indiamart inter Management discussions

Indias Pathway to Resilience and Rebuilding

India continued to remain a relative bright spot in the world economy as it is estimated to grow between 6-7% every year till 2025, based on the estimates shared by the International Monetary Fund (IMF). While headline inflation may remain a key concern, the growth momentum of the Indian economy is expected to stay resilient due to strong investment activity bolstered by the governments push towards capital investments and its buoyant consumption story.

Robustness of the economy is further validated by the surge in GST collections as well as E-way bills generation. GST collection for FY 2023 stood at 18 lakh crore, which is 22% higher than the GST collected in FY 2022 and E-way bills generated, which are electronic permits for transporting goods within and across states, shot up by 24% to 95.8 crore in FY 2023, signalling a strong boost to the economic activity. According to the Ministry of Corporate Affairs, 1.95 lakh new companies were incorporated in FY 2023, indicating the bullishness in business sentiments in India.

Small and Medium Businesses Pillar to Indias Growth

The micro, small and medium enterprise (MSME) sector is considered a pillar of Indias economy and the key to unlock its economic growth, given its immense contribution to employment and income generation. India is home to a large base of 63.4 million Micro, Small and Medium Enterprises (MSMEs). MSMEs are the growth accelerators of the Indian economy, contributing around 33% of the countrys GDP and accounting for around 120 million jobs across industries and regions.

With Indias largest-ever, dynamic and growing youth population (estimated to be 66% of its total population), jobs created by MSMEs will likely be taken up by the new generation. Today, MSMEs are contributing significantly to employment generation and economic growth, and providing employment to many people, especially in the rural and semi- urban areas. MSMEs shall continue to play an even bigger role in the ever-evolving Indias growth story.

Digitalisation and e-Commerce have been instrumental in improving the business prospects for MSMEs in India as it plays a crucial role in accelerating growth in the Indian MSME sector.

Company Overview

The Company was incorporated in 1999. In its more than 2 decades of existence, it has built Indiamart.com, Indias largest online B2B marketplace, and recently acquired Busy

Accounting Software, one of Indias few largest accounting softwares.

IndiaMART enables prospective buyers to discover products and services and connect with suppliers registered on our platform, thereby facilitating online discovery and matchmaking related to business goods and services. As at March 31, 2023, we had 170 million buyers and 7.5 million suppliers registered on our platform, of which, 202,690 were paying subscription suppliers.

With our wide supplier base, today we have 95 million products and services which are listed across 95,000 categories and 56 industries. This provides buyers with ease and convenience of online discovery and a hassle-free access anytime and anywhere to a responsive supplier base. As a result, the buyers visit our platform more frequently for their diverse business needs.

An increased number of buyers leads to further business enquiries for suppliers on our platform. This in effect incentivises more suppliers to register and develop web storefronts and list their products and services. More suppliers, in turn, attract more buyers to the platform, resulting into strong flywheel effect leading to a growing buyer-supplier base on the platform. During the year ended March 31, 2023, our traffic was 1,021 million. Notably, this was entirely organic and did not require any significant marketing expense to generate the same. This led to generation of 88 million unique business enquiries on the platform and delivery of 479 million business enquiries to our suppliers.

To our suppliers, we offer online visibility of their products leading to generation of business enquiries and resultant growth in their business. In addition, our paying subscription suppliers are provided access to RFQs or BuyLead, profiles of their prospective buyers, a lead management system, and cloud telephony services. This helps them with better management of calls and business enquiries, along with online payment facilitation services, resulting in a cost-effective model for collecting payments digitally.

Our marketplace strives to improve the user experience by deploying AI/ML technologies at various steps of the user journey. We use behavioural data-driven algorithmic matchmaking leveraging the supplier behaviour demonstrated on the platform to connect buyers with the most relevant suppliers. These algorithms keep optimising and improving with time as more and more buyers and suppliers use the platform. Our buyer repeat rates of 53% and a rating of 4.7 from Google Play Store further validates the user friendliness and effectiveness of our platform.

Our Revenue Model

While most suppliers on our platform are registered for free, we generate our revenues by offering paid subscription packages to our suppliers which are less than 3% of our overall suppliers listed on the platform. Most of our paying subscription suppliers first subscribe to a Silver subscription package, and then subsequently upgraded to a higher value package and premium subscription of Gold and Platinum. Higher tier packages provide better visibility and more RFQs to suppliers, leading to an increased number of business enquiries for them. Upgrades to premium subscription packages improve the ARPU (Average Revenue Per User) of our overall business.

All our subscription packages are offered on an annual or multi-year basis. Only the Silver package is offered on a monthly subscription. The subscription fees is collected upfront in advance, irrespective of the duration of their package. We recognise revenues from these collections over the entire period of their subscription. To the extent it is not recognised as Revenue, it is identified as Deferred Revenue and is included under "Contract Liability" in our Balance Sheet. As at March 31, 2023, our Deferred Revenue on a standalone basis, stood at 11,344 million, enabling us to have improved visibility and stability of our revenues.

