Dinesh Agarwal, Founder & CEO, IndiaMART InterMESH, talks about Rs 1,100 crore QIP, organic/ inorganic growth opportunities, Competition in the sector, buyer traffic from Tier-2 & Tier-3 cities, business outlook and average annual revenue per subscriber among others during an interview with Swati Khandelwal, Zee Business. Edited Excerpts:

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Q: You have raised Rs 1,100 crore through a QIP. Tell us how the proceeds of the QIP will be used and are you looking forward to some M&A opportunities is you will look to increase the customer engagement platform?

A: The fund raised through the QIP will be used in organic and inorganic opportunities, maybe it is related to payment areas, software, order management, invoicing accounting, receivables management and tax compliance, so, there are many areas. And if you have a look at the last year then internet adoption has increased significantly. Due to the increase in internet adoption, many new opportunities will probably come out in our adjacent areas. In the last year, we have studied many companies and sectors. I believe that in the coming time we would like to see some opportunities for investment and acquisition. As soon as something progresses, we will definitely let you know about it. 

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Q: If we will talk about the average surge in your business as SMEs are very keen to put out their classifieds and in the next 3-4 quarters what kind of supplier addition do you see and what kind of response you are getting?

A: If we will talk before the COVID era, then we were able to do a net addition of around 5,000 per supplier and the number stood at 1.47 lakh in March last year. But many SMEs and industries were impacted during the COVID due to which our customer fell to 1.33 lakh. There was a loss of around 15,000-16,000 customers in the first quarter which recovered in the next two quarters and now we have reached to 1.48 lakh customers. And we expect that during the pre-COVID, we will be able to add around 5,000 customers per quarter. 

Q: We are seeing a completion as many players are coming into the market and are launching the B2B platform. You have a 60% market share, and do you see a threat to your market share? Also, how will you read the competition and protect your market share?

A: Right now, it is a very early phase in the internet, B2B and SME and talking about the 60% market share in it is a small thing. Probably, to date, only Indiamart and few more companies were paying attention to B2B and SME. Now, if more companies will focus on solving a different kind of problems of SME and B2B than the market will expand. And, we will be benefitted by the market expansion and depending on how other companies are doing and what new products and innovation it brings. We will also get something to learn from it and if we put those things on our scale than I hope that it will benefit us. I believe some investment and additions in the sector will benefit the entire sector. 

Q: If we will talk about the buyer traffic from Tier-2 and Tier-3 cities and let us know the kind of trends you are seeing there? How do you see the growth rate in these geographies in FY22?

A: If we look at the FY20 Vs FY21, then we used to have a traffic of around 60 million on monthly basis, which after the COVID has reached 85 million per month. So, buyer adoption has increased by around 30-35%. So, the base we had outside the metro cities is decreasing and is increasing from Tier-2 and Tier-3 cities. So, if we have a look at Tier-2 and Tier-3 cities then we are getting a buyer base of around 40% from these cities but maximum supplies are still coming from Tier-1 and Tier-2 cities. If seen in a way, Indiamart has turned into a bridge where suppliers are present in Tier-1 and Tier-2 and buyers are present in Tier-3 and Tier-4 cities. The trend will continue because the adoption is going to grow in the small cities as mobile and internet adoption is increasing and people has easily understood – during the COVID – the way to use the internet. Their trust has increased on the internet. So, I feel that this trend will continue in the coming time as well. 

Q: Brokerages report suggests that investors see good value in Indiamart as you have the network-driven pricing power as well as heavy cash flows, high operating profit growth, and negative working capital and less capital expenditure because it is an asset-light model. What is your view on this and going forward what kind of opportunities you will see in which you can grow the business X times? What growth vision target has been set for the company, in terms of top line and bottom line? 

A: As far as the technology-led asset-light model is concerned then earlier actions like discovery and matchmaking was happening at the Indiamart. It is a kind of search engine where buyer and seller used to see each other. It is a B2B marketplace, so the participants on both sides do business on it die to which our network effect turns a bit stronger because every buyer can work as a supplier and every supplier can definitely work as a buyer here because this is also a business. If you look at it, the strong network effect allows new users who join the network to get benefits from the presence of the old users, which adds more value to the entire platform. As far as its monetization is concerned, these are the early days and the revenue growth has been between 25-20% in the past although if seen in the last two years then the collection growth has declined because India’s growth story and GDP growth has deteriorated a bit, later which was hit by the COVID. So, I feel, going forward, if everything stabilizes and businesses will get stabilized then the growth rate will reach the previous mark. 

Q: You have given great returns as if we see to June 2019 when the stocks were listed on the stock exchanges at around Rs 970 per share and reached up to 9,900 per share, which is around 10 times more, and if talk about the last one year than a 4 times increase has been seen here. Do you think that a similar growth rate will be seen in the future as well? Also, your current registered users stand at 120 million and if this the correct number and you get repeat customers and buyers? 

A: It is so that our registered buyers’ base is increasing every quarter. As there is an increase in the registered user buyers, so the repeat rate is also going up because there are few people are left who are coming to the platform for the first time and there are more people who had already come to the platform. So, our 90-day repeat rate, which stood around 50-52% some two-three years ago, has reached 55-60% in the post-COVID era. An increase in the repeat rate helps us in creating a buyer profile. And, creating a buyer profile eases the supplier to find what kind of buyer it is. So our buyer gets more suppliers and suppliers get more buyers. And we can create more buyer profile which is likely to benefit the platform. So, the repeat rate has been very strong for us and the number of new buyers is also increasing. 

Q: What's your average annual revenue per subscriber currently? For FY22, what's the number you are looking at?

A: Our customer base did not grow very much in the FY21 and during this period – in the last months - there were a lot of problems. Because the customer base did not grow a lot, so the old customers, who had faith in the internet and were working on it has helped us in keeping the average revenue per subscriber slightly up at Rs 45,000 annually. Going forward, we will focus on increasing the number of subscribers and if we can stabilize the number at Rs 45,000 then it will be good. But if you will have a look at the last 3-5 years then it has increased from around Rs 33,000 to Rs 45,000, which is a good number from SME point of view and much stretch is not left in it now. So, we will have a major focus on subscriber addition.