Thank you, Lizanne. Hello, everyone. Welcome to our first quarterly earnings call post our IPO. As you are aware, IndiaMART got listed on BSE and NSE stock exchanges on last month, 4th of July. I would like to thank all the stakeholders, everyone, shareholders, investors, employees, and customers for their continued support during the successful journey towards the IPO. On this call, I would start by providing you a brief overview of the company, and then I would pass on the call to Prateek Chandra, who will elaborate more on the operation and financial performance for the quarter. I hope you have had a chance to go through the earnings presentation that we circulated yesterday, and also it is uploaded on investor relation website of IndiaMART, as well as on both the stock exchange's website. You can go through the earning presentation.
That would give you a lot more idea about all the information that we have to share this quarter. First of all, a brief overview of the company. IndiaMART started its operation as a limited company in 1999, and today we are the largest B2B online classified marketplace with over 60% market share. IndiaMART provides a robust two-way discovery model, with almost 88 million registered buyers on our platform, with 5.6 million registered suppliers on our platform. In aggregate, we display more than 60 million products and services on our platform marketplace, which are further categorized into 138,000 categories coming from 54 different industries and 1,000 plus towns and cities of India. On a monthly basis, we matchmake almost 37 million inquiries with suppliers listed on our platforms. That is almost 15 matchmakings every second on our platform. Our platform is completely free for the buyers.
We earn revenue primarily through the sale of advertising and listing subscription packages to the suppliers, which offers a range of benefits, including priority listing to the suppliers' portfolio, access to the RFQs depending upon the subscription service tier, premium number service, and access to advanced lead management system that we have designed internally at IndiaMART, as well as an integrated access to the third-party online payment gateways to all the paying customers. Ours is a freemium business model. Today we have 133,000 paying customers of IndiaMART. Another important thing that I would like to highlight is that our revenue comes primarily from subscription, and we collect subscription monies in advance for one year, two year, and three year, along with the monthly packages. While we collect monies upfront, we recognize revenue only for the period of the contract.
This results into a negative working capital and leads to a higher deferred revenue on our balance sheet. As a result, we generate a lot more cash from operation as against the EBITDA. For example, last year, FY 2019, we generated INR 255 crores of cash from operation as against the EBITDA of about INR 82 crores. Buyers discover suppliers on our marketplace by searching products and services or by posting business inquiries called RFQs. Our business model is very unique in that sense, that suppliers can choose the RFQ or the buyers, as well as the buyers can search for the suppliers. This gives us very behavioral information about supplier preferences, and we utilize those supplier preferences very effectively in our algorithmic matchmaking, thereby improving experience for supplier as well as buyers.
Last year, on an annual basis, we had about 723 million visits on our website in FY 2019, and 75%-76% of that visit were coming from the mobile website and mobile apps. In addition, I would like to emphasize that almost 100% of this traffic is organic. That means we do not spend any money in advertising on attracting any buyers or sellers on our platform. Our cost of buyer acquisition typically becomes zero that way. Our buyers are coming from 1,000 plus cities and towns of India. As you can see in the earnings presentation, only 36% of our buyers come from metro and rest of the buyers come from thousands of towns and cities of India. Buyer satisfaction remains at the forefront of our business model.
Along with our efforts to provide buyers with a comprehensive discovery platform, we also personalize the buyer's experience, like buyer search on IndiaMART, by matching the behavior-based preference of suppliers with respect to location as well as the product categories. Currently, we are doing this with the traditional algorithms, but also experimenting with machine learning and artificial intelligence in the algorithm to use the supplier behavioral data to improve our matchmakings further. Along with our strong SME supplier base, we now have started to attract bigger brands and larger suppliers on our platform. Today, almost 100 plus suppliers, be it from Tata Motors to Tata Steel or Philips to Schneider, JCB, Fevicol, Pidilite, Mahindra, and names like that, have also started to advertise side by side of the SMEs on our platform. We believe that this would also be a good profitable growth opportunity for IndiaMART in times to come.
We continue to make investment in avenues that will drive future growth by focusing on increasing new customer acquisition, as well as improving supplier engagement and retention. As part of these, we continue to explore and experiment with newer opportunities in FinTech and SaaS. I will hand over the call to P. Chandra, who will talk about the quarterly performance.
Thank you, Dinesh. Welcome, ladies and gentlemen, and thank you for taking time out and joining us on our Q1 FY 2020 earnings conference call. As you would have noticed in the results declared yesterday, IndiaMART achieved a consolidated total income of INR 162 crores in Q1, delivering a strong growth of 37% year-on-year, which in the past had been at around 25%. Looking at it, while we remain cautiously optimistic on the macro positions, and it would be our enabler to deliver similar performances. For this quarter, the revenue from operations were at INR 147 crores on a consolidated level, representing a growth of almost 30% year-on-year. The growth was primarily due to increase in the number of paying subscribers by 17% year-on-year to approximately 1.63 lakhs, coupled with higher realization from existing customers.
