Indiamart Intermesh Ltd Management Discussions

Indias Thriving Economic Landscape

The Indian economy has exhibited robust growth amidst global uncertainties, harnessing strong domestic demand to effectively steer through external challenges. The nation has positioned itself as a pivotal force in global economic expansion. Indias resilience is notably supported by substantial investment activities, encouraged by the governments focus on capital investments, and marked improvements in consumption patterns across both rural and urban landscapes.

Industry overview

Indias Micro, Small, and Medium Enterprise (MSME) sector, comprising over 63 million enterprises, underscores its influence and economic significance. These businesses complement other industries and contribute significantly to the countrys inclusive industrial development.

MSME Contribution

MSMEs play a pivotal role in expanding entrepreneurship and employment opportunities, particularly in rural and semi- urban areas. By bridging urban-rural disparities, they promote balanced regional development. As of April 3, 2024, the Udyam registration portal reported that a total of 18.42 crore people were employed in MSMEs.

Digital Adoption

The advent of digitalization has revolutionized the Indian business landscape for MSMEs. These technological advancements have democratized market access, streamlined operations, and enhanced competitiveness for small and medium-sized enterprises. By leveraging digital platforms, MSMEs can tap into new markets, expand their customer base, and optimize their operational efficiency, ultimately driving growth and economic impact.

Internet Subscribers per 100 Population

As per TRAI annual report 2022-2023, total internet subscriptions have grown from 165 Million in FY 2013 to over 881 Mn in FY 2023 witnessing a CAGR of 18%. Out of this 523 Mn are Urban internet subscribers and 358 Mn are rural internet subscribers.

As per detailed survey titled – MSME Digital Index 2023 – released by PayNearby, more than 71% Micro, Small and Medium Enterprises (MSMEs) in retail, use some form of digital technology for their day-to-day business operations. The report further highlighted that more than 80% of MSMEs admitted that the adoption of digital technology has had a positive impact on their businesses and personal lives.

With the vision of developing digital infrastructure as a core utility for every citizen, the government launched "Digital India" as an umbrella programme in 2015. The government is committed to keeping pace with the digital landscape developments including those related to legislations and frameworks. While the digital journey started with Aadhaar as a medium for service delivery at the doorstep, UPI strengthened the digital payment infrastructure. With other initiatives like E-Invoicing, E-way Bill, TReDS, ONDC, Open Credit Enablement Network (OCEN) etc. at different stages of implementation, India has developed a unique and cogent digital story.

Business Overview

Indiamart.com is Indias largest online B2B marketplace. IndiaMART connects prospective buyers with registered suppliers on the platform. This enables matchmaking and seamless discovery of goods and services online. As of March 31, 2024, we had 194 Mn buyers and 7.9 Mn suppliers registered on our platform, of which, 214K were paying suppliers.

With an extensive supplier base, IndiaMART currently lists 108 million products across ~98000 categories and 56 industries. This allows buyers to fulfill their diverse needs with ease and provides the convenience of online discovery anytime and anywhere to a large base of reliable suppliers. The availability of supplier reviews on the platform further enhances the buyer experience.

An increased number of buyers leads to further business enquiries for suppliers on our platform. This leads to more suppliers listing their products and services by creating web storefronts. More suppliers, in turn, attract more buyers to the platform, resulting in a strong network effect leading to a growing buyer-supplier base on the platform. During the year ended March 31, 2024, our traffic was 1,084 Mn. Notably, this was entirely organic and did not require any significant marketing expense to generate the same. This led to generation of 93 million unique business enquiries on the platform.

Our Key Offerings

To our suppliers, we offer online visibility of their products leading to generation of business enquiries and access to RFQs or BuyLeads generated by prospective buyers, which results in growth of their business. In addition, our paying suppliers are provided with profiles of the prospective buyers, a lead management system, and cloud telephony services,which helps them in better selection and response management of business enquiries.

