up with our [Audio Gap] presentation on our website. And there is a slide on the deferred revenue. So you can go through that. You would see that this has been pretty much consistent at around 60% for the last good 2 years. On your second expense -- on other cost expenses decline, I believe you're talking about a decline in this quarter with respect to the previous quarter, right?
No, no with the previous year. Yes, Q2 FY '20 is INR 32 crores, and Q2 FY '19 was INR 34 crores. So a small decline, but nevertheless a decline, which actually helped your margins to some extent.
I understand. So on this one, we have actually implemented Ind AS 116 from April 1, which requires all of our rent expense being classified as a depreciation expense and the financial interest expense. So this has been approximately INR 4 crore per quarter. If you see the results that we have uploaded, there is a footnote there, which explains this impact. So the right number to compare with respect to the last quarter is INR 32 crores of other expense in this quarter, plus INR 4 crores of the rent expense, almost INR 36.7 crores as compared to INR 34 crores last year.
Got it. Got it. It's just the rent. It's nothing else. It's just the Ind AS 116, which is different, otherwise [ nothing else ]?
Absolutely. I mean this is INR 4 crores of expense, which got shifted from the other expense line to the depreciation and the finance cost line.
Got it. Got it. And the last one on new supplier addition, how easy or difficult it is to -- I mean, what I mean to ask is basically, what kind of sales effort or on-ground effort is required to add incremental paying subscriber?
As I have already addressed this earlier. Let me repeat again. Our new customer addition -- net new customer additions has been at around 5,000-odd per quarter for the last -- for the entire last year or so. Now last 2 quarters, especially the April-May-June quarter, we faced net new customer addition to be only 3,000, 3,300. And we were anyway in the process of ramping up our sales force and which has held us -- this quarter, we have been able to get to 4,500-odd net new customer addition. And we -- given the economy is hard, which cuts across both the sides because, one, it becomes difficult to acquire new customers and the productivity falls down on that side. Two there is -- it is difficult to retain the customer which has been onboarded on 2 accounts. One, customers themselves run out of business or run out of -- and they shut down their business. And second, they do not have enough cash to advertise -- to spend on advertising. So which leads -- both of them leads to higher churn. So yes, it is difficult and in the subscription business like this, acquisition and churn are the 2 very important parameters, which we continue to work upon every day. So I hope that, one, economy will improve over the time. And two, we will find better ways to engage our customer and signup our customers. And three, it will become easier for SMEs to adopt to Internet-based doing business. Currently, as I said earlier, most SMEs and most businesses, not SMEs, most businesses are not habitual of a lead-based customer acquisition system. They are either habitual of dealer distribution-based sales or they are habitual of inbound call or walk-in customer-based system. It is only service industry, which is more habitual of a lead-based customer management system. The product-based systems are not understood that way. But I guess especially in B2B, where the sales cannot happen off-the-shelf because of the customization of the product, because of the unique nature of the product, because of the long tail of the product, people will ultimately have to migrate to a lead-based management system. And so I would hope that -- and these are early days of Internet. And I would say that there's at least next 10, 20 years, which are available for keeping this particular thing in mind, how to increase our net subscriber base and how to make it easier for them to onboard and how to make it easier for them to convert their leads.
[Operator Instructions] The next question is from the line of Sabya Mukerji from Centrum.
A few questions. First on the muted growth in suppliers, storefronts and as well as a net addition of paying subscriber base, I thought when we last spoke in Q1 conference call, you said that there was an impact on the price increase, and that's why the growth was small, the net addition was small in Q1. But Q2, beginning July onwards, things started on a good note. If you throw -- if you can throw some light on the monthly trends, how has been July and after that August, September and October, especially in terms of growth in storefronts as well as the paying subscriber base?