Sales and Servicing Network

Our sales and servicing network is spread across India. Our sales teams focus on converting free suppliers on the platform into paid subscribers. Our servicing teams handhold the suppliers to ensure a smooth journey on the platform and our servicing team focusses on handholding the suppliers and are responsible for renewal, customer relationships and upgrading existing users to higher value packages.

Our sales network comprises outsourced sales representatives and channel partners. These teams are responsible for reaching out to free suppliers, create awareness about our product, help them understand the benefits of our subscription packages, and support in customer acquisition. This approach not only facilitates us in attracting more business, it also helps in building the brand through word-of-mouth. By partnering with established channels and businesses, we aim to tap into their existing customer bases, leading to faster market penetration and increased sales.

While our sales network is fully outsourced, the customers are serviced entirely by our inhouse servicing team, comprising telephone and field sales representatives. The team works closely with our customers to understand their specific requirements and provides them with relevant solutions to fulfil their business needs. This enables us to build strong long-term customer relationships and enrich their experience through renewals and upgrades to premium packages.

As at March 31, 2023, we had a strong in-house sales supervision and servicing team of 3,542 people and a network of more than 150 channel partners. With a robust network of offices and our field and tele-channel partners, we expanded our geographic reach to over 1,000+ cities and towns. Our ever-expanding sales and servicing teams continually engage with our current and prospective suppliers through physical meetings or via telephone or the digital medium and build stronger relationships.

Our Operational Performance

During the financial year under review, we recorded the highest-ever increase in paying subscribers along with better revenue realisation per customer. As a result, our revenues grew by 25% YoY primarily driven by 20% increase in number of paying subscription suppliers and 4% increase in ARPU.

Our major expenses include employee benefit expenses and outsourced sales costs, which together constituted 56% of our Revenue from Operations in FY 2023. This involves costs related to our sales and service team, which is critical for the growth of our paying subscription suppliers, and also for servicing our existing customers and upselling them to higher value subscription packages. Further, we also made significant investment in product and technology to strengthen the value proposition of the platform. Our Standalone EBITDA and PAT were recorded at 2,616 million and 2,722 million respectively for the year ended March 31, 2023.

While we see an accelerating growth trend in terms of paying subscription suppliers and revenues, our margins registered decline due to:

i) upfront investment in cost of sales, while the revenue accrues over the period of subscription

ii) growth investments made in building up teams across sales, servicing, product and technology

Given the upfront collection of subscription fees we operate negative working capital business model. We believe in providing timely liquidity to our stakeholders such as vendors and employees. We pay weekly salaries and incentives to our employees and maintain low payable days at 28 days as of March 31, 2023. Our Standalone Cash generated from Operations for the year ended March 31, 2023 stood at 4,636 million.

Busy - Entry Into Accounting Software Segment

During the year, we completed the acquisition of Busy Infotech Private Limited, which is one of Indias largest accounting software companies with a pan-India presence. For more than 25 years, Busy Infotech has been an established brand in the Indian accounting landscape. During the year, it sold 29,738 new licenses, 30% higher than the previous year. With this, it has managed to sell 330,91 1 licenses till date since its inception. Revenue for the year grew by 22% to 433 million and Deferred Revenue as at March 31, 2023 was at 273 million; 23% higher over the previous year.

With investments made in Busy and Livekeeping, the Company has identified two businesses - "Web and Related Services" and "Accounting Software Services" - as reportable segments based on the nature of products, risks and returns, its organisational structure and the internal financial reporting systems.

We are of the strong belief that the accounting segment has ample headroom to grow with more businesses following compliances under the GST framework in future. Further, a growing need for access to accounting information from anywhere, anytime will lead to increased adoption of mobile phones and cloud-based product offerings.

Other Investments

In addition to the accounting softwares, we have made strategic investments in the areas of Fintech, Logistics and Business Enablement softwares. These were aimed at managing logistics, procurement, sales and distribution, order operations and human capital. These investments included Realbooks, Aerchain, EasyEcom, IB Monotaro, Shipway, Fleetx, ProcMart, Legistify, Bizom, M1xchange, Vyapar, SuperProcure and Zimyo. During the year, follow- on investments were also made in Bizom, M1xchange, Realbooks, Vyapar, Legistify and SuperProcure.

We will continue to look for more of such investment opportunities in the future, aimed at providing business and commerce enablement services on the platform and continue the journey towards IndiaMARTs long-term vision of providing a holistic ecosystem for small businesses.

Key Statistics

(Figures in Rs Million)

	FY 2023	FY 2022	Change (%)
Collections from Customers	12,186	9,344	30%
Deferred Revenue*	11,625	9,070	28%
Revenue from Operations	9,854	7,535	31%
EBITDA	2,679	3,078	(13%)
PBT	3,713	3,904	(5%)
Net Profit	2,838	2,976	(5%)
Earnings Per Share (in )	92.96	97.82	(5%)
Cash generated from Operating Activities	4,758	4,023	18%
Cash and Treasury Investments	23,353	24,193	(4%)

Note: The above figures are on a consolidated basis.