EBITDA margins for this quarter increased significantly from 11% in Q1 last year to 26%, as driven primarily by increase in the revenues as well as optimum utilization of resources during the period. Just wanted to highlight that effective April 1, 2019, we have adopted Ind AS 116 on lease accounting, due to which, as compared to last year, our rent expenses has decreased by INR 4.5 crores, and there is a corresponding increase in the depreciation expenses and the finance cost. Excluding this impact, on a like-to-like basis, our EBITDA margin has improved from 11% Q1 last year to 22% Q1 this year on a consolidated basis. As on June 2019, deferred revenue has increased to INR 610 crores as compared to INR 461 crores last year, an increase of 32% on year-over-year basis.
This reflects the strength of our business model and also provides much better visibility for revenues in future. As a result of this deferred revenue, our cash flows are generally higher than EBITDA we generate. Our cash flow from operations for this quarter increased by 18% to INR 54 crores in Q1 against the EBITDA of INR 37 crores. We had a closing cash and investment of INR 746 crores as in June 2019 as compared to INR 438 crores as on June 2018, representing an increase of 67% year-on-year. Thank you very much, and we are now ready to take any questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone wishing to ask a question, may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press Star and two. Please listen to the question queue's handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Jay Nandwani from Perfect Research. Please go ahead.
Good evening, Sir. I have got a few questions, which I will be listing now. Question number 1: What is the reason for high expenses compared to JustDial? Our gross block is at around INR 30 crore versus JustDial's at around INR 150 crore for FY 2018. Almost difference of 25 times, and also the difference between the revenue is only 2x. Is our model different from theirs in terms of the internal sales part? Question number two: What has been the reason for negative net worth historically? Also it is observed that profitability was reached close to IPO by reducing the advertisement spend from more than 19% sales in FY 2016 to 1% now. Can we still grow without such advertisements? Question number three: IndiaMART already around 60% of full stacker and the market is not growing in higher double digits, then how will you maintain high growth rates?
Question number four: Does the company plan to make investments in startups from the company own funds like Info Edge does? It is seen that the promoter, Mr. Dinesh, had invested around INR 30 to INR 40 crores in PersonalFN. Lastly, what went wrong with the Tolexo transaction model when companies like Udaan are doing quite well? Goodwill created was around INR 100 crores and then it was impaired in a short time. How do we plan to sustain in the competitive landscape where the likes of PolicyBazaar and Amazon exist? Our platform being a horizontal one, which world over are getting cornered. In India also, Justdial is a good example. Won't similar fate happen to IndiaMART? Thank you.
Excuse me, sir.
Yes.
Sir, we are not able to hear you.
Yes, now we are back.
Okay. Thank you.
Okay. Shall I repeat my question, sir?
Your questions are noted. We'll try to answer one by one.
Okay, sure.
If I understand, your first question was, why our gross assets are only INR 6, 7 crores, whereas Jeslan gross assets are INR 125 crores or similar.
160 crores around.
I think I do not know in detail. I haven't studied in detail about Jeslan, but I think they have purchased the office block. If I remember correctly, when their IPO came, one of the important clauses of IPO was to make office blocks. I think they have taken a big office block in Bangalore. I think that is why their gross block is higher.
Actually, I'm talking only about the computer gross block that I checked in the notes. It is not about the property. It is only about the computer.
160 crore of computer, I'm sorry, I don't know. Maybe they are maintaining their own data center. We only lease data center from outside. I would not be able to answer on behalf of Jeslan. Ours is, all the computers that we have is the local computers that we own for our employees, and all the servers and everything, they are leased on a yearly or a monthly or a quarterly basis from the data centers which are located in U.S. and in Singapore as well as in India. Second question is negative net worth.
Yes.
Let Prateek answer that one, and then I'll come back.
This negative net worth question is with respect to the historical financial statement. If you see in terms of its financial statements, when you look at historical financial statements, there are two, three different adjustments that you need to look at. Specifically, one expense which you would see in our profit and loss historically has been a loss on financial liability at FVTPL, which was essentially the difference between the fair valuation of preference shares that we had as at the period end. This was introduced by virtue of the Ind AS. It was a non-cash expense and only an accounting adjustment. It was there year on year. Before IPO, we converted all preference shares to equity shares. This expense is not expected to come in the future.
One, if you adjust our net worth for this entire adjustment, you would find that our net worth was actually positive in even years prior to the IPO. More importantly, the second question related to this was with respect to the advertising. Advertising, if you noticed, my historical financial was last done majorly in FY 2016.
Yeah.
That was essentially the brand advertising that we did, which was a television campaign we did. We hired Irrfan Khan, who was our brand ambassador at that point of time. We did a TV advertising business. After that, we haven't done any advertising as such, so it is not that any advertising decision was with respect to the considerations of the IPO. We typically decide for doing advertising depending upon our business need. Currently, we believe that we do not require advertising as both the buyers and the suppliers have been doing pretty handsomely for us, and most of the growth has largely been organic. The advertising was only for the brand, and we believe that our brand has an immortality as of now.
Another point that you said that profitability is only achieved after dropping the advertising. If you look at our earnings presentation uploaded on the stock exchange as well as on the IndiaMART Investor Relations website, if you go to the slide number nine, which says Cash Generated from Operating Activities. Though the advertising expense prior to that in FY 2015, 2016 that you will see, was to the tune of INR 30 crore-INR 40 crore. However, the cash generation has improved from INR 15 crore to INR 259 crore. Even if we had the INR 25 crore-INR 35 crore of advertising, we would still be generating cash in excess of INR 200 crore. That is not really just to cut down on the advertising to become profitable. We have genuinely become profitable by increasing our revenues by 30% and containing our cost at 16%-17%.
You can adjust it for the advertising cost as well. Still we are far more profitable quarter-on-quarter and year-on-year now coming forward. Now coming to the third question on the market share. B2B marketplace is about $700 billion opportunity in itself. This study was done about three years ago by Walmart, that the overall B2B market size is about $700 billion in 2020. Another statistic is that digital advertising market is growing at about 25% per annum and slated to become about INR 25,000 crore by 2021. If you really see, there is a market itself is growing at double digits beyond our own penetration of growth. When we say 60% share, it is only in the B2B classified segment. We do not take the advertising and search segment.
I do not see any immediate need for worry in terms of growth rate. We continue to believe that as in the past, we have been growing at around 25% plus minus. We should be able to hold our growths in the customer addition as well as in the ARPU, resulting into revenue growth of about 25%. As you can see historically, we have been growing at about 15%-20% in net customer growth, and the rest of the growth is coming from the increased realization from revenue per customer. We continue to believe that we'll grow.
Regarding Tolexo as a business we started in 2014, and Brijesh, would you like to tell the learnings from the Tolexo business that we have taken and why instead of running two separate brands, it made sense to do one single brand and apply the learning at IndiaMART and how the cash flow has increased because of that?
In fact, if you go back and see a typical B2B commerce model, it involves cataloging, pricing, involves knowledge of inventory, and then we add logistics and marketing as two additional steps. When we did Tolexo, we realized that the maximum value that buyers on the platform got was from a detailed product cataloging, availability of pricing of these products. These two things in itself were one of the biggest challenges that buyers typically would face. Just to give you an idea, the farther you are there from the larger wholesale markets of Delhi or Bombay, the overall prices become less and less transparent for you. Imprecision keeps on increasing. Sitting in Agartala, you will never be able to figure out that product X, which may be selling at INR 100 in Agartala, actually sells for INR 70, INR 80 in Bombay, Delhi.
That was one realization that if we can get detailed product specification and if we could get prices for a large number of categories instead of just focusing on the MRO products that we were doing at Tolexo, we would actually be able to gain substantially, and that is one of the reasons we decided to instead of focusing on just one category of MRO, take it to all the categories which are available on IndiaMART as a platform. Second, IndiaMART, if you see, we get a substantial amount of organic traffic by virtue of what we've created over these years. Whereas at Tolexo, we were going ahead and spending money on acquiring this traffic because this was a new platform that we had created.
From a business standpoint, over a period of time, we realized that it would make much larger sense if rather than investing on acquiring traffic at Tolexo, why don't we use the overall traffic which we are gaining at IndiaMART for this purpose? Also because of detailed product catalogs and because of pricing, if you look at our traffic growth over the last two and a half, three years now, we've seen a substantial jump happening on IndiaMART platform. Lastly, one of the things that we were doing at Tolexo was logistics. We realized that unlike B2C logistics, where home deliveries were something which were not being done earlier at a mass scale, B2B logistics has been happening for ages now. The transportation setups that are existing in the country are extremely well suited to a B2B scenario.
Instead of adding a lot of value there, we were unnecessarily adding one layer of cost because we were coming in between. We decided that instead of becoming a roadblock there, it will be easier if we let the buyers and the sellers actually manage the deliveries between themselves. Therefore, because of these three reasons broadly, we decided to in fact do or use the learning from Tolexo at IndiaMART, which was a much larger platform than continue to do and what Tolexo was doing. Now, with respect to your question on Udaan and the other competitors, as the nation B2B space is a $700 billion space, you are going to see multiple players coming in and looking at different segments of the B2B market altogether.
Specifically, if you go back and see what Udaan is trying to do, is very similar to a METRO wholesale Cash & Carry business or an Amazon business for that matter, where they're working on taking a limited number of products, which are mostly to do with FMCG, for example, and they would target the kirana store owners and buyers like them. Secondly, they're focusing on building up their own logistics, which means having trucking being done internally.
Warehouse
Warehousing being done there. Thirdly, they are also going ahead and offering credit to buyers who are buying from sellers on their platform. Out of these three things, if you really go back and see, first, whatever Metro Cash & Carry and Walmart does is very different from the products or the kind of coverage that IndiaMART has. Again, just to give you an example of some of the recent products which have been inquired for on our platform. First product is vortex tube. Second is hot briquetted iron. industrial valve. polyelectrolyte powder. O Ctanol solvent. Now, when you look at products like these, it will give you an idea on the kind of coverage we do as far as products in B2B are concerned, and that is extremely wide rather than getting focused on a limited number of products or categories there.
Secondly, as I mentioned, we don't really see out of our own experience that they add value to the logistics space. Let Udaan go back and do what they would have their own philosophy. When we look at what they're doing on the credit side, I think that's an interesting area for us to look at. It is something can be replicated. There are no entry barriers there. Therefore, over a period of time, we will definitely evaluate and see if we can offer the same for our own customers and users on the platform. Another question that you asked was around the investments that I have made in my personal capacity and what would be IndiaMART strategy going forward. I have been very passive investor, mostly looking at two platforms, either the CHAI platform or looking at the GSF platform, Global Super Angel Forum.
Most of my investments have happened through that. Yes, those investments are mostly small investments, INR 3 lakh-INR 10 lakh each. In certain cases, it has gone to INR 15 lakh. The whole idea is to learn about the investment and also to learn about the startup ecosystem and the new things that are happening. IndiaMART and personal investments are completely de-linked from that perspective. What I do for my learning purpose or for my giving back purpose or for my knowledge grasping purpose is not directly to be reflected into the IndiaMART strategy. IndiaMART will take its own course of action. The broader use of cash that we look at IndiaMART, one, obviously we have now adopted a dividend distribution policy. The details of that would be uploaded once the minutes of the meetings are confirmed on the website as well as on the stock exchange.
Two, I think with the size of our company, we'll continue to build a cash balance or a bank balance for our own usage tomorrow in case any interesting opportunity comes for acquisition. Three, as I said, we continue to focus on FinTech and SaaS opportunities and continue to look forward to any partnership opportunities, either by way of investment or by way of acquisition. If any of that will come, we'll definitely look at that. That's about it. Now we can move to the second question. Second person.
Thank you. The next question is on the line of Vivek Anandasubramanian from Ambit Capital. Please go ahead.
Hi, thanks for the opportunity. I have two questions. The first one pertains to the gross margins that you earn in your business. How do you look at that evolving? What are the various factors involved there? A related question on margins is, you mentioned about customer acquisition costs being negligible. Can you throw some light on the lifetime value of the customers, quantifying that and also explaining customer churn? Second question is with respect to the business inquiries. What are the factors that drive growth here, and can you talk a little bit about your strategy in providing a certain number of leads at a certain package and data stage and how this helps in price discovery?
Okay. Vivek, to your questions on the gross margins, the way we look at it, if you look at our financials for the year ending March, specifically the standalone financials, you would see a note in the financial statement which talks about our view on the gross profits. Therein, if you see our gross profits, the last year ending March 2018, were more at around 65-odd percentage, which has moved to around 72% in this quarter. The way we see our gross profit is that in our business, essentially there are two things. One is the acquisition of the customer, and second is the servicing, which is essentially the renewal and the upsells of the existing customers. Any cost which is related to the existing customers is considered above the line, which is what we define it as the customer service cost.
All the other costs related to getting and distribution, the technology, the marketing, that comes below the line of the gross profit. I would encourage you to go through that note, and that note explains this very clearly. In case there are still any doubts, you could let me know and I can certainly help you understand that.
No. That was in role, but I was looking to understand this better. How is it that your gross margins moved up meaningfully?
Also recently, Mr. Subramanian. Excuse me, sir, your voice is breaking up.
Yeah. Am I audible? Hello.
Yes, sir. Please go ahead.
I was saying, I saw the note. That's why I was looking for the factors that drove an improvement there.
If you see, there are mostly improvements coming from the cost of servicing and revenue per customer improvement and revenue per person improvement. As our product is becoming more self-engaging, the customers are able to upgrade to higher services as well as one single person is able to renew and serve and upsell lot more customer than he was able to do earlier. As a result, our overall cost is only increasing at 16%-17%, whereas overall revenue is increasing at 29%-30%. Which is resulting into the operating margin. Main operating leverage that you will see is the increasing ARPU that we have and decreasing cost that we have.
Okay. Understood. Could you also-
Coming to your second question about the cost of customer acquisition. In a typical marketplace, there are two kind of cost of customer acquisition. There is a cost of buyer acquisition and there is a cost of seller acquisition. While I was referring to the cost of customer acquisition, I was referring to the cost of buyer acquisition. In many marketplaces, you will see there is an advertising being done for cost of buyer acquisition. Whether it is any transactional marketplace or travel marketplace or any classified marketplace. Our cost of buyer acquisition is INR 10 billion mil. Coming to the cost of seller acquisition. Our cost of seller acquisition versus its lifetime value. Our cost of seller acquisition to lifetime value is about seven to eight times of the cost of customer acquisition.
Our typical cost of customer acquisition is about seven to eight times. The typical lifetime value of our customer is about seven to eight times of the cost of customer. You asked for the churn. If you look at our 133,000 total customer base, about two-thirds of the customer base is in the annual and multi-year segment, and about one-third of the customer base is in the monthly segment. In the two-thirds annual and multi-year segment, we typically see a churn of about 18%-20%, whereas in the monthly segment, we typically see a churn of about 5% on a monthly basis. That 18%-20% is on the annual basis that I was talking, and the 5% approximately on the monthly churn that we are talking. That is about LTV and churn. Third question that you asked is about business inquiries.
Business inquiries come from two different angles. One, increase in traffic. Increase in traffic again happens because of the two things. One is increase in unique users and repeat visits by the user. Second, their conversion on the website. Their conversion on the website improves over the call and over the RFQs. That is how our inquiries have increased. If you look at our overall number of inquiries that have increased, let me give you exact numbers. Our registered buyers have increased March 2016, INR 27 million to March 2017, INR 39 million, March 2018, INR 60 million, March 2019, INR 83 million, and now June 2019, about INR 88 million. In terms of total number of inquiries. Total number of inquiries INR 115 million. March 2017 is INR 157 million. March 2018 is INR 290 million. March 2019 is INR 449 million.
On a quarterly basis, we are now doing a matchmaking of about 113 million matchmaking. As you can see, that we peaked out in around November-December quarter. Last quarter, there was some softness because of the market challenges that you see. However, it has started to improve again in this quarter, and we believe that there is a very strong inquiry growth. If you convert that total inquiries into the per customer inquiry, then you will see that over the last three-four years, the number of inquiries delivered per customer has also almost doubled or tripled over the last three years. Okay, we can move to the next group. Thank you. Thank you.
Next question is on the line of Arya Sen from Jefferies. Please go ahead.
Hi, good evening Dinesh, Brijesh and Prateek. Firstly, congratulations on the good set of numbers. I just wanted to check on the revenue growth, if I were to sort of split it up between paid subscribers versus annualized revenue per subscriber. The paid subscriber addition, at least on a sequential basis, seems to have been a bit muted. While the annualized revenue per subscriber seems to have seen very strong growth. Could you explain the reasons for both these trends and how we should look at it going forward?
Okay. To your questions on the paid subscribers as well as ARPU. If you see our paid subscriber year-on-year has grown by around 17%, wherein for quarter-on-quarter, yes, we have seen some subtleness. There were essentially these things that have happened, which has resulted into our customer acquisition rate this quarter to be 3,000 approximate net customer addition, as compared to almost 5,000 to 6,000 that we used to do every quarter. One is that as we were explaining that we have two kind of customers. One is a monthly customer and the second one is the annual and the multi-year customer. We took some price hikes of annual entry-level customer from INR 25,000 per year to approximately INR 30,000 per year plus tax.
This price hike was effective first of January. In our experience, we have seen that it typically takes six to nine months before a price hike is actually absorbed by the market. There is some slowness in the terms of customer acquisition. What we were making, which has been continuing, which we expect that it should cover up in the next two, three months. The second is more about the customer churn, which has increased slightly because of the ongoing toughness in the macro environment that we foresee. As we expect that the economy improves slightly, we expect that this churn rate should certainly come down and should stabilize to the earlier levels that what we've been experiencing from the last year-and-a-half.
I think, looking at the last month number, I can see that we are by and large on track to add similar number of net customer addition next quarter as we have been doing in many other quarters.
Right. The higher revenue per campaign is because of the price hike that you've taken? Even on a sequential basis, as you said it was effective first January, but even on a quarter-over-quarter basis, the increase seems to be pretty sharp.
Arya, price hike doesn't result into average realization per customer per revenue immediately. Ours is a more of a multi-tier, multi-year model.
Yeah.
As you can see, we have four tiers of subscription. Monthly silver annual, gold and platinum. Within platinum, we have multi-year. Similarly, we have monthly, annual, and multi-year subscription. Average realization comes from two, three things. One, increase in prices of any particular tier, as well as mix changes. As you will see that our mix slowly and slowly has been moving towards platinum being more and more than the overall subscriber base. As we have been saying that 40% of our overall revenue comes from top 10% of our customers. We keep taking price increases of the various packages at different intervals. Since we have a lot of customers from monthly and annual and multi-year mode, the overall increase is a response of what goes on into our deferred revenue and what comes out as a revenue.
