Welcome to IndiaMART third quarter quarterly results conference call. We have already circulated our earnings presentation, and it is also on our website and stock exchange website. I'm sure you have gone through the presentation, and you would have questions. Let me give you some summary of that, and then I can take questions afterwards. First of all, I'm pleased to report that IndiaMART has achieved consolidated revenue from operations at INR 165 crore in the third quarter, which is about 23% year-over-year growth over the last year. Total number of paying customers or subscription suppliers stands at approximately 142,000. The net addition for this quarter has been around 4,500. Deferred revenue for the quarter end stands at INR 649 crore. As we can see, there is an economic environment that is weaker and which is impacting our performance.
Our net customer add has been slightly lower than our longer-term average of approximately 5,000+ customer per quarter. The growth in deferred revenue has also slowed down considerably from 38% in the last year quarter, same quarter, to 26% year-on-year this quarter. We will remain cautious about the current economic scenario, and we'll focus to maintain our margin while we're trying to find levers of further growth into our business. I would like to hand over this call to our Financial Officer to discuss the financial performance more in detail, and I'll come back to answer your questions later. Thank you, and over to you, Prateek.
Thank you, Dinesh, and good afternoon, everyone. Consolidated EBITDA for the quarter was INR 44 crore, representing a margin of 26%. This number is not comparable with the last year numbers, as we have adopted Ind AS 116 with effect from April 1st. The true margin expansion in the business was 3%, which is also reflected in EBIT margins for this quarter at 23% as compared to 20% last year. Net profit for the quarter was at INR 52 crore, which includes one-time deferred tax credit of approximately INR 50 crore on account of timing differences pertaining to the Tolexo demerger scheme with effect from January 2017. Our cash flow from operation was INR 71 crore, leading to a closing cash and investment of INR 859 crore as on December 31st. Thank you very much. We are now ready to take any questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use headsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder, you may press star and one to ask a question. The first question is from the line of Arya Sen from Jefferies. Please go ahead.
Okay. Hi. Good afternoon, Dinesh, Prateek. First, my question to Dinesh. Dinesh, you came on TV in December, and you talked of some moderation in your growth expectation. Can you sort of clarify which year or which period that pertained to in terms of revenue growth and what were the numbers that you were referring to?
Yeah, Pranav.
Arya Sen?
Sorry, Arya.
Hi.
If you really see how our revenue flows and how our business model is, we collect money for subscription in advance for monthly, annual, and three-year or two-year period, which results into negative working capital. We do collect most of our money comes in advance for the entire period. Thereby, accumulating a lot of deferred revenue. As you can see, our deferred revenue is pretty high at INR 649 crores. Then the revenue flows from the deferred revenue. If you look at the breakup of the deferred revenue, almost 50% of that is the current, which is next 12 months, 60%, and 40% is beyond that. Internally, when we calculate, we see that an average age of our deferred revenue or average period of our deferred revenue is about 20, 21 months.
That means that the revenue that you see is a 20-month moving average, which is reported on the quarterly financials. If you see the leading indicator of that is the collections or the difference in deferred revenue that you can calculate, and it is there in our detailed financials also. Collections are billing. As compared to the last year, where our collections used to grow 30% or so for the nine months, our collections have only grown 15% or so in the last nine months, last three quarters. Which is resulting into a slowing down of growth in our deferred revenue. If you see last year, same quarter, our deferred revenue grew by 38%. This year, same quarter, current quarter, the deferred revenue could only grow by 26%. Quite sharp decline from 38%- 26%.
Which will further show up in the actual revenue from operation. Even in the revenue from operation, if you see three quarter ago, Q1 we were at 30% growth rate, Q2 we were at 28% growth rate, now Q3 we are at 24% growth rate. It is declining, but that decline will not happen in one single quarter or immediate coming quarter. As I said, it's a 20 months moving average. In case the economy improves or our collection and net customer adds improve, then it may not even go to the level of 15%-18% because it will come back again above that. That is where I see that in case we see couple of more quarters continuing to be below 20% collection growth rate, obviously the revenue would start to trend in the similar line.
Right. That you think would reflect in the revenue by second half of FY 2021 or earlier?
If next two quarters remains further subdued, you can expect it to be reflect in the second half of this calendar year or next financial year.
Understood. This 20, 21 months that you talked about, has there been much of a change to that number through the slowdown or is it more or less been where it was even before?
Not really. It has not changed at all. In fact, if you go to the presentation in the slide number 16, if you see five quarters ago, the current deferred revenue was 61%, which is now 62%. Yes, there has been 1% change, but nothing much has changed.
Right. The other question I had was for Prateek. In 4Q, typically there's a seasonal dip in your margin. Is that going to happen this time as well? That is something which we should be looking for the fourth quarter.
Yes, Arya, I think that is right. Typically in Q4, what we see that our billings are the highest amongst the quarters in the year. Since our expenses also are in proportion to the billing, that is where our expenses also increases. As Dinesh just explained that the revenue increase is always a moving average of the last 20, 21 months of billings, therefore there is no such increase in the revenues. However, because the billings increase or expenses increasing slightly, this is typically a quarter where we see the highest cash from operations. However, as the revenue increases only over a period of 20, 21 months, we see margin declining in this particular quarter. That is seasonal that we see every year.
The seasonality would be similar to what we saw last year, right? No reason to think there would be any major change in the kind of seasonal trend we saw last year.
Yes, more or less it would stay same. It would also depend upon where do we end up with the billings in this particular quarter. Largely it should be pretty much in line.
Fair enough. Lastly, on the tax rate, if I look at the first nine month, I think the tax rate is averaging more like 26%. If I look at last year again, there seemed to be a much lower tax rate in the fourth quarter. Is there some seasonality to that as well?
Going forward, our tax rate will stay at around 25%, 26% because of the change in the taxation rules. Last quarter we adopted for 25% flat taxation regime. Because of that, in the last quarter you see the impact in the deferred tax which we recognize.
Sorry, go ahead.
Yeah. However, on a run rate basis, it would stay at around 25% for the year.
Adjusted for other income it should be a bit lower, right?
Yeah. Other income is taxable at 20% and all the other operational income is taxable at around 25% to 23%, 24% you can take.
Fourth quarter, is there any adjustment that you made in the fourth quarter? Last year if you see fourth quarter tax rate was a lot lower. Is that something which can be expected this time as well?
As I said that we are operating in a different tax regime now, it would be fairly pretty standard coming at around 25%.
Okay, fair enough. That's all from my side. Thank you so much.
Question is from the line of Pranav Kataria from Edelweiss Broking Limited. Please go ahead.
Hi. Thanks for the positive. I have one question regarding the decline in the total number of business inquiries delivered in this quarter. There's a YY decline. I just want to understand what factors really contribute to it, and if there are certain one-offs with regards to, let's say, internet shutdown or some seasonal weakness. How is it trending for the first 15, 20 days of this quarter?
Pranav, there is a broader trend. If you see our business inquiries delivered has been pretty much plus minus constant at the last three, four quarters. There has been some marginal increase or marginal decline that you could see, but they are pretty much stable in the last four, five quarters because there is a general demand slowdown in the economy and nothing else. Having said that, could there be a marginal internet shutdown related or a holiday related effect? Even those are very smaller. With the 90-day average, I don't think they matter much. Our traffic is also very well diversified from across the geographies from South India, East India, North India. I guess one-off here and there keeps happening every quarter due to some or the other reason in some or the other regions, which is a common thing. Sometimes it is slightly higher.
Having said that, generally, am I too bothered about the buyer inquiries in the short run? If you see, we are sitting on a very heavy growth pace over the last FY 2016 to FY 2019, where our buyer base and traffic and inquiries typically grew by 100% kind of growth rate or 80% kind of growth rate. I think given that we get about 60 million visits on our platform every month, I'm not really bothered about short-term in terms of buyer. Yes, in the longer run, if there is a fundamental shift from the way IndiaMART is used or the way other services are used, then there could be a issue.
Given that the economy has seen a significant slowdown, many sectors like automobile and others are 20%, 30% slowdown. Even the FMCG, even the machinery, I think we are maintaining our traffic without any advertising. It is decent for IndiaMART. If you really see our registered buyer growth, the entire last 12 quarters or so, there is a 5 million new buyers are being added every quarter. That rate hasn't changed much. I think we are fine on that side. Yes, there is an economic showing up in those numbers, but it's okay.
Sir, you alluded to the total registered buyers, that number is close to 100 million now. How much incremental scope is there for getting more buyer? If you can throw some light on how many are the active buyers or let's say, the buyers who have visited the website in last, let's say, three months or 12 months, that will be helpful.
We don't publish that data very regularly. Internally, we do track 30-day active, 90-day active, 12-month active, everything. Our 90-day repeat rate, which we have been publishing regularly, hovers at around 54%, 55%. If you see the 12-month active buyers or if you see the daily unique inquiries, that again remains at 18 million, 19 million per quarter and which automatically translates into about 50 million 12-month active.
Okay. Thank you very much, sir. That's it from my side.
Thank you very much. Anyone who wishes to ask a question, you may press star then one. Next question is from the line of Madhu Babu from Centrum Broking Limited. Please go ahead.
Yeah. Hi, sir. Currently, the paying customers are around 2%. How can we increase that? Paying suppliers.
How can is, I think, one, adoption of the SMEs onto internet, more buyer and more supplier embracing internet. Two, how do we increase number of buyers or number of suppliers? one, by way of cataloging or digitizing the suppliers. The buyer will automatically come because they find a better variety of products and coming from better location of the product or supplier, and they get to see the best prices on the website. It's a vicious circle between increase the supplier, increase the buyer. How organically can we execute that particular thing? We have multiple ways to onboard new suppliers. One, we aggregate suppliers from various sources and call them back to see if they want to register. Two, they automatically come online and on IndiaMART.
Whether they come as a buyer or whether they come as a supplier, since we are a B2B business, most of our users are business users, and they have a propensity to register as a supplier also. Third, we have a large sales force. If you see our sales and service representatives, about 4,000 people and another 500 odd people in Delhi-based sales. About 4,500 people totally working on helping these suppliers come on board on IndiaMART. Depending upon how well we can service and how fast is the adoption, what is their propensity to leave the platform.
That is the net customer addition. I think if you compare worldwide, most classified sites are 2%-3% is a common penetration. That 2%-3% penetration is on all India basis. If you really look at our penetration on the top 8 m, where 60% of our customers now come from top 8 m, there the penetration would be much higher.
Second on the deferred revenue growth, which has been very soft. Have you seen any attrition with your top accounts? If I remember, the top accounts contributed significant portion of our revenues.
They continue to represent. Our top 10% customers account for 40% of revenue. If you see the data book, they continue to remain in line with the previous quarters. No change has been observed there. Even though top 10% customer means 14,000 customers, which remains more or less same. We are able to maintain that.
Sir, just one last question on this competitor one. They do all this credit as well as logistics, et cetera. How feasible is it for our portfolio to try this method? Are we looking into these value-added services?
Let us first understand the product categories where different people deal into. IndiaMART is a pretty long tail. We have about more than 1 lakh product categories there where we deal into. Now, Udaan or Walmart Wholesale or Metro Cash & Carry or Amazon Business, these people generally are focusing on the specific product categories, which are typically FMCG or dealer distribution product categories. Number two, they are building warehouses, logistics and transportation. I do not feel unlike in a B2C, where deliveries are a new concept, home delivery is a new concept.
Business-to-business deliveries, FOR deliveries has been happening for ages, by way of sea, by way of train, by way of surface. I do not see a large value add by our experimentation that we did into Tolexo in a B2B logistics. We are not currently interested. Number three, I think they are doing some interesting experiments with credit, which is an interesting item to look at. We continue to do study and experimentation to see if anything like that can be built in IndiaMART. In case our pilots are successful, we would inform you and increase more penetration in that space.
Okay, sir. Thanks. I'll come for a follow-up.
Thank you. The question is from the line of Deep Shah from Ambit Capital. Please go ahead.
Yeah. Hi, thank you for the opportunity. Sir, if you could help with the churn rates and how have they changed over the past few quarters, that would be helpful. Second, if you could quantify the actual billings number this quarter and the corresponding quarter, that would be helpful. Thanks.
If you see, we have customers in various segments: platinum customer, gold customer, silver annual customer, silver monthly customer. We have somebody who has paid up for one year, somebody who has paid up for two years, somebody who has paid up for three years. Ever since the economic environment has changed in the last year, yes, we have seen a marginal decline across all segments and all areas. However, the platinum segment continues to be very strong. As we said, gold and platinum, typically, we have less than 1% churn per month, or an annual churn of about 10%-12%. On the overall annual basis, we now have about 20% odd churn. Monthly, as I said, always that is a volatile item, on a monthly basis, trial keeps on happening.
Also, if you see our total customer base, we have 1/3 of the 142,000 customers on the monthly side only, and most of the other customers are in the annual side. About 10% of our customers are in platinum segment. You also asked for the billing and collection numbers. Though we do not specifically publish as a KPI, but if you see them in the detailed financials, you can find there is a section note where it is available. It can also be calculated very easily by way of opening deferred revenue and closing deferred revenue and the revenue. For this particular call, I will give you the number. Last collection for the current quarter was INR 183 crore. Previous quarter was INR 177 crore.
Right. Thank you. This is very helpful.
Thank you.
Anyone who wishes to ask a question, you may press star and one. Next question is from the line of Manish Saxena from PineBridge Investments. Please go ahead.
Hi, Dinesh. Hi, Prateek. Just a quick thing. Share a thought essentially in terms of traffic, that over the last two, three years had actually gone up significantly and then has flattened. What led to the traffic increase? Was it the geography? Was it a product, or was it some product innovations that you have done? What can you foresee to improve the product traffic? That's the first question. Thanks.
I think in the last couple of calls I have repeated this, but I will repeat this once again. Somewhere around 2015, 2016 onwards, we found three good innovations that started to work for us. One, which was the price of the product. Two, which was the detailed product. We migrated from being a classified listings website to a product catalog website. We are no longer a classified listings website. You can find the detailed product photos, videos, specification, item by item. If you go to IndiaMART, you will see in different sections you will find. Third, I think we started to use algorithmic matchmaking, behavioral-based matchmaking, where we started to use suppliers' RFQ consumption behavior to assess his preferred location and his preferred product category over his stated location and stated product category, which helped us.
All three of them helped us increase our buyer fulfillment rates by a significant, from 20% to almost 40% buyer fulfillment rate over this 2015, 2016 onwards. Second, if you see the macros also, there has been big changes in the mobile adoption and in the data speed and data cost, both. There has been forced adoption of the internet also by way of compulsory income tax filing, compulsory GSTN filing. Demonetization led to a lot of people learning how to use internet and payment methodology. I guess all of it combined together started to play a network effect. When network effect starts to play out, it was like an exponential growth that you can see in the buying buyer inquiries from FY 2016 to FY 2019. What led to the plateau down? I think it is mostly to see the economy is going through a pain.
I believe that as soon as the economy will improve. Also we are touching a good amount of customers live. Given that we get about 60 million visits on our platform every month, that's like 6 crore people. In a year, we end up touching almost 20, 25 crore people on our platform, which is a good number anyway. What's the next question?
This plateauing is largely economy or is there some more product innovations or anything that you can do across to increase, or is it certain geography or certain products which have reduced in terms of traffic?
Is it largely economy? As far as we can assess, yes. Is there any migration of buyers towards any other platform? I don't see any significant. There are so many B2B platforms being tried currently, none of them have gained any significant traction to say that IndiaMART is losing out to them. What we can do probably, we can do Indian languages. For example, now you can search IndiaMART on nine different Indian languages by way of voice command. A lot of people who come from Tier 2, Tier 3, Tier 4 places, they do not read much, they have a very good habit of watching videos. Can we do product videos? We have taken some initiatives on that direction, will that be immediately visible?
As I said, price initiative and specification initiative and algorithmic matchmaking initiatives were taken in 2015, 2016, which actually started to fan out in the next two, three years. As we have taken some initiative on Hindi language and video, over the next three to five years, they should fan out. Secondly, earlier we were only generating leads. Now we help buyer and seller talk to each other using IndiaMART Lead Manager or IndiaMART InterMESH as a platform. Thirdly, can we start to provide payment facilitation? Can we start to provide purchase financing? There are many initiatives that can be taken. We continue to experiment them. Has anything become too big that I can talk about? Not yet.
Just you can remind us, like ad expenses at one time was being guided at a slightly higher percentage of sales, but probably has tapered down. Any thoughts on, does it actually push across traffic or does it not?
In FY 2017, FY 2018, FY 2019, we haven't done any advertising. This is now going to be completing four financial year where we have not done any significant advertising. What you would be seeing in a consolidated level was mostly what we were doing in fiscal in FY 2016 and FY 2017, that would be visible. We have enough organic traffic as of now. Every year we do budget for INR 20 crore-INR 25 crore, for the purpose of advertising. As and when we feel there is a need for advertising, we will go ahead and do that.
Okay. Thanks. This is very helpful.
Thank you very much. Anyone who wishes to ask a question, you can press star and one. Next question is from the line of Shyamal Dhruve from Edelweiss Life Insurance. Please go ahead.
Hi. Thanks for taking my question. My question is mainly on the pay addition in this quarter. We had around 4,500 addition in this quarter. In the last quarter, we had mentioned that anything less than 500 would be difficult for us. Though the pay has increased from lows of 3,000 in Q1 to 4,500, but still it's below our aspiration range. Any comments on that, like when we would be able to reach the 2011 level given the current economic slow?
Thank you. I think you have already answered. We are striving. You can see we have increased focus on sales and service. We have increased the number of people in sales and service. Economy is something not in our control. By increasing the focus on sales and service and affordability of products, et cetera, we have been able to come back from a 3,000 to 4,500. We'll continue to strive to make it 5,000 coming soon. Because acquisition is normally easier problem to solve than the early infant mortality or SME mortality. Currently, a lot of SMEs are not able to maintain their cash flows. That is where the issue is. That problem cannot be fixed by way of more sales or more affordability.
With this economic slowdown, do you see our current clients holding back on, like the monthly pay clients delaying their spending and affecting our total customers on the silver side of the monthly business?
I think the answer remains same. As I said, people are worried from three sides. One, their demand in the market has slowed down. Their cash flows or credit is crunched, so their ability to pay on higher amount for upgrade or sign up, or their willingness to continue for a longer duration suffers. I guess, either we find some experiment suddenly that works very beautifully, which starts to work or we wait for the economy anyway.
On the connecting question with pay addition, you mentioned that you had increased your sales effort to get the higher paying customers. This should translate into lower margin. In this quarter, we had a 300 basis point margin expansion. With the current situation continuing, is this the normalized margin, or you see any headwinds on the margin part as well?
On the stability of the margin or on the ability to maintain the margin, I think we do not see any immediate problem. However, on the rapid expansion of the margin, given that currently the cost is we are investing more money and we are receiving collections which are slowly creeping up. The margin expansions will slow down. We are confident that we should be able to maintain the margin at these levels for sure.
Yeah. Thanks. That's it from my side and all the best for coming quarters.
Thank you.
Thank you. Anyone wishes to ask a question? You may press star and one. Request for participants to please restrict to two questions per participant. The next question is from the line of Hemal Goel from Union Mutual Fund. Please go ahead.
Yeah. Thank you for the opportunity, sir. I just wanted to understand one of your data point that you provide is on the outsourced employees, which has risen by about 37% or 38% over the previous year, and the current number is around 1,374. I wanted to understand the rationale behind having a larger portion of outsourced employees. Does it help us save on costs? Is it only because of the flexibility that they give you for keeping whatever amount you want to keep in terms of outsourced employees?
This outsourced field sales representative, which is about 1,300, 1,400, these are spread across our 75+ offices. New sales acquisition offices. When we hire people for the client servicing or for the purpose of product and technology or operations, we do not hire for that particular role. We hire people so that they can grow in ranks of management and over the period of time as a senior manager also. However, not everybody who is doing that kind of an education or done that is interested in doing SME sales. Typically, we find that for a field sales operation or for any sales operation, the kind of people that you need and the attrition that you have and the pay is definitely high, which actually unnecessarily strains our own payroll systems and systems. That was the purpose.
In fact, they actually cost slightly more than if they were on our roll. We had taken that decision about three years ago. We'll evaluate going forward if that makes sense even continuing forward. Based upon that, we'll do. There is nothing so much of to read between that. It's just that we wanted to be doubly sure that we report those people as a head count because they are not visible in the statutory financials.
Right. The basic point was to understand the cost advantage that we have. Basically, they are more expensive than the on-roll employees, right?
Yeah.
Yeah, sure. Please continue.
Yeah. If they were hired on roll, I think we would not have outsourcing extra overhead that we had. Outsourcing overhead is definitely an extra cost. If they were hired on roll, will that come at the same cost? I don't know.
Okay. Fair enough. Thank you so much.
The next question is from the of Kunal Shah from Enam Investments, please go ahead.
Hi, sir. My question regarding the cash on the books, what is the level we want to maintain, and what is your plan for the overall cash on the books?
As stated last time also, we have three usages that we have planned. One, as a company of our size and scale, how much cash reserves that we want to maintain, and given the deferred revenue also that we have. Number two, we would continue to look for possible opportunities where we can make investments or acquisitions. As you know, we have done one investment in the Vyapar app, which is a mobile accounting software app. In the first week of September, 36% we had taken for INR 31 crore. We will continue to look for such opportunities. Third, I think once the first financial year completes after listing, the board will decide the quantum of dividend that has to be paid out.
My second question regarding the average revenue per user. Can you or do you share the vision of, satay, the medium to long-term growth that is possible in the average revenue per user?
Traditionally, if you see historically, we've been growing our customers at around 15%, and our ARPU growth has been ranging between 5%-10%. Given the economic scenario what we're facing, we think probably the lower end of the growth should be the reasonable one to assume. In this quarter, if you look at our growth, ARPU growth is already down to 7%. Maybe 5%-10% should be the reasonable one we should assume.