Our AI-driven solutions are designed to meet the unique needs of Indian businesses, improving user experience, precision targeting, and ROI. We utilize advanced language understanding capabilities to deliver accurate search results, including for Hinglish inputs, and deploy AI-powered tools for efficient cataloguing and enhanced visual presentation. Generative AI is also employed for precise category mapping, improving user interactions and platform SEO. Moreover, it is also used in our Lead Manager to analyze buyer enquiries and generate customized response suggestions, which helps speed up responses and increase conversion rates while ensuring high-quality interactions.

We use behavioural data-driven algorithmic matchmaking leveraging the preferences demonstrated on the platform by the respective suppliers to matchmake buyers with the most relevant suppliers. These algorithms keep optimising and improving with time as more and more buyers and suppliers use the platform. Better matchmaking has enabled us to gradually reduce the number of times each enquiry gets delivered to a supplier.

Business Enquiries Delivered

(in millions)

Our 90 days repeat buyer rate is 53% and we have an app rating of 4.7 on Google Play Store which further validates the user friendliness and effectiveness of our platform.

Revenue and Paying Suppliers

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 suppliers first subscribe to a Silver subscription package, and then subsequently upgrade to higher value 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) as well as Supplier retention of our overall business, as we experience much higher supplier retention in Gold and Platinum packages as compared to Silver packages. Further, we have introduced category-based differential pricing for our platinum packages, which provides us with another lever to enhance ARPU.

All our subscription packages are offered on an annual or multi-year basis. In addition, the Silver package is also offered on a monthly subscription. The subscription fee is collected upfront 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, 2024, our Deferred Revenue on a standalone basis, stood at H 13,947 Mn, enabling us to have improved visibility and stability of our revenues.

We have added ~51 thousand paying suppliers during FY 22 & 23 which has been the highest ever addition in our history. Due to this addition in a short span of time, we experienced much higher supplier churn on silver packages than anticipated as the retention is lowest in the newly onboarded suppliers. As a result our net paying supplier additions for FY 2024 were 12 thousand which was significantly lower than last fiscal year.

During the year, we generated approximately 75% of our operating revenue from the paying suppliers subscribed to Gold and Platinum packages which constitute ~50% of our paying supplier base. We continued to have good retention as well as upgrade rates in these buckets which resulted in our overall ARPU growing 15% vs FY 2023. Our Revenue from operations grew to H 11,390 Mn in FY 2024 which amounts to 21% growth on a YoY basis.

Average ARPU

Sales and Servicing Network

Our Sales and Servicing Network, which stretches across India, serves as the cornerstone of our operational strategy. Our sales teams targeted approach towards transitioning free suppliers to paying suppliers is central to bolstering IndiaMARTs market presence and elevating user interaction on our platform. Our servicing teams handhold the suppliers to ensure a smooth journey on the platform and are responsible for managing customer relationships, renewing customer subscriptions, and upgrading existing paying suppliers to higher value packages.

Through a harmonious mix of in-person meetings and digital engagements, our sales and servicing teams interact with both current and prospective suppliers, strengthening customer relationships.

At the core of our sales strategy are our on-field sales representatives and channel partners, who are committed to expanding IndiaMARTs paying supplier base. They engage with free suppliers, explaining the value of our subscription packages, and assisting them through the onboarding journey of becoming a paying supplier. This strategy does more than just bring new business; it substantially enhances our brands visibility through effective word-of-mouth in business communities, helping to further strengthen our network. Working with well-established channel partners allows us to leverage their existing customer base and penetrate markets swiftly. During the financial year 2023-24, we have commenced building an in-house sales team and plan to expand this over the next few quarters, to reduce our dependence on a completely outsourced sales function.

Conversely, our servicing operation has always been powered entirely by an in-house team of telephone and field sales representatives. They play a pivotal role in nurturing lasting customer relationships through understanding the needs of our suppliers and delivering relevant solutions. This helps to build and maintain strong customer relationships, leading to increased renewals and suppliers opting for more premium packages. Ultimately, this enhances the overall customer experience and fosters greater loyalty towards our platform.

