Good afternoon, ladies and gentlemen. I'm Kushal Maheshwari, Head of Investor Relations, and on behalf of IndiaMART InterMESH, I welcome you all to company's Q2 FY 2023 earnings webinar. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Joining us today from the management side, we have Mr. Dinesh Agarwal, Chief Executive Officer, Mr. Brijesh Agrawal, Full-Time Director, Mr. Prateek Chandra, Chief Financial Officer. Before we begin, I would like to remind you that some of the statement made in today's conference call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer slide number three of earnings presentation for the detailed disclaimer. Now I would like to hand over the call to Mr. Dinesh Agarwal for his opening remarks. Thank you, and over to you, Dinesh.
Thank you, Kushal. Good evening, everyone, and welcome to IndiaMART's Quarter two 2023 Earnings Webinar. We have already circulated our earnings presentation, which is available on our website as well as the stock exchange website. I'm sure you would have gone through the presentation, and I would be happy to take any questions afterward. We are pleased to report that IndiaMART has delivered a consolidated collections from customer of INR 264 crore and revenue from operations at INR 241 crore this quarter. This growth was primarily driven by increase in the number of paying subscribers and additional INR 11 crore revenue coming from the Accounting Software Services. Consolidated deferred revenue during the quarter increased to INR 984 crore at Q2 FY 2023.
The growth momentum was primarily driven by strong recovery across industries, backed by strong client demand for digital services. Total traffic on the platform and resulting unique business inquiries remained stable at 261 million and 23 million respectively. Our 90-day repeat buyers standing at approximately 53% represents the continued trust on the platform. The financial performance during the quarter was primarily driven by growth in the key operating metrics, which reflects customers' confidence in our service offering. During the quarter, we have added 8,832 paying subscribers, closing the total count at 188,000 customers at the end of September 2022. Overall, we ended the first half of FY 2023 on a positive note and expect to continue to build upon the growth momentum. We will continue to invest behind the business in line with our strategy.
Now I will hand over the call to Brijesh to update you on Busy Infotech.
Thank you. Good afternoon, everyone. Let me get started with the updates on BUSY. We've delivered a billing of INR 11.5 crores and a revenue from operations of INR 10.8 crores this quarter. The EBITDA in Q2 has been at about INR 3 crores, which reflects a margin of about 28%. The net profit for the quarter has been at INR 2.9 crores. Now, the underlying strength of this business is highlighted from the fact that BUSY has generated positive cash flows from operations of about INR 10 crores in the first half of this year alone. During this quarter, we also sold 7,302 new licenses with the overall licenses sold till date being INR 3.18 lakh now.
As you're aware, you know, BUSY has been our first acquisition, and it also is a very significant one for us. Therefore, we have been very cautious in managing this entire acquisition per se. You'll be glad to know that we have been successful in managing the transition post-acquisition. The team is very, very stable. The business has started to achieve growth. We're in fact now focused on increasing our team so that we can onboard more number of channel partners and also improve our penetration across all the under-penetrated markets in India. When we started off the year, we had shared three goals for this year for BUSY. One was to go ahead and double the rate of growth of the business.
Second was to go ahead and invest behind building up a team and awareness of the product. The third was to increase the overall number of new licenses being sold. The overall performance is in line with our expectations, and we are confident of meeting our goals that we've set out for this year, especially doubling the rate of growth of the business. Now, with this, I'll hand over the call to Prateek, so that he can discuss about the financial performance of IndiaMART. Thank you.
Thank you, Brijesh. Good afternoon, everyone. I will take you through the financial performance for the quarter ended September 2022. Consolidated revenue from operations was INR 241 crores in the quarter, registering a growth of 32% year-on-year. Deferred revenue during the quarter stands at INR 984 crores, an increase of 30% year-on-year basis. On a like-for-like basis, standalone collection from customers, revenue from operations and deferred revenue were at INR 252 crores, INR 229 crores and
958 crores, representing a year-on-year growth of 13%, 26%, and 27% respectively. As communicated in the previous quarters, the company continued to invest behind growth, primarily in building manpower across sales, servicing, product and technology. During the quarter, we have added 253 new employees, taking total employee headcount to 4,088. Consolidated EBITDA for the quarter stood at 28%. Other income during the quarter increased to INR 47 crore. This includes fair value gain of INR 14 crore in two of our strategic investments, namely Legistify and Bizom, that has led to the rise in the other income. Net profit for the quarter was INR 68 crore with margin of 24%.
Cash generated from operations during the quarter was INR 78 crores, while cash and investments balance during the quarter stood at INR 1,975 crores. Thank you very much. We look forward to answering the questions now.
Thank you, Prateek Chandra. We will now begin the Q&A session. If you wish to ask a question to the panelist, kindly raise your hand and allow camera and microphone access. Alternatively, you may type your questions in the chat menu and then we will revert on it. Please restrict your questions to two at a time, please, so that we may be able to address questions from all the participants. We will wait for a couple of seconds while the question queue assembles. Thank you.
Question queue.
The first question is from the lines of Pranav Kshatriya from Nuvama Wealth. Hi, Pranav, please switch on your camera and unmute yourself to ask the question to the panel.
Pranav, can you please switch on?
Can you hear me?
Yeah, we can hear you. Please go ahead.
Hi. Thanks for the opportunity. I have, you know, some clarity on the, you know, the cost escalation side. If I look at the technology and content cost as a percentage of revenue has seen almost 140 basis points expansion. That is almost at 19.4%, as a percentage of revenue. This number in FY 2020 was also a lot lower than, you know, where it is today. What is driving this growth? Because I don't think that, you know, we are adding too many new listings or anything like that. What is the reason for such a sharp increase in, you know, the technology and the content cost, and how should we view this going forward?
Any sense on the overall, you know, the cost structure. Secondly, I also wanted to understand, you know, the costs for BUSY because last quarter the EBITDA was around INR 5 crore, which, you know, came down to around INR 3 crore. What is driving this, you know, decline in the cost? Sorry, increase in the cost.
Sure. Thank you, Pranav. You know, the first part of the question on product and technology costs. You know, essentially as you know that most of the cost is manpower. The increase in the product and technology cost that you're seeing as a part of the functional P&L is also driven by increase in the headcounts. If you see, the number of people in product and technology that we had in this year is roughly around 780 people as opposed to 685 in the last quarter. The year before, if you see, there were more like 475 people. There is a sharp increase that has happened in the product and technology, largely because you see that the number of customers that have also gone up and we need to add people in order to keep in line with the growth and the different, you know, product offerings that we have.
Also, I think, you know, from FY 2020 onwards, we hadn't hired anybody, so there was a pent-up demand of people, and that we also backfilled. That is how you see. If you look at the overall cost structure in the gross margin. You know, the gross margin from, you know, 68%, 72% and has still started to go up much better than the pre-COVID. You know, pre-COVID it was 72%. We are currently running at 76%-77%.
Okay, should we expect this cost to increase or this will stabilize at the current level? How should we see this going forward?
As I've been guiding, you know, there's a lot of volatility in the market in terms of talent availability and pricing of the talent, and especially in the technology. You have seen in the multiple companies, even the larger companies, attritions are high. On the tech side, I'm little uncertain on the commenting anything have been going wrong in the last couple of years. On the sales side, since we are adding about 8,000, 9 ,000 customers per month per quarter, I would require at least 150 odd people to service them additionally. We still have some backfill demand to be filled. I think next two quarters you can expect our manpower count to keep going up significantly as in the current quarter. Then maybe we can start to stabilize.
Sure. Thank you. I'll come back in the queue for the remaining questions.
To your second question on BUSY.
Yeah. Pranav, on BUSY EBITDA. The increase in cost that has happened is principally on account of manpower. We've invested behind customer service very significantly. We've added people across the organization, including sales, non-sales functions, and that is one of the primary drivers of a lower EBITDA than what you saw in the first quarter.
Sure. Thank you.
Thanks, Pranav.
The next question is from the lines of Vivekanand from Ambit Capital. Hi, Vivekanand, please switch on your camera and unmute yourself to ask the question to the panel.
Hi. I'm keeping my audio on, but camera off due to bandwidth constraints. I hope that's fine.
Yes.
My two questions. One is the paid supplier addition outlook. It's tracking your guidance. But any color on how this is likely to shape for the next 12-18 months, and what can you do to accelerate this 9,000 to maybe 10,000-12,000 in fiscal 2024? That's one. Second, you know, further to Pranav's question on the tech and content expenses. Point well taken, the tech and content expenses, you know, the percentage of sales going up because you have backfilled some people. I noticed that the gross margins have gone up from 72% - 76%. Any sense on how we should think about gross margin number in the next couple of quarters? Because some of the sales people that you have added in the last few quarters, I think by now they may have matured and started contributing, you know, in paid customer addition. Thank you.
First question was.
On the net customer addition, you know, historically, you know, this is the, I think after five to six years, we have been adding about 20,000 customers plus minus 2,000-3,000. This year, if you look at to date, we've already added 10 + 9.
19,000.
19,000. As I guided, because we started ramping up last year similar time, and as you know, the first year churns are higher, next year churns are lower, and then the third year churns are even lower. The churn is catching up and that is why I've been guiding 8,000-9,000 customer addition. Because overall, when you are gathering new customers from newer industries or from going lower down the line, then this particular thing is to be taken care properly. That is why, for the next four quarters, I would say if we can maintain 8,000-9,000 and stabilize at that particular level and improve the churn back to pre-COVID levels, then only I would like to invest again in increasing, accelerating the growth of new customers.
On the gross margin side, I think, you know, because we had, you know, this 82% or 80% was a complete aberration due to COVID lockdowns, and we haven't been hiring and offices were also closed. Admin costs and everything was saved. Now that we are back to this 76%-77%, I would say that our target remains to somehow reach 80% by next year or so. If we can get to 80% by sometime next year, that should be our target on the gross margin side. Thank you.
Okay. Dinesh, just one follow-up. Very clear on the new customer addition guidance. If you could help us understand the churn of customers, you know, the Silver Monthly currently, and you know, you said that you want this to go back to pre-COVID levels soon. Where do you stand now versus pre-COVID across the key packages? The other one, just a follow-up on the gross margin number. 80% you said by end of next fiscal. Is that how one should look at it?
Yeah, 80% sometime next year. You know, it is impossible for me to predict six quarters, but sometime next year. On the churn side, look, I think we are 80%-90% at pre-COVID levels. We are still 10%-20% behind pre-COVID levels because of the so many uncertainties happening every quarter, some or the other. I mean, last quarter there was war and inflation, and this quarter there's an interest rate increase and all that. In terms of churn, gold and platinum remains at less than 1% per month. Silver annual and multi-year remains at about 2%. You know, 2.2%, 2.5% per month.
Silver monthly, as I've guided earlier, it remains at 5%-6% on a net customer basis. Since we have started to add customer base quickly in the last nine months, I think we can see some volatility in the silver annual and silver monthly customer. Gold and platinum is very good at less than 1%.
Okay. Lastly, Dinesh ji, you don't think that this is because you are gathering customers across new categories or those who are lower in categories where you already have a lot of paid suppliers. It's not because of that, right? Or, I'm just curious because maybe if you, when you add customer in categories where you already don't have paying suppliers, you know, maybe the churn is higher in those categories. I just want to understand churn better.
Actually, it is contrary to that. The categories where IndiaMART works, where the competition is higher, there the ARPU is also higher, retention is also higher. Where the probably we have yet not found the product market fit or the industry fit, there the churn is higher. Because wherever we have found the product market fit better, the competition keeps going up, and still we have seen that churn keeps going down.
Okay. Very clear. Thank you.
Thank you, Vivek.
Next in queue we have Anmol Garg from DAM Capital. Hi, Anmol. Please switch on your camera and unmute yourself to ask the question to the panel.
Hi. Anmol, we can't hear you.
Hi. Am I audible?
Yeah, Anmol.
Yeah, thanks for the opportunity. Actually, I have a couple of questions. Firstly, is it right that we would be, because we are adding 8,000-9,000 customers, which is higher number than we used to earlier. Would it be right to say that most of these customers would be monthly in nature? Secondly, to that, would that mean that we can expect some ARPU increase going into next year, given that earlier, whenever we used to add more monthly customers then, there's a tendency that they upgrade in next few years. Can we expect that the ARPU will increase in next year going forward? That is question number one.
Historically, when the customer growth slows down, yes, you are right. As the customer moves up the tier, things improve. Historically there has been lot of disruptions and in the market, and that is why we could not scale up on the customer. I don't think we will continue to have many more disruptions every year like this. I expect that, I mean, my wish list is that if we can continue to grow the customer base by 20% or so. ARPU, even if we stabilize or grow by 2%-3%, that's fine, rather than 5% per annum.
Sure, Dinesh. Secondly, wanted to have your view on the ONDC process. I understand that it's still early days. However, if you can highlight that what has been our thoughts internally, and if we do go on to the ONDC process, so would there be any change in our business model?
No, I think in case ONDC succeed, you know, it would be beneficial for everybody in fact, because it will be an open platform where anybody can plug in. We, if tomorrow, you know, first it'll has to work, then it will have to work for B2C categories, and then maybe later at some point of time, it might be open and it might be possible to do even B2B there. But that's a probably slightly longer duration for a B2B platform. I would say over the next two, three years, let us see what is the success rate of ONDC in the B2C e-commerce market in the digital goods market. Then we will come to the wholesale and all.
I'm sure it will present lot more opportunity on the buyer app side and the seller app side, even for IndiaMART, to aggregate more suppliers or to aggregate more buyers using ONDC platform, whenever that happens.
Sure, sir. That would mean that immediate plans are not there to go on to the ONDC right now.
No, I think currently it is very, very limited and open to mostly B2C hyperlocal deliveries. It'll go on to probably national deliveries. It'll go on to digital goods like tickets and all. I think we'll come to the normal discovery search engine.
Sure. Just one last question if I can ask.
Please go ahead.
The question is for Brijesh. Just wanted to understand that, what is our strategy regarding the investments that we have done while you highlighted for the accounting softwares. If you can highlight for the other companies that we have acquired as well. If we are getting any synergies from these companies in terms of our own paid supplier additions as well as the customer additions for our associate companies as well.
Can we go to the strategy slide for the discussion? Anmol, I will go back and refer to the overall strategy that we had shared in our earlier calls also. How we are looking at evolving from being a discovery and a conversational commerce platform to an actual true commerce platform. Our overall strategy has been focused on enabling commerce, enabling businesses. If you see most of our investments that we've made in this phase has been around business enablement. You know, we've looked at companies obviously in accounting space. We've looked at procurement. We've looked at payroll. We've looked at legal compliances. The thesis is that how we get these enabling tools made available to the small businesses.
Our view is that, when we make these investments, and when we work with these associate companies, you know, we try and understand how, you know, we could go ahead and collaborate on with these associate companies and help them either expand their market or attract a larger number of customers. All of these things essentially go ahead and take some time. We are very, very early, you know, in terms of these investments that we've made. If you look at the overall timeline itself, you know, most of these investments have happened in the last one year or so. We are investing time with each of these companies. We are trying to assist them with whatever we can at this point in time.
However, when we look at deeper integrations with them, we will continue to you know do this as we build better use cases, better understanding. In fact, one of our earliest investments, which is Vyapar, you know, we've shared earlier, we now help them you know acquire newer customers using our base. We invested in them in 2019 itself, so it took us a while. Therefore, even for these recent investments, I think time will be an important factor before we could you know share with you what would be the specific synergies with those businesses.
Sure, Brijesh. Thanks for this. I'll fall back into queue.
Thanks, Anmol. The next question is from the lines of Deep Shah from B&K Securities. Hi, Deep. Please switch on your camera and unmute yourself to ask the question to the panel.
Hello, am I audible?
Yes, please go ahead.
Yeah. Thanks for the opportunity. I wanted to understand a bit about how have the incentives moved up this quarter? Because the feeling was that once recovery commences, it will be relatively easier for us to convince more SMEs to come on the platform. While that has happened, it is also coming at a steep cost in terms of incentives payout to the sales personnel. If you could help about what is the on the ground feedback you're getting about the macro recovery, and how do you see these incentives shaping up as we try to accelerate growth in terms of bids and supplier additions.
In terms of macros, it remains mixed. You know, last many quarters it has remained mixed. When COVID-19 happened, there was so much tailwind to go online. On the other hand, there were people who were running out of businesses. Concurrently also, if you see, on one side there's interest rates rising. I guess, we are probably seeing much decline on COVID-19-related items like sanitizer, medicine and other things. There's still some demand left from foreign countries, little bit here and there, but mostly that has subsided. I guess, on the macro side, nothing much changes big time, ever since the one-time upgrade of the COVID-19 adoption has happened. Now coming to the incentive side, I don't think anything material has changed.
Mostly the cost structure has remained more or less similar. Our cost of customer acquisition has also remained more or less similar. As we have grown more number of customers, I think, I don't think there is a material change required in the sales incentive. In general, salaries have increased by 20%-30% in the past year, and they continue to be under pressure. Other than that, I don't think there has been big change in the sales incentive or anything.
Right. Thanks. This is useful. Secondly, I wanted to ask a bit about the product. Pre-COVID, we did a lot of product innovations. We introduced city-based distance, and then we had more slots for, say, platinum customers. How should we think about pricing improvement? Will it be product led, or do you think there is a case to be made for increasing the tariff itself, of different plans, now that we've seen some fair recovery and we are able to add a lot more suppliers than before?
There are two ways that we see it. One is the silver monthly annual base level pricing. As I said, base level pricing more or less, we don't want to increase for now and will remain more or less similar. We started from INR 2,000 a month, went to INR 3,000 a month, came back to INR 2,500, and I think that's the sweet spot, anywhere between INR 2,500 and INR 3,000. On the platinum side, if you see top 1% and top 10%, they have been increasing year-on-year, quarter-on-quarter. Our pools have also been increasing and their contribution have also been increasing.
I remember very clearly we used to have top 10% contributing about 40% of our revenue, which has gone up to 47%. Even the top 1%, last time I presented for the first time was INR 790,000 ARPU. That has gone up. I think on that side, we are continuing to do more experiment in terms of platinum listing and different ways of monetizing. As I said earlier also, we still have some juice left there in terms of category city combination-based pricing. I guess and we will continue to experiment there and I don't think there would be a decline in the ARPU on the top tier. Top tier ARPU will continue to increase on a healthy 5% rate.
Perfect, sir. This is very helpful. Thank you and all the best.
Thanks, Deep. Next in line we have Swapnil from JM Financial. Hi, Swapnil, please switch on your camera and unmute yourself to ask the question to the panel. Hi, Swapnil, please unmute yourself.
Hello. Can you hear me?
Yes, we can.
Okay, great. First of all, congrats on a good set of numbers. Just wanted to understand on the collection side. If I were to look at the standalone business collections, those grew 13% on a YoY basis. I understand there was some base effect also. Going ahead, the base will keep on getting steeper and steeper. From that perspective, secondly, the customer additions that we are doing are mostly at the lower realizations. How should we think about the collections growth here on? Because that will be important to track your revenue growth henceforth.
Yeah, you're right, Swapnil. When we are adding customers at a rapid pace, especially at the bottom of the pyramid, we'll have to be little patient on increasing per customer collection because not within the first three to six months you can't expect a repeat collection from them. I guess it will take six to nine months. Currently we are at 13% growth, but this particular season was also monsoon and so much disruption. I believe that, you know, after October, because October has the Dussehra and Diwali holidays, I think we should improve. Generally we have seen in the last five months things have been better. If you really see collections from customer on a standalone basis, historically on a larger trend basis have been trending at 20% CAGR. We believe that we should be able to maintain that, definitely.
Okay. Broadly speaking, 20% is the number we should be working with in the near term at least.
Yeah. I mean, on a yearly basis, yeah.
On a yearly basis. Okay. The second question was on the cost of acquiring new customers. I would like to understand, for every new customer, paid supplier that you add, what are the typical costs that you incur? If you could give some sense on that, because, despite the customer base growing, I know, I understand that you also added some employees over there, but your margins have remained stuck, have come down on a Q-on-Q basis if I were to adjust the one-off of BUSY acquisition last year, in the core business I'm talking about. How should one think about that?
See, we give a number of the functional P&L. If you see in the functional P&L, there is a sales and distribution cost for every quarter. You have the net customer addition for every quarter. If you divide the sales and distribution by that net customer addition, that will give you a ballpark figure of the overall cost involved. The cost has gone up on two to three fronts. One, you know, because we haven't added any cost, any people in the 18- months of the COVID-19 period. I think there was a backfill that we had to do. Secondly, at the later part of the 2021, there was a huge demand for tech and sales talent, and there has been a rerating of salaries.
On one side there was a headcount increase, on the other side is that. That is why you are seeing some pressure on the cost. But as I said, if you look at the gross margin, we were at 70%-72% pre-COVID. We are already at 75%-76%-77%. I think we will continue to strive for 80% number sometime next year.
Okay. Just on the margins, keeping on that note. Typically 4Q is the weakest in terms of margins for us. We are already hovering around 28% in 1H. Would it be fair to say that your 2H margins would be even weaker than your 1H margins? At an annualized basis it might be lower than pre-COVID levels of around 28% that time. It will be closer to below pre-COVID levels of around 28% that time.
Q4 is a very because Q4 you get highest collection.
Cash.
Cash flow from operations. That is why we have now included one slide on slightly larger time duration, so that you can see some seasonality on the collections from customers. The slide number is 62.
What is?
62, yeah. Yeah, 46 is m ore consolidated, More consolidated. On the same time, since the collections go up, the incentives and everything go up, but the cost is immediately factored in in the revenue. That is why you see that typical dip in the EBITDA margin in the Q4. Ideally, the way to look at it is, collections minus expenses is equal to cash flow. That's a better way to look at our business. Our deferred revenue, which gives you more sustainable revenue over the next 20- months or so. You may be right, because if we are at 28%-29% currently, it will definitely have a 3% kind of a hit in the Q4.
Okay. Thanks for that clarification. That is very helpful. I will come back in this. Thank you.
Next in line, we have Amit Chandra from HDFC Securities. Hi, Amit. Please switch on your camera and unmute yourself to ask the question to the panel.
Sir, can you hear me?
Yes, we can.
Yeah. Thanks for the opportunity. My question is on your initial comments that you made, that you know, for an addition, so for a quarterly addition of around 8,000-10,000, you may require you know, an employee addition of around 100-200 people every quarter. That comes to around 45-50, you know, like net additions per sales employee. This ratio is going to remain at these levels or can we see some like nonlinearity, because you mentioned that you know, the gross margins you know, can like move up to 80%. Is this the factor to watch out wherein the sales growth will you know, be higher than the employee cost or the employee growth? When you know, can we see that like, coming in?
Also on the, you know, sales hiring that we have been doing over the last four, five quarters. How do you track the sales efficiency there? If you can comment on what has been the attrition in the, you know, sales people that we have hired and have you seen some spike there or are we seeing some concerns in terms of productivity for the sales?
Yeah. Coming to the margin lever first. Historically also, whenever the customer suddenly goes up, the margins are under pressure. But as the customers would migrate to higher level packages or next year, our cost of servicing keeps going down. Currently since we are adding a whole lot of customers at the bottom of the pyramid, we need to add those. The way I divide them is 100 customer per person. And then, you know, for every four, five people, six people, there's an assistant manager. And then for every four, five, six people, there's a manager. That's how it comes to about, you know.
60, 70. As these customers start to go up, which you have seen in the past also, as these customers start to move up, the margins will definitely improve. Since we are already running at 80% margin, I don't know how much more juice is left there on that side. I think, gross margin side, no. Yeah, on the net margin side, there may be possibility, but not in the near future in the next 12 - 18 months.
Okay. Sir, you know, on the additions that we have been doing on a monthly basis. As you said that, you know, like migration to higher packages is the core of the business. If you can provide some more color on how the migration happened over the last four quarters. How to track that? Maybe, you know, in terms of churn or in terms of ARPU. I know because if top one and top ten ARPU go up, then we can see that, you know, there has been a migration. Is that the ARPU that has gone up over the last two, three quarters? Is it because of the migration thing or is it because of some pricing increases that you're doing?
Mix of both. The good part is that, despite the fact that we moved from 150,000 customers to 190,000 customers in the last one year, but the top 10% customer base has also grown. The ARPUs have not had issue. It is this. This again reinforces our previous thought that those customers who were acquired one year, two year, three year before, they continue to see more and more value and continue to renew better and upgrade better. The same is going to happen, but these nine months, the newly acquired customer, we will know the typical upgrade pattern in the next six to nine months. Historically, our typical upgrade pattern has been approximately 20% of the customers upgrade to higher services every year.
You know, in terms of the total revenue mix, has the, you know, contribution of, you know, the silver monthly customers has gone up, say over.
Yes. For now it has. Because we did not acquire silver monthly. We could not acquire silver monthly for about almost like 18 months. Salesforce was not going. NACH forms could not be signed. Things could not happen. So most of that churn also happened in the silver monthly bucket only. Now that we are adding about two-thirds customers at silver monthly and one-third customers at silver annual. There's some increase in silver monthly customers. But in terms of revenue contribution, it will still be very minuscule. Prateek can give you the revenue contribution. About 27%-28% of customers are in the silver monthly bucket, and they contribute about 18% of the revenue. From 15%-20% they remain as a contribution to the revenue. While the top 10%, if you see, in the last three years, it has gone up from 40% to now 46%-47%.
This like top ten customers would be how much of your overall platinum customers?
No, as I said, top 10% customers. Today if there are 188,000, this means top 10% customer is 18,800 customers. These 18,800 customers are very similar to what our platinum customer count is.
Okay, sir. Thank you and all the best for the future. Thanks.
Next in line, we have Anirudh Shetty from Solidarity Advisers. Hi, Anirudh. Please unmute yourself and switch on your camera to ask the question to the panel. I think Anirudh has left the call. Maybe we can take up Vivekanand Subbaraman. Vivekananda, please switch on your camera.
Hey, thanks a lot for the follow-up opportunity. Just on the point, Dinesh, that you made on customers upgrading, silver monthly customers upgrading. Could you talk to us about the upgrade journey of these silver monthly customers? Is it similar across categories in terms of the number of months it takes for them to upgrade? Or is there anything to note here? You know, I'm just trying to understand because you said that last 18- months you have not, rather during COVID there was an 18-month period when you could not acquire monthly customers. Now you have been doing that for the last nine months. How long will it take for you to upgrade these customers to gold and platinum?
It's a continuous process. If, you know, if whenever you come to Noida, we show you how the cohort moves. About 2% of the customers, you know, in the year there are 20%. We start to pitch upgrade only from the third month onwards. Okay. Third or fourth month, because we don't want somebody has been sold and immediately we start to pitch upgrade. We start once they have three months of good thing, and then approximately 2% of the customers upgrade every month. The most of the maturity comes between six to 18 -months time. You know, nine months, 18- months time. I guess.
That's also a function of, you know, we were completely work from home and then now we are trying completely work from office. We are also trying regional centers. A little bit of execution issues, but by and large, we have seen in many years, last five, six years, it's by and large 2% per month. It doesn't change too much by industry, you know, because our number of new customer acquired are also in the same similar manner, as in the. It might change by way of, if there are private limited companies, if there are partnership firms, they tend to be more resilient and more adaptive than a proprietorship firm with less than certain turnover.
As the company sizes are slightly bigger, they have a slightly longer term view on the thing. As I said, those categories where we perform better there, and which are the categories on the top. If you see, electrical and electronics, if you see construction, industrial, those are the categories where the upgrades are slightly easier, because those are capital goods kind of item. In the fashion and smaller value items, we are still not as good as this. In terms of cumulative monthly customer mix, three years ago, we used to be at 33% customer now. Now we are about more like 27% customer. Overall, if you see, the Platinum, Gold and Silver annual multi-year has been increasing. We were trying to balance 1/3 , 1/3 , 1/3 , but that's not always possible.
Yeah, just one last question on the channel partner model that you were pushing for over the last 12- months. Any update on that? What percentage of your new customer acquisition happens through channel partners and how many are in-house?
Yeah. As I said earlier, pre-COVID, 80% of sales used to come from our own field sales force, and about 20% from various online and telephone channels. Now, with the channel, we are about 50-50. 50% comes from channel partners and 50% comes from in-house teams.
Great. Thank you and all the best.
Next in queue, we have Abhishek Banerjee from ICICI Securities. Hi, Abhisek, please go ahead.
Yeah. Hi. Hello, audible, clearly.
Yes.
Just a couple of questions. Right. Did you just guide for 25%-26% kind of EBITDA margin for Q4?
Abhishek, you know, what we suggested was that our current margin is roughly around 28%.
Yes.
The way, you know, we advise everyone to look at the margin more on a yearly basis.
Mm-hmm.
You know, every quarter would have some kind of seasonality. If you see about quarter four-.
Mm-hmm.
Typically in that quarter we have our best ever collections.
Best ever.
best ever cash generated from operations.
Yeah.
There are certain costs which are linked to the collections, which hits our P&L in that quarter itself.
Mm-hmm.
As you know, since the revenue comes from the deferred revenue.
Mm-hmm.
You know, we are unsure as to how much of the revenue will come at that point of time, but there could be a scenario wherein the margin for that particular quarter could go down.
Exactly.
As we said that it would be again a seasonal sequential quarter four dip, and then in the quarter one it would again, kind of would come back to the similar levels because these costs which were associated with the collections will not be there in quarter one.
No, that is fine. That I understand. Are you still sticking to the full year guidance of around 20%-30% EBITDA margin? Or are you kind of revising that downwards?
I think, given that, we were trying to add 8,000-9 ,000 customer. In the last two quarters we added 13,000 customers and 10,000 customers, so we have added 4,000 additional customer. You know, every time we acquire customers, we pay upfront cost and then the customers, long-term value, comes over the next three to five years time. Most of our customers become profitable, by 12th- month or so. That is why the more customer you acquire, the more upfront cost you incur. The good part of our model is that most of the cost gets factored immediately while the collections and revenues flow over a period of time. You may be right, we might be 1% or 2% here or there for the entire year, but as we guided it will be 28% plus minus.
Okay. Basically the question that comes in is that what is happening with your, you know, economies of scale from at least employee costs, right? That is obviously a very important question in a business model which is as manpower intensive as yours. When do we actually kind of see, as your existing employees' tenure, when do we see that impact come in?
Let's go back to the margin lever slide again. I can only guide based upon whatever has been historically done.
Mm-hmm.
These two years, FY 2021 and FY 2022 were an aberration.
Mm-hmm.
you know we are back to 72% gross margin, which was there for the entire FY 2022. 72% of the cost is there. Sorry. so I think as we stabilize a little bit, it will start to improve. it has been improving. whenever you are around 20% growth rate, it starts to improve by 3% - 4% every year. you know, as you keep going up, it will keep getting tougher.
Okay, fair enough. Now if I move to the point of the acquisitions that you have made, right? There is a lot of growth which is happening in the, you know, support, back-end support, part of the B2B e-commerce space, right? Like, we have now seen BUSY become a meaningful part of your P&L. What is next in line?
I think in terms of overall investments that we have made is about INR 1,000 crore. Out of that, INR 650 crore has gone into accounting space. Within that also, INR 500 crore alone has gone into the accounting space, into acquiring BUSY.
Yeah.
BUSY, since it was acquired, in one go with 100% acquisition, it immediately started to add the revenue. We will see, as I guided earlier, that for the first year I don't want to disturb that acquisition. I just want to digest that acquisition. This is the first-ever acquisition we have done. Now, most others are minority investments, and those minority investment, we only get to see the share of P&L depending upon whether they are less than 20% holding or more than 20% holding. Where we try and see if those businesses will become INR 50 crore-INR 100 crore. At that point of time we'll hopefully if we find some of them good for acquisition, where we can increase to more than 51%. That only, you know, another two years of time will tell.
Okay. Fair enough. I mean, what are the on-the-ground trends that you are seeing in this space? I mean, you are also trying to do an ordering and fulfillment kind of a function, right? Are you seeing anything there that is worth reporting?
The overall space, Abhishek, when you look at accounting or order management, you know, fundamentally with the introduction of GST and with its implementation, there is a lot of positive movement that is expected in this space. Businesses will continue to use software to manage their compliances and slowly also start valuing improving customer experience, using these software. We remain positive. Do we look at anything in the immediate term which is significantly different? No. There is a continuous improvement in the adoption of SaaS software, business software, accounting software by these small businesses and we see that trend continuing for a long period of time.
Got it. That's all from my side. Thank you so much.
Thank you. Thank you. Thank you, all of you for joining this call. I'll just ask Dinesh to give his closing remarks for the call.
Thank you very much, ladies and gentlemen, for joining our quarter two conference call. We have tried to address your queries in the time available. Please feel free to connect with our investor relations team in case you have any questions. We wish everyone a very happy Diwali and festive season ahead. Thank you very much. Thank you.
Thank you.
Thank you everyone. Wish you happy Deepawali.
Happy Deepawali. Yeah.