Expect IndiaMART’s margin to expand for next couple of years: Brijesh Agarwal
Only 17% of all Indian SMEs use internet for business purposes today, says Agarwal
As more SMEs start adopting internet for business purposes, the tailwind that we get is definitely going to help us increase the growth rate of the overall business from here on, says , Co-founder & Director, . Excerpts from an interview with ETNOW.
What exactly are the benefits you see on account of the growth within the SME sector? Do you have any sort of projections in mind?
If you look at the whole B2B marketplace, we have built a fantastic algorithm to help buyers and sellers find each other choosing a unique algorithm that we have built. Given the fact that there is a lot of momentum in SMEs coming in and adopting internet for business purposes, our platform becomes one of the most important potent tools available to find the right partners to work with for these buyers and sellers.
In terms of our own business, as more SMEs start adopting internet for business purposes, the tailwind that we get is definitely going to help us increase the growth rate of the overall business from here on.
What are some of the key risks for your business? As quite a number of players operate within the space, is that a potential threat for you? How are you looking to assuage the concern of heightened competition?
Let me try and address this on two counts; one, if you look at the entire B2B space, the India market is going to be at about $700 billion in the next two years alone. Now for a market which is as large as this, I would expect multiple players to come in and solve different kinds of problems for these buyers and suppliers. In one sense, we still see a limited number of companies trying to address problems faced by business buyers and suppliers.
I would not be surprised to see many more businesses joining in and it will be overall good for the community per se. Given the fact that the market is extremely large, I do not think that all of these businesses coming in will eat into each other’s shares. Rather they will help expand the overall business. Second, in terms of some key numbers, today about 83 million buyers are registered on IndiaMart, about 5.5 million sellers use us to market their products and services. We generate close to about 37 million business enquiries and match makings on our platform on a monthly basis.
If you really look at some of these numbers, you can easily say that given the large number of businesses finding IndiaMart to be the right platform to help find a buyer or a seller, we have already built a substantial base of users and this business is characterised by very strong network effects as you have seen in cases of other B2B companies across the world.
Once these network effects start to play out, it becomes extremely difficult for any player to come in and disrupt the existing one. Over the last two, two and a half years, we have seen a very distinct visibility of these network effects playing out. From an overall competition perspective, we are very uniquely placed in this market and we do not really expect a very serious direct threat coming in and impacting the business.
How would you be utilising the proceeds from the IPO?
We are not raising any capital into the company. It is a complete offer for sale and hence, the investors who are selling out, will have to really decide on the use of capital for themselves.
Your FY19 PAT is at about Rs 48 crore, revenue is at Rs 500 crore. Where do you see this number over the next six months?
Let me give you a perspective on what has happened over the last couple of years because law does not permit us to talk about the future here. We have been growing our top line at about 29% CAGR over the last couple of years and our expenses have grown at about 17% CAGR. In FY18, our EBITDA margin was 11% and the EBITDA was about Rs 46.6 crore, which increased to about Rs 82 crore at 16% margin in FY19.
Overall, given the momentum in the business we are quite confident of managing a good show for ourselves and we just hope that given the fact that our revenues are growing faster than our expenses, the margin expansion story should continue for the next couple of years.
What would you say is a key challenge for your business currently? When do you see revival coming in and how big a threat really is this demand slowdown and also competition from players like an Alibaba, JustDial and Google?
Talking about challenges in the business, one of the fundamental challenges that we see in the business today is only about 17% of all Indian SMEs use internet for business purposes today. That includes having an email using which they do business correspondence. The overall penetration of internet within SMEs is quite low and as that improves, we should be a direct beneficiary of the process.
The other important factor which you highlighted is what is the impact of the slowdown in the demand that automobiles and FMCG as a business has been seeing? We have noticed a clear impact on the number of buyers who have been using the platform over the last couple of quarters but we started to see that pick up in this financial year itself.
I am not sure if this negative impact is going to remain for a prolonged period for the other businesses but within our business, we are quite confident of being back on track fairly quickly. I do not see the demand slowdown extending beyond a certain period -- one or two quarters at best. Coming to the third part of it, if you look at the overall business model that we have gone back and built, there are very clear differentiators in our business. Without taking name of any of these companies, a couple of things that I would want to highlight in B2B businesses are characterised by strong network effects.
As I mentioned earlier, we are already witnessing very strong network effects in our business so that becomes one strong barrier for anybody to enter this market here on. Second, unlike a lot of classified or search companies that you would look at, who would offer you only contact details of businesses on their website, what we offer to business buyers visiting IndiaMart is very detailed product specifications, prices, pictures and in some cases even videos. This information is extremely crucial for a business buyer to make a decision on what is the right product.