So first, let me take up the paying supplier base, because that number is far more important from the revenue perspective. So yes, in April-May-June quarter, we did say that there could be some impact due to the prices of annual customer base that has been increased from first of January. We -- our timings of our pricing increase got wrong because the economy sluggishness coincided with that. So from 3,000 customers, which we added in the last quarter, we have improved to 4,500-odd customers this year -- this quarter. On a monthly run rate basis, I think, again, in the next quarter also, we can assume somewhere around 4,500 to 5,000-odd customers basis. And we'll continue to see how do we reach to our previous normal of about 5,000 customer adds a month. Now coming to the overall supplier storefront. Last year or so, we have become a lot more stringent in terms of what kind of supplier base to acquire and what kind of supplier base to focus. So earlier, we didn't have a policy of 100% e-mail verification or 100% mobile verification for adding a supplier. Now at least we have said that old ones will keep on doing, because they have been accumulated over the last 10 years. But at least the new ones until and unless the mobile is verified by an OTP or e-mail is verified by an OTP, in order -- because we have become a large platform today, any miscreant can cause a lot of disturbance. So we are moving towards the trusted platform. So we are becoming a lot more careful when we sign up a customer base. Also, we didn't have a good -- very good hang of what are the -- what is the formal economy -- coming from somewhere else. There are about 1 crore GST-registered businesses. There are about 2 crore business people, who file income tax return and say that their income was from business or profession. Though there is an SME census, which says that there are about INR 6 crore SMEs. But if you really see the formal SMEs are only -- formal number of SMEs are only 1 to 2 crores. And it pays a lot more sense -- it makes a lot more sense to -- for a B2B platform like us to be -- to focus more on the formalized economy. Earlier, we were used to have multiple parameters like Gumasta or business registration certificate from a state on a VAT thing or central excise registration certificate or a service tax registration certificate or even Udyog Aadhaar. Now we say that let us focus only on GST-registered businesses. So our overall supplier storefront may seem a lower growth and may continue to seem a lower growth, because we have actively taken this approach that we should only and only onboard a supplier with the mobile number and e-mail ID fully verified and focus more on the GST-registered businesses.
Okay. That's very helpful. Secondly, on the margins, you said that -- and of course, this quarter, we have been hiring pretty aggressively and I think we have opened 5 branches, new territories as well, I see Guwahati being opened up to reach the Northeast part of the country. Any sense on how and how many numbers of branches will be opening in H2? And the employee base that will be required for this opening of branches?
So I don't think too many branches are planned. Maybe a couple of them in the entire next 6 months. Yes, in terms of overall employee addition, employees are added for 2 reasons: One, to support existing customers. So for every set of X number of customers, we need 1 more service or upsell employee service renewals and for acquisition of customers. As I said that acquisition has become tougher as well as churn has become higher. And also, our overall customer base is increasing. So employee base will increase a little bit more. And I think we'll -- as we are already up from 4,000 -- yes, previous quarter, but from the March thing, I think from 4,000 to almost 4,500. So from last 6 months, I think we have added 500 people, maybe another 200 more in the next quarter or so.
Okay. Lastly, on the -- on a bookkeeping question. On your balance sheet, I see that PP&E, the property, plant and equipment, that has gone down. There has been a decline. Any color on that?
Yes. So in the property, plant and equipment, we had a leasehold land, which was earlier showing up as in property, plant and equipment. Since April 1, we have adopted Ind AS 116, which requires us to classify it as a right-of-use asset. So that land has shifted from the property, plant and equipment to right-of-use asset, which has been -- which is a different category than property, plant and equipment.
And that would be roughly a value of INR 3 crores, the difference amount that we see?
Yes, almost INR 3.5 crore.
[Operator Instructions] The next question is from the line of Ayaz Motiwala from Nivalis Partners Hong Kong.
I'll go quickly on 2 big questions that I have. One is on the people front. You have a segment called outsourced as well. So could you explain the mechanics of how this works in terms of the planned addition on outsourced and in-house people and the incentive and the accounting that you do for people who are outsourced, who bring in the business of these customers who sign up for subscription services?
Sure, Ayaz. So in the terms of manpower, essentially, we have 1 sales side and the other is the servicing side. The entire servicing team, which caters to our existing customers is pretty much on road. However, the team that goes out and acquires a new paying customer, which we call it as a new sales team, that is where we take help of the outsourced partners. Essentially, these are the people who are pretty much similar to kind of temp staff and we work with different partners to build up that particular sales force. In the terms of accounting, they are being shown as an outsourced sales cost, and all the people who are on our payroll, which is the servicing team, the product team and the entire corporate team is shown as a manpower expense. So we've been guiding since the outsourced sales is also an integral function to combine these 2 costs together and look at it as a common manpower cost.
