Indiamart Intermesh Ltd

NSE:INDIAMART

Earnings Call Transcript 2020-Q1

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Thank you, Rizanne. 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 Relations website of IndiaMART as well as on both the stock exchanges' website. You can go through the earnings presentation. That would give you a lot more idea about all the information that we have to share this quarter.In terms of the brief overview of the company, so 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 2-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 match make almost 37 million inquiries with suppliers listed on our platform. 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 the priority listing to the supplier's storefront, access to the RFQs depending upon the subscription package 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 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 1 year, 2 year and 3 year, along with the monthly packages. While we collect monies upfront, we recognize revenue only on -- 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 '19, we generated INR 255 crores of cash from operation as against the EBITDA of about INR 82 crores. Buyers discover supplies 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 buyer.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. And our cost of buyer acquisition typically becomes 0 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 the comprehensive discovery platform. We also personalize the buyers' 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 we're also experimenting with machine learning-based artificial intelligent algorithm to use this 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 good profitable growth opportunity for IndiaMART in times to come. We continue to make investments in revenues 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.And now I will hand over the call to Prateek Chandra, who will talk about the quarterly performance.

[Prateek Chandra, Chief Financial Officer]

Thank you, Dinesh. Welcome, ladies and gentlemen, and thank you for taking time out and joining us on our Q1 FY '20 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 have been at around 25%, 30%. Looking at it, while we remain cautiously optimistic on the macro conditions, and it would be our endeavor similar performances, though 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 1.33 lakhs coupled with higher realization from existing customers. EBITDA margins for this quarter increased significantly from 11% in Q1 last year to 26% and driven primarily by increase in the revenues as well as optimum utilization of resources during the period.I 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 costs. 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 a year-on-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. So 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 448 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.

[Operator]

[Operator Instructions] The first question is from the line of Jai Nandwani from Perfect Research.

[Jai Nandwani, Equity Research Analyst]

I've got a few questions, which I will be listing down together. Question number one, what is the reason for the high difference for computer gross block compared to Justdial. Our gross block is at around INR 7 crores versus Justdial's at around INR 160 crores for FY '18. So almost a difference of 25x. 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? And also, it is observed that profitability was reached close to IPO by reducing the advertisement spend from more than 19% of sales than FY '16 to 1% now. Can we still grow without such advertisements?Question number three, if IndiaMART is already around 60% of market share 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-owned funds like Info Edge does, as it is seen that the promoter, Mr. Dinesh had investments around 30 to 40 startups in personal capacity?And lastly, what went wrong with the Tolexo in 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. And what is the competitive -- how do we plan to sustain the competitive landscape where the likes of Alibaba and Amazon exist, with our platform being a horizontal one, which world over are getting cornered? In India also, Justdial is a good example. So won't similar fate happen to IndiaMART?

[Operator]

Excuse me, sir?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Yes?

[Operator]

Sir, we are not able to hear you.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Yes. Now we are back, yes.

[Jai Nandwani, Equity Research Analyst]

Okay. So shall I repeat my question, sir?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

No, questions are noted. We'll try to answer one by one. If I understand your first question was why our gross assets are only INR 6 crores, INR 7 crores, whereas Justdial gross assets are INR 125 crores or similar?

[Jai Nandwani, Equity Research Analyst]

INR 160 crores around.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Yes. So I think I do not know in detail -- I haven't studied in detail about Justdial, but I think they have purchased office block. And if I remember correctly, when the IPO came, their one of the important clauses of IPO was to make office blocks. I think they have taken a big office block in Bangalore. So I think that is why their gross block is higher.

[Jai Nandwani, Equity Research Analyst]

Sir, actually I'm talking only about the computer gross block that I checked in the notes. So it is not about the property, it is only about the computer.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

INR 160 crores of computer, I'm sorry, I don't know. Maybe they are maintaining their own data center. We only lease data center from outside. So I would not be able to answer on behalf of Justdial. 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 the negative net worth. So let Prateek answer that one, and then I'll come back.