During the financial year 2023-24, weve expanded our Employee base and 18 new branches to successfully build a formidable team of 4,373 individuals specializing in sales and servicing, further bolstered by a strategic collaboration with nearly 150 channel partner locations. This concerted effort has enabled IndiaMART to serve customers from over 1,000 cities and towns. In addition, we are investing in strengthening our sales and servicing network for each of the regions by building a senior leadership layer of Regional Directors who are responsible for managing sales and servicing within their respective regions. This decentralized approach enables faster decision-making to drive synergies across sales and servicing teams and allows us to better understand regional needs and preferences.

Financial Overview - Standalone

The standalone financial results reflect the performance of our IndiaMART.com B2B marketplace business which contributes 95% of Revenue from Operations to the consolidated business.

Key Financial Statistics

(Amount in H Million)

			Change
	FY 2024	FY 2023
			(%)
Collections from	13,993	11,666	20%
Customers
Deferred Revenue*	13,947	11,344	23%
Revenue from Operations	11,390	9,388	21%
EBITDA	3,339	2,616	28%
PBT	4,746	3,453	37%
Net Profit	3,622	2,722	33%
Cash from Operations	5,451	4,636	18%

Note: The above figures are on a standalone basis.

*Includes Advances from Customers

Our major expenses include employee benefit expenses and outsourced sales costs, which together constituted 56% of our Revenue from Operations in FY 2024. This involves costs related to our sales and service team, which is critical for the growth of our paying suppliers, and also for servicing our existing customers and upselling them to higher value subscription packages. We continued to make investment in technologies like AI/ML to strengthen the value proposition of the platform through product enhancement. Our Standalone EBITDA and PAT were recorded at H 3,339 Mn and H 3,622 Mn respectively for the year ended March 31, 2024.

We also report a functional view of the standalone profit and loss statement wherein the expenses are classified based on business functions i.e. ‘customer service which is the cost of servicing the paying suppliers, ‘selling and marketing which is the cost of acquiring new paying suppliers, ‘technology and content which is the cost of developing and maintaining our digital infrastructure and ‘general and administration.

We had made significant investments in cost of sales and building up teams across sales, servicing, product and technology during the last fiscal. As we are realizing the benefits of these investments we are registering improvement in margins. Our EBITDA margin was 29% for the year ended March 31, 2024.

			Change
Functional P&L	FY 2024	FY 2023
			(%)
Revenue from operations	11,390	9,388	21%
Customer service cost	(3,088)	(2,371)	30%
Gross Profit	8,302	7,017	18%
Gross Margin	73%	75%
Selling & marketing	(2,107)	(1,893)	11%
% of Revenue	18%	20%
Technology & content	(1,990)	(1,747)	14%
% of Revenue	17%	19%
General & administration	(867)	(761)	14%
EBITDA	3,339	2,616	28%
EBITDA Margin	29%	28%

Note: The above figures are on a standalone basis

Given the upfront collection of subscription fees we operate a negative working capital business model. We believe in providing timely liquidity to our stakeholders such as vendors and employees. We make weekly payout of salaries and incentives to our employees and maintain low payable days at 35 days. Our Standalone Cash generated from Operations during FY 2024 stood at H 5,451 Mn.

Our Foray Into Accounting Space

The accounting software industry is emerging as a core segment in the Indian digital services landscape. With the growing formalization of the Indian economy and the MSME base, there is a growing demand for compliance management tools for these businesses, which includes filing GST and generating E-Way bills. Business owners now prefer access to their information on-the-go as well as analysed and summarised in a succinct manner, which is supported by growing mobile adoption trends observed in India. This suggests that the accounting industry is set to transform in the coming years as there is an expanding need for an intuitive, digitally accessible and easy to use accounting software. With our acquisitions of Busy Infotech and Livekeeping Technologies coupled with our investments in SimplyVyapaar Apps and Realbooks, we are well positioned to make the most of this opportunity.

For more than 25 years, Busy Infotech has been an established brand in the Indian accounting landscape. Since our acquisition of Busy in Apr 2022, we have been working to enhance the growth prospects of the business through product enhancements, offering data accessibility through desktop, mobile & cloud and an expansion of our sales network across India. This has resulted in 45% YoY net billing growth in FY24, compared to the single-digit CAGR observed prior to our acquisition. Through product and pricing transformations, we have also been transitioning our revenue model and customer base from a perpetual license structure, more towards an annual subscription model, through exclusive availability of newer product features on the latter.