Right. What's the breakup in the sales part of it, as you said, which is to add on new paying customers, what's the proportion of outsourced for that versus in-house? Outsourced number of staff is already there in your presentation, as I can see. So what is the breakup of that?
Currently, we have almost 1,350 people on the outsourced side as opposed to a total workforce, including them, is approximately 4,500.
Right. But as you explained, the servicing team and the in-house product team is not part of that. So in terms of core sales...
All new sales.
In the terms of the new sales...
Yes, what is the breakup of that?
Sorry, I didn't get the question. The new sales is 1,350 people, which are on the outsourced.
1,350 people on outsourced. Okay, so the rest will be in-house. I'm saying the in-house sales number for this equivalent 1,350 who do the similar role, what is that number?
So if you consider the leaf level people, executive level people, almost all of them are on the -- now on the outsourced sales rolls. Anybody who's a team leader or a manager or a data support person, they are all on the IndiaMART payrolls. So they are all part of the sales. So if you see there is 432 people, which are in the sales organization over and above -- new customer sales organization over and above these 1,350 people, which primarily comprised of team leaders, managers and regional managers and so the entire management chain of the new customer acquisition function and support chain of the new customer acquisition function.
Yes. And just to clarify, there are another 2,100 people who are part of our servicing team, which are responsible for getting renewal and upsell of the existing customers. So the entire sales and service network is roughly around 2,100 on servicing, and almost 1,700 on new sales. Out of 1,700, 1,300-odd people are outsourced and 400-odd...
432. That's very helpful. Got it. I got that one. That's excellent. Second question, sir, is the point that you highlighted about the tough market and the churn, which happens in these type of periods where the business is stretched and they say that this platform turned out to be less effective than what they thought. So in terms of your sales pitch, what are typically customers looking for in terms of fulfilling their sort of innate demand for paying up that INR 40,000, INR 45,000 or INR 30,000 as a basic package. What are the factors that they're looking at in terms of IndiaMART delivering to them as a 1-year payoff or even a 2-year package, et cetera?
So multiple people come from different thought processes. So because all in all, what we provide to a seller has a value proposition and I'll repeat that. So number one, we provide a web presence to a seller, a fully automated web business where customers -- many website is available on desktop, on mobile platforms, and it is well categorized into 138,000 different, different categories. Number two, we provide customers so that the buyers can call them or send them an e-mail through our marketplace. Number three, we offer as a value-added service, a priority listing. So if you are a platinum customer, you will get a priority listing over the gold customer. If you are a gold customer, you'll get a priority listing over silver customers or if you are even a paying customer, you get a priority listing over the free-listed customer base in the similar category. Third, what we offer is the number of RFQs per week, as in RFQ credits per week. So only paying customers get certain number of RFQ credits per week, which they expire every week. And at the silver level, they get about 7 RFQs per week, which is 1 RFQ a day or 7 RFQs per week. On a gold up to 21 RFQs per week. And on the platinum, it can go up to 70 RFQs per week, depending upon which particular package within platinum that they have taken. And certain people -- and then we have a call -- cloud telephony solution, which we call a premium number service, IndiaMART premium number service. Fourth, we offer a CRM package called a lead manager. So IndiaMART lead management system where you could manage the leads that came from IndiaMART or you can add your own customer database to do a customer management free of cost. This, again, works on desktop and mobile platform. And last, the online payment facilitation. Now many of these customers would come with 1, 2, 3 objectives to do this in order for them to, at the end of the day, get more orders, or get more business. Now many people say that though we got many inquiries, but we could not convert them. Many people say that this is just too much of -- too much -- too many items for me to handle. It is not easy enough for me to devote time for doing this. And for many people, it is not enough ROI. But more so either people are able to get ROI or not get ROI. I haven't seen many people who say ROI [Foreign Language]. So people who are able to understand how it works and how to utilize IndiaMART as a platform, they are generally -- their investment versus ROI is in multiples of 10 and 100.