What exactly are the benefits you see on account of the growth within the SME sector? Do you have any sort of projections in mind?
If you look at the whole B2B marketplace, we have built a fantastic algorithm to help buyers and sellers find each other choosing a unique algorithm that we have built. Given the fact that there is a lot of momentum in SMEs coming in and adopting internet for business purposes, our platform becomes one of the most important potent tools available to find the right partners to work with for these buyers and sellers.
In terms of our own business, as more SMEs start adopting internet for business purposes, the tailwind that we get is definitely going to help us increase the growth rate of the overall business from here on.
What are some of the key risks for your business? As quite a number of players operate within the space, is that a potential threat for you? How are you looking to assuage the concern of heightened competition?
Let me try and address this on two counts; one, if you look at the entire B2B space, the India market is going to be at about $700 billion in the next two years alone. Now for a market which is as large as this, I would expect multiple players to come in and solve different kinds of problems for these buyers and suppliers. In one sense, we still see a limited number of companies trying to address problems faced by business buyers and suppliers.
I would not be surprised to see many more businesses joining in and it will be overall good for the community per se. Given the fact that the market is extremely large, I do not think that all of these businesses coming in will eat into each other’s shares. Rather they will help expand the overall business. Second, in terms of some key numbers, today about 83 million buyers are registered on IndiaMart, about 5.5 million sellers use us to market their products and services. We generate close to about 37 million business enquiries and match makings on our platform on a monthly basis.
If you really look at some of these numbers, you can easily say that given the large number of businesses finding IndiaMart to be the right platform to help find a buyer or a seller, we have already built a substantial base of users and this business is characterised by very strong network effects as you have seen in cases of other B2B companies across the world.
Once these network effects start to play out, it becomes extremely difficult for any player to come in and disrupt the existing one. Over the last two, two and a half years, we have seen a very distinct visibility of these network effects playing out. From an overall competition perspective, we are very uniquely placed in this market and we do not really expect a very serious direct threat coming in and impacting the business.
How would you be utilising the proceeds from the IPO?
We are not raising any capital into the company. It is a complete offer for sale and hence, the investors who are selling out, will have to really decide on the use of capital for themselves.
Your FY19 PAT is at about Rs 48 crore, revenue is at Rs 500 crore. Where do you see this number over the next six months?
Let me give you a perspective on what has happened over the last couple of years because law does not permit us to talk about the future here. We have been growing our top line at about 29% CAGR over the last couple of years and our expenses have grown at about 17% CAGR. In FY18, our EBITDA margin was 11% and the EBITDA was about Rs 46.6 crore, which increased to about Rs 82 crore at 16% margin in FY19.
Overall, given the momentum in the business we are quite confident of managing a good show for ourselves and we just hope that given the fact that our revenues are growing faster than our expenses, the margin expansion story should continue for the next couple of years.
What would you say is a key challenge for your business currently? When do you see revival coming in and how big a threat really is this demand slowdown and also competition from players like an Alibaba, JustDial and Google?
Talking about challenges in the business, one of the fundamental challenges that we see in the business today is only about 17% of all Indian SMEs use internet for business purposes today. That includes having an email using which they do business correspondence. The overall penetration of internet within SMEs is quite low and as that improves, we should be a direct beneficiary of the process.
The other important factor which you highlighted is what is the impact of the slowdown in the demand that automobiles and FMCG as a business has been seeing? We have noticed a clear impact on the number of buyers who have been using the platform over the last couple of quarters but we started to see that pick up in this financial year itself.
I am not sure if this negative impact is going to remain for a prolonged period for the other businesses but within our business, we are quite confident of being back on track fairly quickly. I do not see the demand slowdown extending beyond a certain period -- one or two quarters at best. Coming to the third part of it, if you look at the overall business model that we have gone back and built, there are very clear differentiators in our business. Without taking name of any of these companies, a couple of things that I would want to highlight in B2B businesses are characterised by strong network effects.
As I mentioned earlier, we are already witnessing very strong network effects in our business so that becomes one strong barrier for anybody to enter this market here on. Second, unlike a lot of classified or search companies that you would look at, who would offer you only contact details of businesses on their website, what we offer to business buyers visiting IndiaMart is very detailed product specifications, prices, pictures and in some cases even videos. This information is extremely crucial for a business buyer to make a decision on what is the right product.