During the year, we launched the Busy Mobile App and Busy Online. The Busy Mobile App extends the capabilities of Busy Accounting Software to smartphones (Android/iOS), offering convenience for business owners & accountants to facilitate on-the-go management of invoices, inventory, and financial reports. It empowers users with real-time decision-making and control, essential for dynamic business settings. Similarly, Busy Online brings the popular desktop version of Busy on the cloud platform, giving customers an option to access Busy anytime & from anywhere. It is suitable for businesses with multiple locations or remote teams, as it allows for real-time data sharing and collaboration, while offering automatic updates and enhanced data security, ideal for agile business operations.

In FY 2023-24, Busy sold 33K new licenses, 9% higher than the previous year. With this, it has managed to sell 364K licenses till date since its inception. Revenue for the year grew by 23% to H 533 Mn and Deferred Revenue as at March 31, 2024 was at H 435 Mn; 59% higher over the previous year. 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.

Other Investments

In addition to the accounting softwares, we have made strategic investments in the areas of Fintech, Logistics and Business Enablement softwares. These are aimed at managing logistics, procurement, sales and distribution, order operations and human capital.

Investee Company	Cost of Investment as on March 31, 2024 (Rs Mn)	Ownership March 31, 2024
Realbooks	138	26%
Aerchain	260	26.2%
EasyEcom	133	26%
IB MonotaRO	1179	26.6%
Shipway	182	26%
Fleetx	914	16.5%
ProcMart	14	13%
Legistify	88	15.4%
Bizom	526	25.1%
M1xchange	489	9.3%
Vyapar	967	27.5%
SuperProcure	215	27.4%
Zimyo	170	10%

We will continue to look for more 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.

(Read more about IndiaMARTs strategic investments on Page 30)

Financial Overview - Consolidated

Key Financial Statistics

(Amount in H Million)

Particulars	FY 2024	FY 2023	Change (%)
Collections from Customers	14,743	12,186	21%
Deferred Revenue*	14,400	11,625	24%
Revenue from Operations	11,968	9,854	21%
PBT	4,544	3,713	22%
Net Profit	3,340	2,838	18%
Earnings Per Share (in Rs)	55.2	46.5
Cash from Operations	5,592	4,758	18%
Cash and Treasury Investments	23,402	23,353	0.2%

Note: The above figures are on a consolidated basis.

*Includes Advances from Customers

Key Financial Ratios

Key Ratio	FY 2024	FY 2023	Change (%)
Current Ratio	2.2	2.8	-20%
Debt – Equity Ratio	0.02	0.02	5%
Debt Service Coverage Ratio	10.9	8.4	30%
Interest Coverage Ratio	52.2	46.5	12%
Return on Net worth	17.6%	14.4%	22%
Trade Receivables Turnover	13.6	10.3	32%
Ratio
Trade Payables Turnover	10.4	12.8	-19%
Net Capital Turnover Ratio	0.9	0.7	41%
Net Profit Margin	27.9%	28.8%	-3%
Operating Profit Margin	24.6%	24.0%	3%
EBITDA Margin	27.7%	27.2%	2%
Return on Capital Employed	25.6%	17.9%	43%
Return on Investment	8.4%	4.5%	87%
Debt to EBITDA	0.1	0.2	-28%

Note: The above ratios are on a consolidated basis.

Growth Strategy

Our growth strategy for the core business centers around boosting the adoption of IndiaMARTs platform by attracting more buyers and sellers regardless of their enterprise size. To achieve this, we consistently enhance our key value proposition which is providing access to the widest assortment of products that facilitate commerce on the simplest to use platform for buyers and suppliers.

Going ahead we want to become a one stop solution for businesses for all their needs to enhance their ease of doing business. We would continue to invest behind accounting softwares as we believe that there is large headroom for growth in that space. We would also keep investing in other solutions which are relevant for businesses and which would help us realize our vision.

Returns to Shareholders

As at March 31, 2024, we had H 23,402 Mn as Cash and Treasury Investments. Our treasury is managed within the contours of an approved investment policy statement. We invest in highly rated low risk instruments with the primary goal of capital preservation. This helps us to mitigate financial risk arising from volatility of returns on investments. We will continue to maintain the cash commensurate with 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 H 5,000 million at a buyback price of H 4,000 per equity share. We also paid a Final Dividend of 200% to our shareholders, i.e., a dividend of H 20 per equity share on a face value of H 10 per share.

Further, the Board of Directors at their meeting held on April 30, 2024, subject to shareholders approval, had approved a final dividend of 200% on a face value of H 10 per share.

Human Resources Management

Employees are the most important driver of IndiaMARTs growth journey. We value the unflinching contribution of our human resources that continues to drive our vision with utmost sincerity and passion. We consistently focus on providing the right workplace environment, ample growth opportunities, and effective welfare schemes to our employees.

Our "employee-first" approach has led us to implement various initiatives like iLEAP, our education sponsorship program that helps employees to update their skills and develop themselves for future opportunities; iLEAD, our Management Development Programme; and weekly salary pay-out, which is aimed at improving the financial and economic profile of the employees. We have an extensive and objective rewards and recognition program which recognises the efforts of our employees on a monthly and annual basis.

The Company engages with its employees across platforms to strengthen employee retention. The mix of one-to-one employee-manager meetings, regular team engagements, and quarterly town halls with senior management help the employees connect better with their teams as well as enable them to stay in sync with the companys vision and values. We have a transparent employee issue resolution and feedback system which further strengthens trust and accountability at all levels.

Further, the Company strongly believes in providing wealth creation opportunities to its employees, such as the stock-based retention program. Till March 31, 2024, 700+ employees have been covered under the Companys various SAR / ESOPs programs.

(Read more about IndiaMARTs Human Resource initiatives on Page 70-75)

Data Privacy and Risk Management

Risk is an integral part of our business and is critical to our success. At IndiaMART, we are committed to advancing in the digital domain while ensuring the utmost data privacy and security. Our strategic focus is on balancing innovation with rigorous privacy safeguards, adhering to statutory regulations and protecting intellectual property, customer data, and privacy. Our risk management process is continuously evaluated, improved and adapted based on the changing risk scenario.

Our Information Security Policy, certified under ISO/IEC 27001:2022, is tailored to ensure meticulous oversight and proactiveriskmanagement.WehavealsoachievedISO27001:2013 certification for our Information Security Management System (ISMS), ensuring data integrity and security across all platforms. The additional integration of ISO 27701 bolsters the protection of personally identifiable information (PII) across our platform. Our approach combines policy enforcement with advanced technology to strengthen our cybersecurity framework.

Our Enterprise Risk Management (ERM) framework, certified under ISO 31000:2018, plays a crucial role in identifying, monitoring, and managing risks amidst a rapidly changing business landscape. Furthermore, our Business Continuity and Management System, governed by ISO 22301:2019 standards, ensures we are well-prepared to address potential disruptions. This system facilitates uninterrupted business operations, safeguarding the interests of all stakeholders and reinforcing the resilience of our operational processes.

Through these integrated efforts, IndiaMART continues to uphold its commitment to data security, risk management, and business continuity, thereby enhancing trust and transparency among our users and stakeholders.

(Read more about IndiaMARTs Risk Management on Page 40-42)

Internal Control Systems

The company has established strong internal controls, complete with systematically designed systems, policies, and procedures to ensure financial discipline. Our Internal Control Systems are appropriately scaled to match the nature of our business and the size and complexity of our operations. Over the past year, these internal controls have been rigorously tested, and no material weaknesses were identified.

Outlook

Our company is well-positioned to penetrate across diverse geographies, offering substantial growth opportunities. With the accelerating shift towards digital business operations and the rapid increase in digitization and internet usage in India, we expect a continued surge in demand for our services going forward. IndiaMART, with its effective business model, advanced technology, and strategic market positioning, is equipped to take advantage of these emerging 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.