Sure. So is that -- you shared the traffic and business inquiry, is there a linkage to that, sir? I thought that is what you were trying to link it to. You have a gross traffic number and you have a business inquiries number. Is there some sort of linkage to that? I mean, some 70% number, but do those inquiries translate into business for these SME customers of yours?
As I mentioned earlier, we have a lot more buyers. Lots, lots more buyers than these suppliers can fulfill. We have acute shortage on the supply side to fulfill those buyers. So we need more suppliers, more engaged suppliers, more variety of suppliers and more suppliers from more number of cities. We have buyers coming from 700 districts and 10,000 tehsils, but the suppliers are still concentrated in certain geographies. So I think this has -- I think it is not the dearth of number of buyers or number of buying inquiries.
Right. Sir, these buying numbers are quarterly, right? Just for a housekeeping clarification. So 123 million buying inquiries is for the quarter ended September for 3 months?
That is right.
And similarly, the business traffic number of 196 million is for the quarter?
Yes. If you see the presentation, the presentation would have both the yearly numbers as well as the quarterly numbers.
Yes, yes, traffic. I meant traffic, sir. Traffic and business inquiries. So yes, that clarifies. Sir, the last question, I'm sorry, I've overshot my time, but is -- from the buyer side, who are coming in, you have a huge -- and you said supply fulfillment is a challenge. Is there a way that you can work to making some money out of the buyer beyond, obviously, transaction and payments, which we have talked about?
It's too early. It's too early to even think about that. It's like asking Amazon in year 2001, is there a Prime possible?
The next question is from the line of Arpit Shah from Stallion Asset.
This is Arpit here. So I just wanted to understand if IndiaMART has a platform maturing or something like that? just going by the presentation, what we are seeing the number of suppliers so far have not increased considerably. But at the same time, the number of buyers has been increasing at a lot higher pace. So is there an impact where you could see a probable reverse network effect? And something that we are early proud is to see a network effect on IndiaMART. So is there a probability where we could see a reverse network effect where suppliers could feel like there are a lot number of buyers and inquiries are there, which are really not worth for? And another question, what are the other growth avenues since we are looking at this slowing down inquiry numbers, slowing down traffic. So what are the new growth avenues since you've already acquired a portion of Vyapar? Is there a possibility that we could be integrating the Vyapar operations or Vyapar features on the platform? That's my number one question. And then my number two question is, how are we seeing the number of subscribers getting 2 lakh plus from 137,000 right now?
So let me answer the third question first because that's been in the continuation. As I've been iterating that last financial year, we have had about 5,000 net customer additions per quarter. And we will -- we fell down to 3,000. Now we have recovered to 4,000, our endeavor would be to do 5,000 or 5,000-plus customers. Now from -- going from 140,000 to 2 lakh customers. On this kind of a run rate basis, 5,000 to 6,000 customers a quarter, you can assume it will take about 6 -- 8 -- about 10 quarters like that.Now coming to the Vyapar, it's just -- we have seen that this is early stages of adoption. Mobile-based software itself is a very new thinking that has come in. Until recently, mobile was primarily a communication and entertainment device. Now it is seriously being used for business. Even in IndiaMART, we have seen SMEs using mobile app. Almost 80% of our customer base uses mobile app on a weekly, monthly basis and almost 50% of our customer base uses our mobile app almost on a daily basis. So that's a serious business usage by small businesses. So we -- by learning this particular thing and by trying to find a Tally kind of an equivalent, we came across Vyapar. And we have just invested 2 months ago. I think our endeavor would be to nurture them and to mature them as a business over the next 2, 3 years and then see what are the possible features that we can integrate. Currently, we will try and promote them to grow independently. The third one, whether we have reached the saturation point and reverse network effect, I think it's a very hypothetical question, whether Internet has reached its saturation with half -- 50% of Indian Internet population there. I think we have just scratched the surface, there is a lot to be done. There is a lot to be done on the relevant matchmaking. There is a lot to be done on cataloging of the -- accurate cataloging of the product. And I think it is not that how many more buyers can come in, it is more of how many more times these buyer can come in and complete their requirements. I think there is enough -- I mean we definitely see a decade-long growth trajectory, and that is why we have done the IPO. So I'm sure...
If I can just put in one more question there. I believe you all are interacting with a lot of SMEs out there. So what is really happening, if the businesses are slowing down in an economy. Wouldn't they be looking for newer opportunities to grow? And would IndiaMART be a platform to grow that? And the guys who have already been there on the platform, would they be renewing? And like what kind of renewal rates do you all typically have in a good year and in a bad year?
So both kind of behaviors are found. When the bad times come, many people who have not been advertising are forced to look at options like a media and advertising and Internet, but less of so. Advertising is always considered to be more like a discretionary spending. And when people face the cash crunch -- so cash crunch is different than a slowing down and most of the time, every slowdown has a cash crunch. And in the cash crunch times, the churn definitely increases. So when good times happen, our overall annual churn rates come down below 20%, say, between 17%, 18%. And in the bad times, they start to trend 22%, 23% on an annual basis. So that's the fluctuation that you see and depending upon how the platform functions over the period of time, and where has it stabilized. And then there are monthly customer base, which are sometimes seasonal in nature and sometimes more coming from a trial perspective. There, you see anywhere between 4% or 3% on the lower side and 5% on the higher side on the monthly churn.
The next question is from the line of Sangeeta Purushottam from Cogito Advisors.
I had 2 questions. One is that in the presentation, you've mentioned that there has been a 15% increase in the subscriber base for Q2 year-on-year, but the revenue has increased by about 27%. Now through the call, you've mentioned about how the new customers tend to come in at the lower levels in terms of the revenue per subscriber because of the churn that happens. So I just wanted to understand that how -- what explains this 12% difference, is it price increases? Is it a mix change? If you could just help me understand what's really going into it. The second question that I had is that as is clear from your numbers, you have invested more in your sales force in this quarter and therefore, the margins are a little lower than the margins in the first quarter. They're about 24% versus 26%. Now is that -- is there a certain margin number, which is likely to be a stable state margin number for this business. If you could just help me understand how the margin trajectory is likely to move over the medium term, which is, say, to 2 to 3 years.
Okay. So to your first question on the revenue increase, the 15% growth is coming in from the subscribers and the remaining -- sorry, the remaining 12% is coming in from the average realizations, which have improved. Now the realization is a factor of 2 things: One, the price increases that we have taken in the past because as we were discussing, we sell our subscriptions on annual and the multiyear basis. So the price increase become effective for those customers only on the renewals when it comes. So if we announce price now or any price increase if we announced right now, the real impact will come in after 2, 3 years as and when the renewals of those suppliers for the same service starts coming. So, one, is, of course, there is a better realization coming in because of the price increases that we had taken in the past. Second, we had different tiers of subscription, silver, gold and platinum, then try and upsell from silver to gold and gold to platinum. So the mix of the customers would also impact the average realization on the overall basis.
Right. So this 12%, how much of it is coming from price increases? And how much is coming from mix change? Do you analyze that?
Yes, that becomes very difficult to quantify because most of the upsells that happen, that happens only at the time of the renewals. It becomes very difficult to quantify as to how much is it the price increase and how much is it the upsell. The way we see it is that what is an overall improvement in the realization per customer.
Okay. Because given that the impression you gave during the call is that it's quite hard to take the price increases. That when we have seen the numbers on the ground, this 12% impact coming from price -- from a price effect, not just increase, it's actually fairly substantial.
Let me explain it the other way around. It is actually harder to get net customer increase. Once you have a customer who has been there with you for a year or 2, it is easier for you to upsell that customer a higher priced package. Now why on a quarter-on-quarter basis you see because our long-term average is that we have about 18% on an average CAGR-based increase in the customer base and about 10% coming in from the mix and pricing. So mix change is different than price change.
Right, right, right. So mix change is relatively stronger in a sense, right?
Yes. And more so when the bottom of the pyramid customer base is going slower because -- then the more effect you will see, which is coming from this. And as Prateek has explained earlier, most of our revenues are a driven revenue from what is coming from the deferred revenue. So I think a lot of what has happened over the last 8 quarters in terms of price and in terms of mixes, that will reflect in the current quarter, not the current quarter. The current quarter number is only the end customer number, which we divide by the revenue to arrive at the average realization. So if the current quarter addition is higher, suddenly the realization per customer will look lower.
Right. Right, right. Okay. And on the margins, could you actually just comment because at a certain level, given that you're -- the reason I'm asking this is that theoretically, it looks like your margins could keep expanding for a while, as long as your revenue growth is, say, above 25% because your cost on an average have been growing at about 20%-plus. Is there a limit, a sort of stable margin that you will reach at some point in time? And what is that point in time likely to be?
I mean I would love to be closer to Facebook and Naukri, which are at 55%. Currently, we are half of that, not even half of that. But that would depend a lot on our capability to innovate on product side and capability to execute. On a medium term, yes, I can say that we will try and make sure that our cost do not increase beyond 20%, and our revenue do not decrease beyond 25%.
Right. So basically, are you saying that there is considerable quarter or 2 -- leaving aside a quarter or 2, which may happen on maybe 3 or 4 quarters if the economy continues to be slow. But over the medium term, are you therefore saying that there's a substantial headroom for margins to grow?
So Sangeeta, as you look at the last call that we had in the last quarter, the guidance that we gave was that the margins will continue to expand over the next 2, 3 years, if, of course, the macroeconomic situations do not change dramatically, negatively. And this entire margin expansion, we are absolutely confident that if you leave aside what we see in the current scenario and if you look at from the last 2 years, that trend should continue for the next few years also.
The next question is from the line of Deepak Poddar from Sapphire Capital.
My first question is regarding your credit financing that you spoke about. So how we want to scale up that business financing your clients? How big can be the opportunity in that particular space?
As I said, this is a bigger opportunity, but we don't know how to execute. We don't even have a background on that. We have started with the payment gateway. We have started to aggregate all kinds of credit-based payment options on the payment gateway. The idea is that as you go to a matured e-commerce marketplace, like a BookMyShow or something, you have multiple payment options where you could utilize your credit beyond your Mastercard and Visa card credit card, you can use ePayLater, you can use LazyPay or ZestMoney or Bajaj Finserv card to pay for that. And maybe more such credit options are emerging in the economy -- in the new economy. The idea is that if we could utilize that same credit on these 140,000 merchants, instead of asking credit from these merchants, this could be a good value add. Similarly, we would try and work with NBFCs to see if we can expose them to the kind of transactions are happening on IndiaMART and if they would like to do any kind of a transaction financing. But all of this will take a lot more time and a lot more patience. I think it is more of a belief that we should have. There are success stories in the world across China, America and South America, where marketplaces have been able to do well along with fintech offerings, be it payment, be it escrow, be it transaction financing, or be it the business lending. But for us, it is a very early starting point. Over the next 3, 5, 10 years, we'll definitely try various things and see how big it can become.
Okay. Okay. So currently, the road map is not formed, but we would be going toward that direction is that correct what we understand?
Yes.
I understood that. And regarding this Vyapar, are we planning to integrate it with our platform? Like, how do we want to use their platform?
I've already said this in response to the earlier question. It is just 2 months into IndiaMART investment. Next 2, 3 years, we'll continue to nurture them and make them grow independently. And once they achieve certain size and scale, we'll see what kind of features are good for integrating within IndiaMART.
Understood. And regarding the revenue and cost, you mentioned that you want to grow revenue by 25%-plus and cost by about 20%, right?
Yes.
So if I try to plug that number, so overall EBITDA margin, I'm getting around about close to 20%, whereas in the first half, we have done EBITDA margin in the range of 23% to 24%. So how -- where is the disconnect basically in that?
So we'll not be able to comment on the specific numbers here. But as we said, that on the revenue side for this year, we're looking at a growth of 25%-plus, and the expenses at around about 20%. And that should give you the resultant number.