I think we can expect ARPU increase or a realization increase for the next two, three quarters, because we had seen last year there has been a strong collections increase, increasing into higher deferred revenue.
Right. Even the mix change impact should be a slow thing, right? On a sequential basis, the increase seems pretty sharp.
Sequential basis, where are you seeing that? Let me see.
41.7 going to 43.6.
Let me see. I am probably the one, sir.
No.
ARPU
Arya, what you're doing essentially is that you're taking the period end customer. If you look at QOQ, essentially if you see from Q3 to Q4, there has been a good increase in the terms of the number of suppliers and specifically towards the mix. Since we're taking the closing customer as a denominator, that is why it is reflecting it that way. Otherwise, it has largely been.
Yeah
there's been gradual improvement in the mix.
Okay.
Which we've been seeing over the years.
Okay, understood. Fair enough. Secondly, could you remind me, you've given the churn rate separately for the two series. What's the combined churn rate and how much was it maybe six months back or a year back?
Actually, monthly and annual, you will not be able to compare combined. As I said, monthly you will have to look at separately, and annual and multi-year you will have to look at separately. Even we tried coming to a single number, which we put track on my dashboard. It is hard. It is very confusing. We always have to track two different numbers. Monthly numbers on a monthly churn basis. Monthly churn basis, it used to be 4%, which has increased to about 5%. The annual churn numbers, which used to about 16%-18%, which has increased to 18%-20%.
Okay. Also on margin, this quarter has been very strong. Is there a seasonality that we should expect going forward and what is the sort of outlook on margins from here on?
Margins improve continuously. Continuously our revenues are improving at about 25%, whereas our cost increases at 17%. Only quarter four is an aberration, because in quarter four, while our revenue continues to improve at 25%, the cost suddenly increases big time because quarter four has a higher collection quarter or a higher billing quarter.
Variable incentive.
variable incentive. That is why the margins actually look lower in quarter four, whereas the cash flow from operation look much higher at the quarter four. I can give you an example of the last two quarter fours. Yeah, I'm giving you. Quarter four of FY 2019, whereas revenue grew at 28%, overall revenue. The manpower expenses were at 45% of the total expense, as against 39% in the previous quarters. That typically results into the EBITDA, which is about 15% as against 20% EBITDA in the previous quarters. If you really see, margin improvement is happening slowly and slowly only, about 1% per quarter or so. Except at the quarter four you will see a margin dip, whereas the cash flow from operation in the quarter four is far higher.
Quarter four cash flow from operation as against the INR 50 crore, INR 60 crore cash flow that we are doing now per quarter four was the INR 98 crore cash flow from operation. This is very similar to Naukri.com business.
Fair enough. Lastly, the traffic growth seems a bit tepid. Any particular reason for that?
I think I've already repeated.
Yeah.
Anyway.
As I already said, the traffic was growing very rapidly over the last three years. If you really see our traffic and inquiries, they both have grown tremendously over the last three, four years. The registered buyers have been growing at about 45% CAGR. The traffic has been growing at 40% CAGR, and the business inquiries delivered has been growing at 57% CAGR. This was the case until the quarter two, quarter three also. I think quarter three, towards the end of the quarter three and the quarter four, there has been some tepid response due to the demand in the market.
Yeah, due to the demand in the market. Which has seen again a uptick in the June quarter. We believe if the economy improves quickly, that should not be a problem. However, currently our number of leads and number of RFQs per customer continues to be much above any customer expectation. We continue to lag behind on the number of suppliers rather than on the number of buyers. In the last three years, a lot more buyers have come in onto the platform, whereas the supplier growth has been only at 125%. I think there has been a tepid response, but I guess that is due to the economy. While it is improving again, and hopefully it will improve in the next quarter.
Right. Thank you. That's all from my side. Thank you.
Thank you. Gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, please limit your questions to two per participant only. The next question is on the line of Shiv Kumar from Unifi Capital. Please go ahead.
Yeah. Thank you for the opportunity. You said that the top 10% of customers gave you 40% of the revenue. What has been the trend over the last few quarters and last year, full year?
If you look at yearly trend, it used to be 38% in FY 2017, 39% in FY 2019, and about 40% in FY 2019. Continue to remain at about 40%-41% even today. The number of top 10 customers have also increased, as you can see. Top 10 customers.
Okay. Essentially, these are the platinum plan customers, right?
Not exactly. Not exactly yet, but by and large, like that. By and large, they would be platinum. Maybe 80%, 90% would be the top 10% customers would be platinum.
With regards to the increase in the paying subscribers, which was slightly on the lower side this quarter, you were again guiding that you will come back to the earlier run rate of about 5,000- 6,000 compared to 3,000 we got to see in this quarter. What gives you that confidence given the current economic scenario in the country?
Depending upon our last month closing, which closed yesterday.
Okay. Can you quantify it, Dinesh?
I am not allowed to quantify that.
Okay. Final one question on the EBITDA trend. EBITDA growth has been really strong this year. Should we, again, like you indicated earlier, should we assume that you would increase it by 1% every quarter or would it be actually more than that? It has been substantial on a Y-on-Y basis this year.
Okay. It would be a little difficult to give you a quarterly guidance as such. If you look at historically, our revenues have been growing at the rate of around 25%, 25%-30% growth rate. Our expenses have been growing at around 17%-18%. We expect that the similar trend should continue. Accordingly, I'm sure that you can work out as to what the EBITDAs would look like.
Got it. Thank you. Knowledge this.
Thank you. The next question is on the line of Rishabh Suri from Emkay Global. Please go ahead. Line for the current person has dropped off. We'll move on to the next line from the line of Aditya Sirohi from K G Capital. Please go ahead.
Sir, I wanted to know what is the optimum level of cash that you want to maintain and after which you will think of other avenues, like you said, you're planning to do some acquisitions and you want to use it for working capital. Is there any ballpark number that you want to maintain?
When you look at the total capital, I think this number, if you want to specify what is the number which will be good forever, it will never be one number. It is a moving number altogether. Depending upon at what scale, at what size we are operating, what are the opportunities we have, what are the future plans we have, I think this number will continue to change. What we see is that the board essentially takes a call on this aspect, and basis that we will go back and decide what we need to do with the extra cash if we have any at that point in time. I think giving a specific number is not possible at this point.
Okay. As you mentioned that you are looking into lending business as well. Are you planning to go on your own or are you planning to do it through a partner or set up your own NBFC to move into that space?
This is Dinesh here. One, as I said, we only said that we would look at FinTech business. Currently, we are only doing the payments business. Somebody asked question about Udaan, we say that that lending to the buyers and sellers looks like an interesting opportunity. We will study that. Prima facie, we do not believe in lending from our own books. We believe in remaining a technology platform and connecting the lenders to the lendees. I would continue to follow that route rather than using our own books for lending. That is what is the understanding as of now. As I said, these are way too early questions to be even answered because we have only found that space to be interesting, not yet done anything on that on the ground.
Right. That was it to my thinking. I got it. That's it. Thank you very much.
Thank you. Next question is on the line of Vivek from GS Investments. Please go ahead.
Yes, sir. Congratulations on good set of numbers. First of all, I wanted to know what was this other income of INR 14 crore. Secondly, about the current slowdown, how strong is our moat? How sustainable is the moat? How is the opportunity side, sir?
Thank you, Vivek. Your question of other income, as I discussed earlier, we have close to INR 745 crore of cash in bank as on June 30th. Most of this investment largely in the mutual funds and the liquid funds. The other income is essentially the mark-to-market changes in those investment values at the period end. Coming to your second question, which is around slowdown and moat and opportunity. Opportunity-wise, there are two sides of the opportunity. One is what is the total SME size. About 60 million SMEs are there in the country. About 20% of them use email or some kind of internet for their business. About 1.2 crore GST-registered SMEs are in the country. On the buyer side, as I said, about $700 billion B2B opportunity is there.
On the digital advertising side, about INR 25,000 crore digital advertising market is going to be there. If you look at the macro side, India is growing. Income per capita, income is growing, number of SMEs are growing, their overall turnover is growing. This slowdown, which has happened probably is for a far more temporary period. We have seen world over whenever a large-scale reform like this GST has been introduced, economies have had a certain level of hiccups. In fact, India was a much better economy to be able to handle that without much disturbance. I believe that these disturbances are temporary in nature and should come back. Coming back to our moat, as we said that we are not dependent on any single category or any single geography. There are machinery to medical to agriculture to clothing to all kind of industries that we do.
No single industry accounts for more than 9% of our supplier base and even our buyer base is very scattered around the country. Only 35%-36% of our buyer base comes from metro cities. Two-third of our buyer base come from tier two, tier three and tier four towns, cities and villages. I believe that we have a very good deeper penetration in terms of buyers and very good behavioral data to be able to improve our matchmaking going day by day. We continue to believe that India is a good opportunity, SME is a good opportunity and B2B is a good opportunity. I think I wanted that.
What about the growth you're expecting, sir? Geographical online and any chunk of technological acquisition and technology edge which we have, you can highlight that also, sir.
Technological side, let me answer first because that is closer to my heart being a technologist. We have seen our company evolve from being a pure desktop-based company to mobile website to mobile app to multiple mobile apps. I think now we are a company which operates on a service-oriented architecture and is able to serve various things. You will see voice and vernacular used on our platform. You can also see lead management system and SaaS on our platform. Similarly, you can see use of FinTech on our platform and use of artificial intelligence and machine learning on our platform. I think we continue to remain very strong and very ahead of the technology. You can try our website and try our voice search and multilingual search and also compare that with other platforms that are available in the market.
The growth rate, sir?
Growth rate, as you can see, this particular quarter we have had 30% growth rate. However, in the last four, five quarters, we have had 25% growth rate. I think going forward anywhere in between the two for the next two, three quarters, we can expect.
Okay. We can move to the next question.
Sure, sir. The next question is on the line with Maldisha from Fab Pro Capital Advisors. Please go ahead. My all the questions have been answered. Thank you. Thank you. Next question is on the line of Deepak Poddar from Sapphire Capital. Please go ahead.
Yeah. Thank you very much, sir, for the opportunity. Now, sir, we are talking about a big opportunity growth rate
Big opportunity in front of us in terms of our B2B business. Still our paying subscriber, maybe it grew only by 2% this quarter, maybe it will come back to 5,000, which still is a 4% quarter-on-quarter growth. Is this a possibility that we can grow it at a much faster rate given the kind of opportunity we are talking about?
Now when we go back and look at what are the factors that will drive net adds, one of the important realizations we've seen is the overall internet adoption that we get to see amongst SMEs.
When you look at the KPMG research report, which was done last year, out of 63 million SMEs that are there in India, only 17% of all the SMEs use internet for some business purposes, which also includes having an email account.
Right.
When you go back and look at this penetration and compare this with what we see in China in 2015 alone had a 34% penetration there.
What we are seeing is, as this penetration continues to improve within the SMEs, the rate of net additions can continue to improve. However, it's the movement of this adoption, which will be one of the biggest drivers on what kind of growth can we really go back and achieve for ourselves. Let's just hope that with the GST being launched, Aadhaar being pushed, digital adoption being pushed by the government, we see a higher adoption rate. I think, once that happens, we are probably the best-placed company to exploit that increase from there.
Right. Is there any kind of data that you track by which you will be able to tell that adoption rate has increased, or is it on the increasing trend among the SME? 17% of 63 is still about 10 million, right? It is about 1 crore customer, whereas we have about 1.33 lakhs paying subscribers.
Obviously, when you look at adoption rates to customer conversion, that number, as I said, will continue to improve as more and more people use it. We cannot have a direct correlation that if there are 10 million SMEs who are using internet today, using an email, what would be the net customer add that it'll sort of result in.
Let me answer it the other way around also. If you really see a comparable company, which is 1688.com in China.
That company is the Alibaba subsidiary company, and they have about one million paying customers.
China is 10 times bigger economy and 10x bigger size. They are exactly very similar model as IndiaMART domestic B2B marketplace.
Right.
Given that we have one crore odd GST-registered businesses, and today 90% of our businesses come from GST-registered businesses only. I believe that there lies at least a similar kind of opportunity ahead of us. The net add, there is a typical migration of the mindset that has to happen because the product industry and manufacturing industry, by and large, is habitual of either a dealer distribution-based sales network or a walk-in or a call-in-based sales network. Lead management-based sales network is not the cup of tea of the product industry or the manufacturing industry. That is where most of the churn or most of the adoption-related challenges happen.
That is causing slow adoption. Once a lot many people and the newer generation is habitual of lead management-based adoption, I think the adoption rate should improve.
That will inherently increase our customer net addition from 5,000, 6,000, maybe 8,000, 9,000, 10,000. Right?
Numbers I can't quantify, but yeah. That would be our endeavor.
Understood. My second question is regarding your total number of paying subscribers, which is about 1.3 lakhs. Any kind of vision we have, let's say how many years you want to reach 2.5 or one million kind of paying subscribers? This is the timeframe that we want to achieve that. Any vision on those front would be helpful.
We can only give you a historical presentation. In 2001, I had INR 1 lakh total number of free-listed companies as against INR 55 lakh today. I had only 1,000 paying customers back then. I used to tell my sales force that "If not today, then tomorrow. If not tomorrow, then the day after." We will make all these as our paying customers. In 2019 or 2018, we became 100,000 customers. Given that now we have 5.5 million, maybe in 20 years' time, we could have 5.5 million paying customers.
Okay. You have about INR 5.5 million. Understood the point. Sure. Understood the context. Yep. All the way. Thank you so much.
Thank you, sir.
Thank you. The line is open to participants. Anyone wishing to ask a question, may please press star one on your phone. If there are no further questions, I now hand the conference over to the management for their closing comments.
Thank you. Thank you, ladies and gentlemen, for joining our Q1 FY 2020 conference call. I'm very happy that all of you could take out time and join. We are very delighted to have the interest and participation that you have shown. We'll continue to interact with you through various platforms. You can visit our investor relation website as well as keep an eye on the stock exchanges. In the meantime, if you have any further questions, please do reach out to our investor relation teams. Thank you very much once again. Thank you.