IndiaMART will use cash for organic and inorganic growth in adjacent areas: Dinesh Agarwal, Founder & CEO
Dinesh Agarwal, Founder and CEO, IndiaMART InterMESH Ltd, talks about Q1FY22 numbers, reasons for a drop in collections, realization from existing customers, buyer traffic, cash & investment, ARPU and impact of the acquisition of Just Dial by Reliance Industries among others during a candid chat with Swati Khandelwal, Zee Business.
Dinesh Agarwal, Founder and CEO, IndiaMART InterMESH Ltd, talks about Q1FY22 numbers, reasons for a drop in collections, realization from existing customers, buyer traffic, cash & investment, ARPU and impact of the acquisition of Just Dial by Reliance Industries among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:
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Q: The company has posted strong numbers for the June 2021 quarter. What is your view on the result and what contributed the most and what led to growth? Also, is it sustainable growth in the coming future?
A: If you are comparing the numbers with the last year’s first quarter then the lockdown was quite severe in the first quarter of the last year. Although, the impact of COVID 2.0 was quite severe in the first quarter of this year, so the impact of both of the two is mixed. If you have a look at the Collection from Customers then it stood at just Rs 96 crore in the first quarter of last year has increased to around Rs 170 crore this year as the lockdowns were not as severe as the last year and were able to operate the business. The same translates later to revenue from operations through deferred revenue. If you will have a look at the deferred revenue then it stood at Rs 628 crore last year and stands at Rs 715 crore now and due to which revenue from the operation has reached around Rs 182 crore. If you compare it sequentially or the previous two to three quarters then January, February and March were quite good and generally, quarter four remains good in terms of collections because there is yearly closing of many people and they exhaust their budget and this is why collection from customers was Rs 272 crore in the previous quarter and this time it stands at Rs 170 crore. If you compare it with the third quarter then the two are almost equal. As far as profitability is concerned, I have informed it earlier as well that a lot of costs is left amid the COVID and a lot of automation have happened due to which the profitability is temporarily quite high and over time, it will reach a sustainable margin of around 40%.
Q: Collections have dropped on a sequential basis we saw a collection of Rs 272 crore in Q4FY21 which declined to Rs 170 crore in Q1FY22. What is the reason for this? Also, your paying subscription suppliers have dipped on a QoQ basis. What led to this?
A: Collections of the first quarter always remains less than the fourth quarter. In quarter four, as I said that people have a budget and there is a year-end closing, so the collections of the fourth quarter always remain high. Secondly, there was quite a severe effect of COVID 2.0 in April and May and many of our customers, employees and the general public as well were suffering a lot. So, there was a significant loss in April and May but recovery was good in June and this is a reason that the collection is low. If you will compare the same with the same quarter of the last year - when a lockdown of around three months was in place – then we lost around 15,000 of our customers in that period but this time, we have lost just 6,000 customers. So, I feel, our navigation in the case of COVID 2.0 has been better and revenue from the operation is slowly increasing by around 20%.
Q: How much improvement have you seen in realization from existing customers and how many new subscribers have been added also? How has the traffic trend been and what kind of traffic growth is expected in coming quarters? Also from which industries the customers are coming and where you are facing challenges yet?
A: If we have a look at the buyer traffic then the traction of buyer traffic has been good from last year July onwards. So, the traffic is around 30-40% more when compared to the last year and the traffic has sustained in the first quarter despite the resurgence of COVID. This means the adoption of the internet and online has been good and I expect that this traffic will turn into permanent traffic, maybe there can be a change of 2-5%. So, the buyers’ adoption is good across the industries. However, if you have a look then there are few industries like those related to education, events, conferences and hospitality, where the buyer adoption is still low and as the economy opens up and the vaccination drive goes up and the COVID 3.0 wave is not there then it will improve further.
Q: The company has Cash & investments of about Rs 2,400 crore. Where will the company utilize it?
A: Even at the time of the QIP – if you remember we saw a slide in which we communicated a strategy that we will gradually make organic and inorganic investments in the adjacent areas. And if seen in that direction, we have invested in accounting software ‘Vyapar’ and we have also invested in distribution management software ‘Bizom’. Two investments have been made in logistics technology in the last quarter and they are ‘SuperProcure’ and ‘Shipway’. And order Management Company and Payment Company are our subsidiaries, and they are ‘Poora’ and ‘Payway IndiaMART. Our positioning will be to gradually increase the value proposition for the customers, maybe it happens through the inorganic route or organic route and we will deploy funds in the same.
Q: Do you have anything in terms of inorganic growth that would take place in this quarter itself and what will be its ticket size?
A: So far, if you will have a look then our ticket sizes have been between Rs 10 crore and Rs 30 crore. However, as per the board, we have the mandate that we can make investments or acquisitions ranging from Rs 10 crore to Rs 200 crore. So, there’s no restriction and as you know that deployable cash above Rs 1,500 crore is available with us. But we keep looking forward to such things in every quarter and you would have seen even in the last quarter that two-three announcements were made and will try to maintain the speed even in the coming quarters as well.
Q: What is your average annual revenue per subscriber currently and by the end of FY2, what is the number you are looking at?
A: If you will talk about the annual average revenue per subscriber then if you have a look from March 2016-17 to 2020, when there was the absence of any specific like COVID, it increased with a CAGR of around 5-6% from Rs 32,000 to 33,000 and reached to the level of Rs 43,000 to 44,000. But in the last one year, there has been no growth in our paying customer as in many of the industries several customers with small businesses have not been able to handle themselves due to which we have suffered huge damage in the lower size customers or the monthly customer base because of this temporarily you can see a rise in our average revenue per subscriber, which was looking at around Rs 45,000-47,000 in the last two quarters is looking around Rs 49,000 this time. I expect that when the growth returns at the end of the customer and as the impact of COVID comes to an end, then it should sit around Rs 45,000.
Q: In terms of competition, what is your look at the acquisition of Just Dial by Reliance Industries Limited as it will have a direct impact on your business?
A: It will not have a direct impact but if you will have a look then it is a good thing as earlier few companies like Just Dial, IndiaMART, Google, Facebook and Amazon were doing all the works related to education and adoption on the internet. But, now, many new entrepreneurs are bringing new services, software and market places, And at the same time, we are seeing that old industry houses like Reliance and Tata are also showing interest in the sector and this will be beneficial for the entire sector. It will turn into a big sector, more capital will be infused and new talents will enter into it and with this different types of solutions will be created for different types of problems. This will lead to an exponential growth in the market size because internet adoption has increased a lot in the last 3-4 years, especially its adoption has increased a lot in the last one year. Now to monetize it, a lot of opportunities will come out of it, so, I expect that entry of new entrepreneurs, new capital and new industrialists in the business will benefit it the most.
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