Yes. So that's what I'm getting around about -- close to about 20%, 20.5%. So ideally, your second half has to be much lower in terms of your EBITDA margin to meet whatever kind of indication you are giving. So it's -- yes.
No. But I hope you are adjusting the Ind AS 116 impact of rent expense, which has gone below EBITDA line post April 1.
Yes. Yes. I am basically.
This is -- because of that, you would see the last quarter and this quarter, the 2% to 3% EBITDA margin has kind of gone up only because of the fact that the rent expense, which used to come in the other expenses line earlier has moved to the depreciation line now.And quarter 4 is always worst.
And what about quarter 4 you mentioned?
Sorry, what's that?
No. So there was something that you mentioned about quarter 4.
No. We were looking at the previous quarters. So typically, in Q4, we have slightly higher cost as compared to the other 3 quarters. So this is what we were discussing.
The next question is from the line of Sonal Minhas from Prescient.
This is Sonal Minhas. I would like to know what is the sustainable cash flow from operations that the business can generate, I have seen the numbers this half year. And I think the EBITDA is up, but the CFO is flat. So just wanted a little bit of management commentary on that. That's the first one. Second, I just wanted to understand what channel do you use to acquire new customers? I know there's a field strength. But if you could give, let's say, a pie of 100 customers are coming, which channel are they coming from? And I think the third one, would like to know like given the macros, are there discounts to customers or, let's say, any freebies for the customer factored in, in the P&L or they're part of the sales pitch to acquiring new customers? So just getting in the flavor of these 3.
Okay. So for your first question on the cash flow side. So with respect to the last year, our cash flow from operations for this particular quarter has slightly gone down. The reason being, as we've been discussing that the expenses have gone up. However, we have seen the certain pressures on the billings and the collection side because of that the deferred revenue addition has been slightly muted. So because of that, there are some higher expenses. The collections or the billings have grown almost 15% to 16% year-on-year as compared to the expenses, which have been growing at around 20% plus in this particular quarter. So that is resulting into a lower cash flow.
Okay. Okay. Just a question on this one, like, how do you -- is this related to some more credit given to people in the channel or -- and that's why we see your cash flow number dipping here?
Look, cash flow is the resultant of the expenses and the collections. So as our manpower expense has increased, we've been discussing in the call, that our effort in acquiring the new customer has certainly gone up because of which we have added almost 300 people; 200 people in the new sales side and 100 people in the customer servicing side, which has led to the increase in the expenses.
Is there a churn data you can share on a regular basis with the larger audience? Is that something which you can add to the disclosures going further, like, if there are 100 customers being added, how many -- what percentage of your base is basically moving up? Is there a number you track, which you can share publicly on this one?
There are a lot of numbers that we internally track. But, in the terms of churn, the churn depends upon a couple of factors. One is how old is the customer. Because we have seen that churn improves significantly or the renewal turns out to be significantly better as the customer becomes a tenured one. So typically, you would see our first year renewals would be lesser as compared to the second year renewal and the third year renewal. The second factor, which also impacts the churn is the level of -- or the membership tier that the person has taken. So typically, we have seen our platinum customers are the one where we've seen the lowest churn, whereas on the silver customers, the churn is comparatively higher as compared to gold. So there could be the different metrics, which makes this entire churn data slightly more complicated. Though, on an average, what we have seen is broadly if we try and bucket our customers on these 2 assets. 1/3 of our customers operate on a monthly subscription and 2/3 of the customers operate on annual and a multiyear subscription. On the annual and in the multiyear customers, we've been seeing on an average around 20% churn and on the monthly side, we are seeing on an average 5% churn per month. So that is the churn what we have been seeing.
The next question is from the line of Dhruv Bhatia from AUM Fund Advisors. I'm sorry, it seems the line is on hold. We will move to the next question that is from the line of Manan Shah from Moneybee Group.
Yes. You already answered my question. My same question was on the churn and bifurcation of our subscribers in -- how many of them are monthly versus annual versus multi-annual? My next question is, as you said, our buyers -- our data is very diverse. I wanted to know how do we use that data? Like, do we use that figure to deploy our sales force to acquire suppliers from those areas where we don't have or, like, do we use that data in some way or the other?