Growth Strategy

We aspire to become a one-stop solution for businesses for all their needs and to enhance their ease of doing business. A key objective of our growth strategy is to enhance the adoption of IndiaMARTs platform by increasing the number of buyers and suppliers, whether small, medium or large enterprises, in the marketplace.

Our key strategy encompasses consistent and continuous enhancements in our key value proposition to small and medium businesses - by offering more and more products that facilitate commerce in the marketplace or provide business enabling softwares as a service. We will continue to invest in these areas to improve our value proposition for the customers.

Returns to Shareholders

As at March 31, 2023, we had 23,353 million as Cash and Treasury Investments. We will continue to maintain the cash commensurate to our scale of operations as well as growth ambitions and believe in distributing the surplus in the form of dividends or buyback to our shareholders.

During the year, we had successfully completed the buyback of our equity shares for an aggregate value of 1,000 million at a buyback price of 6,250 per equity share. We also paid a Final Dividend of 20% to our shareholders, i.e., a dividend of 2 per equity share on a face value of 10 per share.

Further, the Board of Directors at their meeting held on April 28, 2023, subject to shareholders approval, had approved a final dividend of 200% on a face value on 10 per share and also recommended an issue of bonus shares on the companys equity shares in the ratio of 1:1, i.e. one additional equity share for every one existing equity share, by capitalising a part of the free reserves.

Key Financial Ratios

Key Ratio	FY 2023	FY 2022	Change (%)
Current Ratio	2.8	3.7	(26%)
Debt - Equity Ratio	0.02	0.03	(26%)
Debt Service Coverage Ratio	8.4	6.0	41%
Interest Coverage Ratio	46.5	73.3	(36%)
Return on Net Worth	14.4%	17.1%	(15%)
Trade Receivables Turnover Ratio	10.3	20.6	(50%)
Trade Payables Turnover Ratio	12.8	10.5	22%
Net Capital Turnover Ratio	0.7	0.4	55%
Net Profit Margin	28.8%	39.5%	(27%)
Operating Profit Margin	24.0%	39.3%	(46%)
EBITDA Margin	27.2%	40.9%	(33%)
Return on Capital Employed	17.9%	20.3%	(12%)
Return on Investment	4.5%	4.4%	2%
Debt to EBITDA	0.2	0.2	(6%)

Note: The above ratios are on a consolidated basis.

Human Resources Management

As we continue to embark on our growth journey with new aspirations and milestones, we value the unflinching contribution of our human resource that continues to drive our vision with utmost sincerity and passion. The Company engages with its employees across platforms to strengthen employee retention. In addition to providing the right workplace and environment, and growth opportunities to our employees, we also maintain a strong focus on employee welfare with specific initiatives to keep our employees always motivated.

Our "employee-first" approach has led us to implement various initiatives, which also includes weekly salary disbursements. In the previous year, we migrated to weekly pay-out of salaries to our employees, becoming Indias first organisation to have taken this employee welfare initiative. The move was targeted at improving the financial and economic profile of our employees, providing them access to better financial liquidity during the month, and motivating them to work better.

Further, the Company strongly believes in providing wealth creation opportunities to its employees, such as the stock- based retention program. Till March 31,2023, 700+ employees have been covered under the Companys various SAR / ESOPs programs.

Data Privacy and Risk Management

Risk is an integral part of our business and is critical to our success. The Company has identified and implemented comprehensive policies and procedures to assess, monitor and manage risks. Our risk management process is continuously evaluated, improved and adapted based on the changing risk scenario.

A comprehensive Information Security Policy is in place to deal with any IP rights and information security lapses and includes all relevant stakeholders. Being an ISO / IEC 27001:2013 certified company, our robust policies help manage information security. The Company has also taken one step ahead to further strengthen its ISMS - ISO 27001, through the implementation of Privacy Information Management System (PIMS) - ISO 27701 which focusses on protecting the organisations personally identifiable information (PII).

We also have in place a Business Continuity and Management System (BCMS) certified via ISO 22301:2019. This covers identification of situations that will likely have a negative impact on business operations. Further, as a re-assurance for our economic resilience, professional reputation and environmental and safety outcomes, we also acquired the ISO 31000 certificate for Enterprise Risk Management during the year.

Internal Control Systems

The Company has well-established and strong internal controls with well-designed systems, policies and procedures to maintain financial discipline. Our Internal Control Systems are well commensurate with the nature of our business and the size and complexity of our operations. During the year, these internal controls were thoroughly tested and no reportable material weakness in controls was observed.

Outlook

Our business provides an immense opportunity for significant penetration across geographies, and a resultant opportunity for growth. As more and more businesses increasingly adopt digital means of doing business, and with digitisation and internet adoption witnessing exponential growth in India, we foresee an increased demand for our services in the years ahead. With its business model, technology and market positioning, IndiaMART is well placed to capitalise on the growing market opportunities.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward-looking statements within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include among others, climatic conditions, economic conditions affecting demand- supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors.