Indiamart Intermesh Limited — Q2 FY25 earnings call

Call held 19 Oct 2024

Management summary

IndiaMART reported a quarter of mixed results, characterized by steady revenue growth of 18% but a significant 'negative surprise' in collections growth, which slowed to 5-6%. Management attributed the collections drag to execution issues and persistent churn in the 'silver' customer segment, while the 'gold' and 'platinum' tiers remained stable. Margins were temporarily elevated at 36% due to reduced spending on growth initiatives, with a long-term sustainable target set at 33%.

Highlights

  • Consolidated revenue from operations reached ₹348 crores, a growth of 18% YoY.

  • Consolidated collections from customers grew by 6% YoY to ₹356 crores, a notable slowdown from previous quarters.

  • EBITDA margin for the standalone business stood at 36%, up from previous levels due to lower customer acquisition costs.

  • Deferred revenue grew by 19% YoY to ₹1,483 crores on a consolidated basis.

  • Total paying suppliers increased to 2,18,000, with a net addition of 2,400 customers in Q2.

  • Consolidated net profit for the quarter was approximately ₹135 crores.

  • Unique business enquiries grew to 28 million, representing a 14% YoY increase.

  • Cash and treasury balances remained strong at ₹2,449 crores as of September 30, 2024.

Concerns

  • Elevated churn in the silver customer segment

Key financials

  1. Revenue ₹348 Cr +18%YoY
  2. Collections ₹356 Cr +6%YoY
  3. EBITDA Margin 36%
  4. Net Profit ₹135 Cr
  5. Deferred Revenue ₹1,483 Cr +19%YoY
  6. Cash and Treasury Balance ₹2,449 Cr

What they filed

Q1 FY27: revenue up 8.7%, net profit up 6.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue332 337 336 346 360 +8%368 +9%368 +10%376 +9%
EBITDA120 144 133 135 115 −4%136 −6%135 +2%149 +10%
Net profit127 125 231 166 84 −34%206 +65%70 −70%176 +6%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹347.3 Cr Total
  • IndiaMART Standalone ₹332 Cr 95.6%
  • Busy Infotech ₹15.3 Cr 4.4%

Guidance & targets

Margin

  • Sustainable EBITDA Margin Margin · Long-term · Medium confidence 33% (+/- 1%)
    So, as I said, we would be happy to report margins at around 33%, plus/minus 1%.

    — Dinesh Chandra Agarwal, CEO

Revenue

  • Collection Growth Revenue · Going forward · Medium confidence Double-digit plus

    Previously 15-20% → Double-digit plus

    And we believe that we will probably bounce back, if not towards 15%, 20% at least try to be in the double-digit plus collection growth going forward.

    — Dinesh Chandra Agarwal, CEO

Other

  • Net Supplier Addition Other · Near-term · High confidence 2,000-3,000
    Currently, it doesn't look like we have broken out of that 2,000 to 3,000 range bound figure.

    — Dinesh Chandra Agarwal, CEO

Risks & concerns

  • Elevated churn in the silver customer segment

    high

    Management admits churn remains 'stubborn' and is the primary reason for stagnant net customer additions.

    Management acknowledged

  • Sales execution challenges

    medium

    Vacancies in sales teams and regional decentralization efforts may have temporarily impacted collection efficiency.

    Management acknowledged

  • Competitive intensity from large tech players

    low

    Management believes B2B is a niche that Google, Meta, and Amazon have not successfully solved globally.

    Analyst downplayed

Areas of evasion (1)

  • Specific historical precedents for 5% growth rates beyond the 2008 crisis.

Q&A highlights

2 direct
Slowdown in Collections Trajectory Direct
However, this particular quarter, even we have been a little surprised negatively on only 5%, 6% collection growth. We still tend to believe that this is one-off, some of our execution issues.

Investors were concerned about the sharp drop in collections growth from 15-20% to 5%, which impacts future revenue visibility.

Asked by Vivekanand Subbaraman, Ambit Capital

Churn Rates by Category Direct
On the platinum and gold, we continue to be healthy approximately at 1%; on the silver annual, about 4%; on the silver monthly, about 6% to 7%.

Provides granular detail on where the customer retention issues are located, specifically the high-churn silver monthly bucket.

Asked by Swapnil Potdukhe, JM Financial

Decline in Average Collection per Customer Partial
On the collection side, 4% growth in customer and only 1% growth in average collection per customer, which is resulting into 5%.

Highlights that growth is currently driven by volume (new adds) rather than pricing or upsells, suggesting a potential ceiling in ARPU growth for the current mix.

Asked by Nikhil Choudhary, Nuvama

2 min read 5 chapters

Detailed narrative

Collections Growth Hits a Speed Bump

IndiaMART's consolidated collections grew by only 6% YoY to ₹356 crores, a sharp deceleration from the 15-20% range seen in previous quarters. Management characterized this as a 'one-off' negative surprise caused by internal execution lapses and vacancies in the sales team. While they expect a bounce back to double-digit growth, they cautioned that until churn is structurally fixed, growth may remain capped at 10-15%.

Margin Expansion vs. Sustainable Levels

Standalone EBITDA margins reached 36% in Q2, primarily driven by lower customer acquisition spending and operating leverage. However, management clarified that this level is not sustainable as they intend to reinvest in growth once churn is under control. They guided for a long-term sustainable margin of 33% (+/- 1%), noting that upcoming salary appraisals in Q3 will likely bring margins closer to this target.

Churn Dynamics and Customer Segmentation

The company continues to face high churn in its 'silver' bucket, with monthly silver churn at 6-7% and annual silver churn at 4%. In contrast, the 'gold' and 'platinum' segments, which represent 75% of revenue, remain highly stable with only 1% churn. Net customer additions improved slightly to 2,400 from 1,500 in Q1, but remain range-bound between 2,000 and 3,000 per quarter.

Strategic Focus on Enquiry Quality

Management is intentionally reducing the number of suppliers per enquiry from 6 to approximately 4 to improve conversion and ROI for paying suppliers. While this led to a 7% decline in total business enquiries delivered, unique business enquiries actually grew by 14% to 28 million. This shift aims to address supplier feedback that high enquiry volumes were often difficult to mature into actual sales.

Accounting Software and Strategic Investments

Busy Infotech showed steady performance with 19% revenue growth and a net profit of ₹2.5 crores. Livekeeping, another strategic investment, has scaled from zero to over 10,000 customers in 2.5 years. Management views these accounting tools as critical for the SME ecosystem and plans to eventually use them as lead generation channels for the core IndiaMART marketplace.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Consumer Services earnings calls