Sir, I'm asking more from a medium term perspective, up to 10 years. Is it the same number you will guide for?
Sorry.
I'm asking more from a medium term perspective of up to 10 years. In that case also the same number you will guide for?
Yeah. At this point of time, we can guide for the similar thing what we've seen historically in the past.
Thank you so much.
Thank you. Next question is from the line of Ayaz Motiwala from Nivalis Partners. Please go ahead.
Yeah, hi. The first question is on, are we noticing in the marketplace a distinction between B2B and some sort of B2C businesses online in particular, sort of eroding? Is the customer very strict when they're doing a search for suppliers focused on B2B or B2C or want to get a solution?
See, internet is an open platform, and available at a click of a button.
Yes, sir.
Nobody can stop one wholesaler to go and check out on a B2C site than one consumer to come and check out on a wholesale website. I guess there is always that 20% overlap that remains on an internet platform. Beyond that, nothing much happens. I guess we will continue to have that 20% overlap, where IndiaMART has 20% direct consumers who come and search for prices and other things.
For higher value.
Yeah. For higher value products also. Sometimes even the direct consumers, when they have to buy high-value products, like if you want to buy a generator, which is maybe for your personal home consumption. If it is a INR 1 lakh generator, I'm not too sure if you'll go on a B2C site and do an order as of now. You're better off doing it on IndiaMART. I hope that answers your question.
Sir, just one basis of that 20%, is that IndiaMART or you're quoting an industry-wide sort of number?
No, I am just quoting an 80/20 principle number. Neither quoting IndiaMART calibrated number nor quoting industry-wide standard.
Sure. Sir, the other question was related to the average spending. We've talked about it in the past call as well. You talked about certain customers contributing a certain number. I didn't catch. If you could describe that in terms of your platinum customers' contribution to the overall business, and how much is the difference in which they pay versus the average ARPU or whatever you call it?
Yes. If you go to the slide number 15 of our presentation, there's a revenue from operations slide. Yes, slide number 15. That says very clearly that 40% of our revenue is contributed by top 10% of our paying suppliers.
40% of revenue from top 10 paying suppliers. Right, sir.
Top 10% of the paying suppliers.
Yeah.
We have 142,000 paying suppliers now.
Which is what you said is 15,000 top paying customers, correct?
Yeah, 14,000 top paying customers. Not that exactly that all the people, they are 100% platinum customers. By and large, 90% of them would be platinum customers, more or less.
Yeah. I think you could use that 40% number for platinum customers.
Yeah.
The range of.
Which is similar to platinum customer.
The range of monthly or annual or two-year committed payout, how would the range be, sir? As you said, entry level would be suppliers who come into the network of IndiaMART, who are evolved and are part of this platinum or the top 10 percentile customers.
Yeah.
How much would be the difference, sir?
At entry level, when a new customer comes in, we have two plans, which is a monthly and annual. The monthly plan is INR 3,000 per month with a INR 5,000 setup cost. Both of them are inclusive of GST. The annual plan is INR 30,000+ GST, which is more or less both of them are similar. Almost 99% of our customers start at the silver monthly or a silver annual level.
Right.
At the acquisition level, 80% of them again are on a monthly acquisition, 20% of them are an annual subscription. Then they are upgraded as they try the service or as they become comfortable with service. They are upgraded in two ways. One, they are upgraded into the tier from silver to a gold tier, and we have multiple tiers in platinum. Two, they are upgraded into a multi-year service often. Three, sometimes is a combination of a gold plus multi-year, which is one of our most popular ones.
Generally, you will see that the ARPU at the blended level we have been reporting is about INR 44,000-INR 45,000 per annum. As I said, the entry level is about INR 30,000. If you calculate the top 10% contributing 40% of the revenue, that works out to be a little upwards of INR 1,60,000 per customer. Top 14,000 customers would be paying us about INR 1,60,000. Now you have three numbers of ARPU.
Yeah.
Yeah.
Yeah. That's helpful. Sir, again, I'm asking this question, which was to try and learn about the business. In your algorithm or the way you display when a to-be buyer comes in to seek for a supplier, does your system have preference for the same tiers that you talked about, or it would just give a number based on geolocation? How does that work, sir?
It works on a multiple combination. It will definitely take into account if somebody has paid INR 160,000 versus INR 30,000. It will also take into account the proximity of the buyer location, and it will also take into account whether this particular supplier has a preference for that location, if it is local location or if it is RFQ consumption preferred location. It will also take into account if supplier's phone pick-up rate is above a threshold or not.
Because you cannot let the buyer experience hamper if the suppliers are non-responsive. It is 20 different parameters that will decide a particular search, to rank the supplier for a particular buyer. Every buyer will see a very different supplier, depending upon where is he logging from. Every supplier will see very different set of RFQs, depending upon his past behavior and depending upon his tier of subscription.
Sir, just a final sort of clarity in this part, which is on the gross listed suppliers versus paying customers, and you talked about that 2% ratio for listed companies. In some sense implying that while you are an open platform, you want to do business with people who spend on your platform. In the end, if you do not have anything, supplier in that category, then someone who's just been listed may also show up in the RFQ.
Yes. I think, in fact, we don't give out the numbers of exact how many inquiries are delivered to a free supplier. There's a significant business that you can do freely being listed on IndiaMART, depending upon which category you are and how much competition in that category it is. From our point of view, we want the buyer to go satisfied. Whether or not I made money from that supplier, that's a secondary objective. If a buyer has come to IndiaMART, he must go satisfied. Every buyer that goes satisfied with a free supplier, that becomes a sales lead for us.
That is how we go to that seller and say that since you have received X number of leads already being a free customer, imagine what you can do by doing a paid customer. Many of them want to pay up and show up higher up in their category or location. Few are saying that, or many say that, Okay, we'll continue to enjoy free.
That's a great point. Thank you very much. I'm waiting for another question, please. Thank you.
Thank you. Question from participants. Please restrict to two questions per participant. Next question is from the line of Arpit Shah from Stallion Asset. Please go ahead.
Hello? Hello?
Go ahead, sir. You're audible.
Yeah. I have two specific questions. One is regarding dividend distribution policy. What is going to be our dividend distribution policy going ahead? Are there any plans to launch any new product with IndiaMART or any new product which would be other than IndiaMART?
Yeah. We have adopted the dividend distribution policy. The amount of dividend that is to be distributed every year would be decided by the board depending upon the yearly performance and cash availability and cash utilization. That's about dividend distribution policy. In terms of product, as I mentioned earlier, we continue to launch many products. As I said, lead management system has become significant enough to be mentioned that it has been used regularly by buyer and supplier. We also have a Pay with IndiaMART where we facilitate payments. We also have started to offer searches and display in Indic language content. We also have started to use AI, ML, and video. Is any of those products significant enough at this point of time? No.
What will be the renewal rates for all kinds of customers, be it platinum, gold, silver?
Arpit, in our customer base, we have two kinds of customers. First, our customers have taken an annual or a multi-year package, wherein we have seen renewal of approximately 80% odd . 1/3 of our customer are taking monthly subscriptions, wherein we are seeing a renewal of close to 95%.
Okay. We had discussed something regarding auction-driven pricing as well. Are we having any plans to do that?
Sorry, what's that? Could you repeat the question, please?
We were looking forward to for auction-driven pricing on our platform.
Not auction-driven, differential.
It was not auction-driven, but we were trying to do a differential pricing because currently the entire pricing on our platform is in standard price, irrespective of the location or irrespective of the value of the category in which you deal in. We were trying to move to the differential pricing. However, given the current economic scenario, we may take slightly longer time in terms of launching that differential pricing all across.
Okay. What is the trend that you're seeing right now in, like 21 days of passing from the month of January? What are the subscriber addition? What are the trends like this year?
That information, as you would understand, we can't disclose. I believe we are probably one of the few companies who are announcing results in 21 days. The December quarter results have already been shown to you.
Cool. No problem. Thank you so much.
Thank you. Next question is from the line of Shivakumar K from Unifi Capital Private Limited. Please go ahead.
Yeah, thank you for the opportunity. Just to confirm, the churn rates in both the annual plans and the monthly plans haven't changed much, right, from the last quarter? 3% and 5% per month is a monthly plan.
Yeah. We haven't seen any significant change from the last quarter, though historically, if we see, certainly the churn rates have increased on our annual and multi-year customers. We used to see 16%-18% churn, which has gone up to more like approximately 20% churn annually now. Similarly, on the monthly customers, which is one-third of the database, our churn rates were around 3% or 4% per month, which have gone up to more approximately 5% per month.
Okay. They haven't changed but from here on, you haven't seen further scale.
It has happened in the last three quarters.
I see. Okay. One question with regards to the employee cost, which have moved up by almost 23% in the current quarter and almost 24% for the three quarters put together. Should we expect the same kind of trend going forward?
The employee cost has primarily gone up because of the two reasons. One is the annual increments that we announced, and second is the headcount increase, which is largely we have done the hiring in the sales and servicing side. Specifically, this hiring was ramped up in the last quarter, and that is why you are seeing slightly higher increase on the manpower. Overall, on a going forward basis, along with the client addition, we certainly need to add a few more people on the servicing side. Every quarter, if we're adding almost 5,000 customers, there would be some 70 to 100 people that we would be adding on the servicing side every quarter.
That's all.
That's pretty much it, the increments will be effective every June. Historically, our cost has been increasing at the rate of about 18%. That is also because in FY 2017, there were changes in monetization time. We were slow in hiring. I think going forward also, we will continue to remain in that 18%-20% of the cost. Currently, it has gone up to 35%.
The line for the participant has been closed. We move to the next participant. The next question is from the line of Parth Solanki from Moneybee Investment Advisors. Please go ahead.
Yeah. Hi, sir. Just want to understand who is the person on the technology side where there's always an obligation, or they can, as per the industry requirement, they keep upgrading team, innovating new things. Just want to understand the person or the team looking after that, and do we have a specific team as a lock-in to the company, or how it is?
About 20% of our people, our expenditure remains in the product and technology side. We have about 400 people in the product technology data. We have a pretty seasoned set of people, new as well as old, as old as 15, 20 years with me. I'm pretty confident that we have a team which is very good in product and technology, and at par with the industry standards anywhere in the world. We also keep taking consultancy from various sources. For example, we are constantly looking at innovation in Artificial Intelligence and Machine Learning. I'm confident, and I myself am a software engineer by birth. I think we have enough number of product and technology people here.
Okay. The team who would be managing, like you and also a few of the people who will be looking after the technology team. I just want to understand, do we have the lock-in with all these people around? Now the competition is huge and a lot of competition coming across in this space, and there's instances that people may move out. I just want to understand that angle.
No, sir, we don't believe in lock-ins. In fact, we don't have any locks and keys in the entire of our office. We don't have in any of our cabins. We do not believe in lock and keys.
Okay, sure. Thanks.
Thank you. The next question is from the line of [audio distortion] . Please go ahead.
Yeah. Hi. My question is, in this quarter, the company generated cash flow of INR 71 crores, and the total cash and investment is INR 858 crores. As per the revenue amount, INR 614 crores. It looks like the company will generate outflow in the future. How you will utilize this cash in near future? Please guide us in that regard.
I just now answered that question. I'll repeat that again. The first thing is, we'll continue to maintain a good balance because for the size of our company and for the size of this kind of effort revenue, what is the balance that we need to maintain? Number two, we have already done one investment at INR 31 crores for 26% in Vyapar app. We'll continue to look for adjacency-led investments that we can do either in minority or in a majority. Third, we have adopted a dividend distribution policy that we will distribute dividends. The amount of such dividends would be decided by board of directors at the end of the year, and we will let you know.
Okay. One more question is that Amazon and Flipkart are also very big, they are also in the same industry. If they enter into this type of B2B thing, what's the risk on the company?
Anyway, I think nobody is stopped from entering any business. It is that let us understand what kind of exit barrier do we have in our business, what kind of a stickiness do we have in our business. As I said, we have a lot of supplier behavior data and a lot of buyers who are already registered on IndiaMART, and we have achieved a significant portion of the flywheel that is moving faster and getting bigger. There's a network effect that is there. Once you achieve that network effect, it is not so easy for anybody to come into a network effect business. It's generally difficult. However, people do innovate, and people can come. I don't think since we are not a transaction-based model.
Right
the discounting-led incentive may not work.
Yeah.
We have a copyright on all our information that has been accumulated over the period of time. Even to accumulate that kind of information that we have, just imagine, we have about 69 lakh suppliers registered on our platform.
Right.
We have about 6 crore products with different coming from 100,000 product categories. Unlike the current model of names that you have taken, they deal largely into standard set of products which are fast-moving. Whereas we deal into more of a customized set of products. Most of the B2B transactions are for larger amounts. That will give you some comfort. Two, we have the behavioral data which nobody else has. That gives us a competitive advantage against any new entrant.
Okay. Thank you. Thank you so much. All the best for your future. Thank you.
Thank you very much. As there are no further questions, I will now hand the conference over to the management for closing comments.
Thank you, ladies and gentlemen, for joining our Q3 conference call. We are delighted by the interest and participation that you have shown in the company. In case you have any further questions later, you can definitely reach out to our investor relation team. Their email ID is available on our website. Thank you very much for your time once again. Have a great new year and a good financial year ahead. Thank you.