[Prateek Chandra, Chief Financial Officer]

So this negative net worth question is with respect to the historic financial statement. And if you see, in terms of financial statements, there are -- when you look at the historical financial statements, there are 2, 3 different adjustments that you need to look at. Specifically one expense, which you would see in our profit and loss historically, has been a net 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 noncash expense and only an accounting adjustment, and it was there year-on-year. Before IPO, we converted all the preference shares to equity shares. So this expense is not expected to come in the future. So one, if you adjust our net worth for this entire adjustment, you would find that our net worth was actually positive in even year prior to the IPO. More importantly, the second question related to this was with respect to the advertising. So advertising, if you noticed my historical financial, was last done majorly in FY '16. And that was essentially the brand advertising that we did and which was kind of a TV campaign we did. We hired Irrfan Khan who was our brand ambassador at that point of time. And we did a TV advertising, this is that. 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 the advertising depending upon our business needs. And currently, we believe that we do not require advertising, as both the buyers and the suppliers have been growing pretty handsomely for us. And most of the growth has largely been organic. So the advertising was only for the brand, and we believe that our brand has enough visibility as of now.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Another point that you said that profitability is only achieved after dropping the advertising. So 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 #9, which is cash generated from operating activities, though the advertising expense prior to that in FY '15-'16 that you will see I was to the tune of INR 30 crores to INR 40 crores. However, the cash generation has improved from INR 15 crores to INR 259 crores. So even if we had the cash -- even if we had the INR 25 crore to INR 35 crore of advertising, we would still be generating cash in excess of INR 200 crore. So 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 continuing 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.So now coming to the third question on the market share. So B2B marketplace, it's about $700 billion opportunity in itself, and this study was done about 3 years ago by Walmart that the overall B2B market size is about $700 billion in 2020. Another statistics is that digital advertising market is growing at about 25% per annum and slated to become about INR 25,000 crores by 2021. So if you really see, there is -- the market itself is growing at double digits beyond our own penetration of growth. And when we say 60% share, it is only in the B2B classified segment. We do not take the advertising and search segment. So 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 growth 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% to 20% in the net customer growth, and the rest of the growth is coming from the increased realization from revenue per customer. So we continue to believe that we'll grow. Regarding Tolexo, Tolexo is 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 2 separate brands, it made sense to do 1 single brand and apply the learning at IndiaMART and how this cash flow has increased because of that?

[Brijesh Kumar Agrawal, Co]

So in fact, if you go back and see a typical B2B commerce model, it involves cataloging pricing, involves knowledge of inventory. And then we had logistics and marketing as 2 additional stuff. Now 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. And these 2 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. The opacity 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.So that was one realization that if we can get detailed product specification and if we could take 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. So 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. And also because of detailed product catalog and because of pricing, if you look at our traffic growth over the last 2.5, 3 years now, we've seen a substantial jump happening on in 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. So the transportation setups that are existing in the country are extremely well suited to a B2B scenario. So instead of adding a lot of value there, we were unnecessarily adding one layer of cost, because we were coming in between. So we decided that instead of becoming a road block there, it will be easier if we let the buyers and the sellers actually manage the deliveries between themselves. And therefore, because of these 3 reasons broadly, we decided to -- in fact do -- or use the learnings from Tolexo at IndiaMART, which was a much larger platform, than continue to do what Tolexo doing.Now with respect to your question on Udaan and the other competitors, as Dinesh mentioned, the entire B2B space is a $700 billion space. And you are going to see multiple players coming in and looking at different segments of the B2B market all together. So 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 that they are 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 setup, which means having trucking being done internally and warehousing being done there.Thirdly, they are also going ahead and offering credit to buyers who are buying from sellers on their platform. So out of these 3 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 says vortex tube, second says hot briquetted iron, industrial wall, right, polyelectrolyte powder, right, octanol 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's 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 we will add value into 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 which can be replicated. There are no entry barriers there. And 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.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

And another question that you asked was around the investments that I have made in my personal capacity and what would be the IndiaMART strategy going forward. So I have been a very passive investor, mostly looking at 2 platforms, either the TiE platform or looking at the GSF platform, Gobal Super Angels Forum. So most of my investments have happened through that. Yes, those investments are mostly small investments, INR 5 lakh to INR 10 lakh each. In certain cases, it has gone to INR 20 lakh, INR 25 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. And IndiaMART and personal investments are completely delinked from that perspective. So what I do for my learning purpose or 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 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 we will continue to have -- with the size of our company, we'll continue to build a cash balance or a bank balance part of our own usage tomorrow in case of any interesting opportunity comes for acquisition. And 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. So 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.

[Operator]

The next question is from the line of Vivekanand Subbaraman from AMBIT Capital.

[Vivekanand Subbaraman, Media Analyst]

I have 2 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? And a related question on margins is, you mentioned about customer acquisition cost being negligible. Can you throw some light on the lifetime value of the customers, quantifying that but also expanding 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 how that has changed and how this helps price discovery?

[Prateek Chandra, Chief Financial Officer]

So Vivek, to your questions on the gross margin, the way we look at it, if you look at our financials for the year ending March, specifically the stand-alone financials, you would see a note in the financial statement, which talks about our view on the gross profit. And therein, if you see, our gross profit the last year ended March 2018 were more at around 65-odd percent, which has moved to around 72% in this quarter. The way we see our gross profit is that in our business, essentially, there are 2 things. One is the acquisition of the customer. And second is the servicing, which is essentially the renewal and the upsell of the existing customers. So any cost, which is related to the existing customers, is considered above the line, which is what we define it as the customer service costs. All the other costs, whether it's the selling and distribution, the technology, the marketing, that comes below the line of the gross profit. So I would encourage you to go through that note, and that note explains this very clearly. In case if there are still any doubts, you could let me know, and I can certainly help you understand that.

[Vivekanand Subbaraman, Media Analyst]

Prateek, that is simple. But I was looking to understand this better. How is it that your margins -- gross margins moved up meaningfully and...

[Operator]

Sorry to interrupt, Mr. Subbaraman. Excuse me, sir, your voice is breaking up.

[Vivekanand Subbaraman, Media Analyst]

Yes. Am I audible better? Hello?

[Operator]

Yes, please go ahead.

[Vivekanand Subbaraman, Media Analyst]

Yes. I was saying, I saw the note, that's why I was asking for the factors that drove an improvement there.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Okay. So if you see, there are mostly improvements coming from the cost of servicing and revenue per customer improvement and revenue per person improvement. So 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 a lot more customer than he was able to do earlier. So as a result, our overall cost is only increasing at 16%, 17%, whereas overall, revenue is increasing at 29%, 30%, so which is resulting into the operating margin. The main operating leverage that you will see is the increasing ARPU that we have and decreasing cost that we have.

[Vivekanand Subbaraman, Media Analyst]

Okay. Beautiful. And could you also now...

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Coming to your second question about the cost of customer acquisition. So in a typical marketplace, there are 2 kinds of cost of customer acquisition. There is a cost of buyer acquisition, and there is a cost of seller acquisition. So 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, so whether it is any transactional marketplace or travel marketplace or any classified marketplace. So our cost of buyer acquisition is typically nil. Now coming to the cost of seller acquisition, our cost of seller acquisition versus its lifetime value. So our cost of seller acquisition to lifetime value is about 7 to 8x of the cost of customer acquisition. Typical -- our typical cost of customer acquisition is about 7 to 8x -- typical lifetime value of our customers is about 7 to 8x of the cost of customer.You asked for churn. So if you look at our 133,000 total customer base, about 2/3 of the customer base is in the annual and multiyear segment and about 1/3 of the customer base is in the monthly segment. In the 2/3 annual and multiyear segment, we typically see a churn of about 18% to 20%, whereas in the monthly segment, we typically see a churn of about 5% on a monthly basis. That 18% to 20% is on the annual basis that I was talking, and the 5% to 6% on the -- 5% approximately on the monthly churn that we are talking. So that is about LTV and churn. Third question that you asked is about business inquiries. So business inquiries come from 2 different angles. One, increase in traffic, and increase in traffic again happens because of the 2 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. So 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 from March '16, 27 million; to March '17, 39 million; March '18, 60 million; March '19, 83 million; and now June '19, about 88 million. In terms of total number of inquiries -- yes, total number of inquiries, March '16 is 115 million, March '17 is 157 million, March '18 is 290 million, March '19 is 449 million. On a quarterly basis, we are now generating -- now doing a matchmaking of about 113 million matchmaking.As you can see that we peaked out in -- around November, December quarter. And last quarter, there were some subduedness 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 3, 4 years, the number of inquiries delivered per customer has also almost doubled or tripled over the last 3 years. Okay. We can move to the next...

[Operator]

Next question is from the line of Arya Sen from Jefferies.

[Arya Sen, Equity Analyst]

Firstly, congratulations on a 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?

[Prateek Chandra, Chief Financial Officer]

Okay. So 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 subduedness. There were essentially the 2 things that has happened, because -- which has resulted into our customer acquisition rate to 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 2 kind of customers on -- one is a monthly customer and the second one is the annual and the multiyear customer. So 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 1st of January. And in our experience, we have seen that it typically takes 6 to 9 months before a price hike is actually absorbed by the market. So 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 2, 3 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. So as we expect that probably that -- as we expect that the economy improves slightly, we expect that this churn rate should certainly kind of come down and should stabilize to the earlier levels that what we've been experiencing from the last year, 1.5 years.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

And 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 additions next quarter as we have been doing in many other quarters.

[Arya Sen, Equity Analyst]

Right. And the higher revenue per campaign is because of the price hike that you've taken? But even on a sequential basis, you said it was effective 1st Jan. But even on a Q-o-Q basis, the increase seems to have been pretty sharp.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

So Arya, price hike doesn't result into average realization per customer per revenue immediately. Ours is more of a multi-tier, multiyear model. So as you can see, we have 4 tiers of subscription: Silver monthly, Silver annual, Gold and Platinum. And within Platinum, we have multiple tiers. And similarly, we have monthly annual and multiyear subscription. So average realization comes from 2, 3 things. One, increase in the -- increase in prices of any particular tier as well as mix changes. So 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 our -- 40% of our overall revenue comes from top 10% of our customers. So that is also resulting into -- and we keep taking price increases of the various packages at different, different intervals. And since we have a lot of customers from monthly and annual and multiyear mode, the overall increase is in response of what goes on into our deferred revenue and what comes out as a revenue. So I think it's a very -- we can expect a strong ARPU increase or realization increase for the next 2, 3 quarters, because we had seen last year, there has been a strong collections increase, increasing into higher deferred revenue.

[Arya Sen, Equity Analyst]

Right. But even the mix change impact should be a slow thing, right, because on a sequential basis, the increase seems pretty sharp?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Sequential basis, we are having -- seeing, let me see...

[Arya Sen, Equity Analyst]

Let's 41.7 going to 43.6.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Let me see, let me see.

[Prateek Chandra, Chief Financial Officer]

So Arya, what you're doing essentially is that you're taking the period-end customer. So if you look at Q-o-Q 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. So since we're taking the closing customer as a denominator, that is why it is reflecting it that way. Otherwise, it has largely been -- there's been a gradual improvement in the mix, which we've been seeing over the years.

[Arya Sen, Equity Analyst]

Okay. Understood. Fair enough. Secondly, could you remind me what is the -- you've given the churn rates separately for the 2 categories. What is the combined churn rate? And how much was it maybe 6 months back or a year back?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Actually, monthly and annual, you will not be able to compare combined. So as I said, you -- monthly, you will have to look at separately. And annual and multiyear, you will have to look at separately. Even we tried coming to a single number, which we could track on my dashboard. It is hard. It is very confusing. So we always have to track 2 different numbers. Monthly numbers on a monthly churn basis, so monthly churn basis, it used to be 4%, which has increased to about 5%. And the annual churn numbers, which used to be about 16% to 18%, which has increased to 18% to 20%.