So we use data in various ways. Buyer data we use for forecasting demand of buying inquiries coming from certain areas. Now that can be used to upsell when a -- suppose when a tractor customer, Mahindra, says that I want to sell tractors, which are different cities and I should take a premium listing. We can use our buyer demand data to guide them to, these are the top categories, top cities that you should take it from. Sometimes when they say that I want to increase my presence in Northeast, which are the particular cities there where there is a lower demand and -- higher demand and lower supply. So we use that data in a -- while upselling premium listing -- premium customers. Also, we use that as an unfulfilled demand from buyers. So if there are buyer demand coming from a certain sector or a certain geographical sector, and if we do not have suppliers matching there, then we use supplier data. So for example, we know exactly which supplier, who belongs to Delhi, also deals in Lucknow and Kanpur and Agra. Whereas another supplier who lives in -- who is based in Delhi also deals in Jaipur and Jodhpur and Udaipur. So then we are able to redirect those buyers to these suppliers, who are dealing in these particular categories. So we are using multiple ways this data to improve our matchmaking. And that is where we say that it is a behavioral matchmaking based upon suppliers' RFQ consumption-based data. So we use suppliers behavior data to improve buyer matchmaking relevancy.
Right. But this buyer data that we provide to our suppliers, do we charge anything to that? Or do we share that only with our platinum customers? Or this data is shared with all the customers? Or is it -- is there a way how we can monetize this data as well?
Yes, we have discussed this internally a couple of times. Is there a -- can we do our own CMI index? Can we do our own things like that? But I think it's a long way to think about that. Yes, someday, our data could be useful for different brands to do a targeting and other things. Right now, we haven't done any thinking around that.
The next question is from the line of Tushar Sarda from Athena Investments.
I wanted to understand a couple of things. One is which categories of buyers and sellers are there on the website? That information is not there in the presentation. Which is the main category which gets stated, top 4, 5 categories?
So if you look at our DRHP or RHP or an annual report. In the annual report, you will find distribution of the categories. We do not release that category-based data on a quarterly basis. But if you look in the annual report, you will find the -- no single category is contributing more than 10% of our supplier base. And even within the -- even within those categories, our -- within those industries, our categories are 138,000. So we are fairly diversified. But if I have to tell you the top 5 categories, there will be industrial, electrical, industrial supplies, yes, building construction, pharmaceutical and medical and chemicals. So those are the naturally 5, 7 industries, but I would say you could go on to our website and see how they are ranked. And then they are typically ranked in the order of demand and supply and also refer to our annual report.
Okay. And my second question was, there were some questions about your website facilitating transaction and all, right? So there is this GeM platform of Government of India, which facilitates buying from SMEs for government departments. So do you have any kind of integration or your suppliers, both through you or directly or something like that on that platform? I mean -- or do you conduct auctions for buyers?
Currently, we do not have any institutional connect with GeM portal. We do not intend to have any institutional connect with GeM portal. I have seen a lot of time, anecdotally, people who are sellers on GeM portal acting as buyers on IndiaMART portal to source the same things from IndiaMART and finally sell it or supply it as a contractor or as a tender on the GeM. But that is anecdotal, completely anecdotal.
Okay. Okay. And my last question is, if I want to learn more about the company, whom do I contact? Do you have an investor relation agency or something?
We do have an investor relations agency, and we do have investor relations person in-house. They will -- I mean, you can reach out to us, and we'll definitely connect back with you.
Ladies and gentlemen, due to time constraints, that would be our last question for today. I now hand the conference over to the management for their closing comments. Thank you, and over to you.
Thank you, ladies and gentlemen. I think this was overwhelmingly 30 minutes overcall. And I can still see more than 50 participants active. So thank you for your interest and participation shown in the company. And we'll continue to interact with you through various platforms as well as our website and exchange's website. In the meantime, if you have any further questions, please do reach out to our Investor Relations team. The contact details of investor relations is given on our website. Thank you very much, once again. Have a good day, and happy Diwali to you, guys.
Thank you very much.