[Arya Sen, Equity Analyst]

Okay. Okay. Also, on margin, this quarter has been very strong. Is there a seasonality that we should expect going forward? And what's the sort of outlook on margins from here on?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

So our margin -- margins improved continuously, because continuously, our revenues are improving at about 25%, whereas our cost increases at 17%. Only quarter 4 is an aberration, because in quarter 4, while our revenue continues to improve at 25%, the cost suddenly increases big time, because quarter 4 has a higher collection quarter or a higher billing quarter, which results into a higher variable incentive. And that is why the margins actually look lower in quarter 4, whereas the cash flow from operations look much higher at quarter 4. I can give you an example of the last 2 quarter 4s.So the quarter 4 of FY '19 -- so quarter 4 of FY '19, whereas revenue grew at 28%, overall revenue, the expenses were -- the manpower expenses were at 45% of the total expense as against 39% in the previous quarter. So that typically results into the EBITDA, which is about 15% as against 20% EBITDA in the previous quarter. So if you really see, margin improvement is happening slowly and slowly only, about 1% per quarter or so, except that the quarter 4, you will see a margin dip, whereas the cash flow from operation in the quarter 4 is far higher. So quarter 4 cash flow from operation as against the INR 50 crore, INR 60 crore cash flow we are doing now per quarter, quarter 4 was the INR 98 crore cash flow from operation. And this is very similar to Naukri.com business.

[Arya Sen, Equity Analyst]

Fair enough. And lastly, the traffic growth seems a bit tepid. Any particular reason for that?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

So as I already said, the traffic was growing very rapidly over the last 3 years. So if you really see our traffic and inquiries, they both are grown tremendously over the last 3, 4 years. So 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. And this was the case until quarter 2, quarter 3 also. I think quarter 3, towards the end of the quarter 3 and the quarter 4, there has been some tepid response due to the demand in the market, which has seen, again, an uptick in the June quarter. And 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 the -- any customer expectation. We continue to lag behind on the number of suppliers rather than on the number of buyers. Because in our last 3 years, a lot more buyers have come in on to the platform whereas the supplier growth has been only at 20%, 25%. So 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.

[Operator]

[Operator Instructions] Next question is from the line of SivaKumar from Unifi Capital.

[K. SivaKumar, Assistant VP & Fund Manager]

You said that the top 10% customer gave you 40% of revenue. What has been the trend over the last few quarters and last year for the full year?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

If you look at yearly trend, it used to be 38% in FY '17, 39% in FY '19 (sic) [ FY '18 ] and about 40% in FY '19 and continue to remain at about 40%, 41% today. And -- but the number of top 10 customers have also increased, as you can see, top 10% customers.

[K. SivaKumar, Assistant VP & Fund Manager]

Okay. Essentially, these are the Platinum plan customers, right?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Not exactly. Not exactly, yes, but by and large, like that. By and large, they would be Platinum. So maybe 80%, 90% would be the 10% customers are -- would be Platinum.

[K. SivaKumar, Assistant VP & Fund Manager]

Got it. And with regards to the number of -- increase in the paying subscribers, which was slightly on the lower side this quarter, you're again guiding that you will come back to the earlier run rate of about 5,000 to 6,000 compared to the 3,000 that we got to see in this quarter. What gives you that confidence that you'll come back, given the current economic scenario of the country?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Depending upon our last month's closing, which closed yesterday.

[K. SivaKumar, Assistant VP & Fund Manager]

Okay. Can you quantify it, Dinesh?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

I am not allowed to quantify that.

[K. SivaKumar, Assistant VP & Fund Manager]

Got it. And finally one question on the EBITDA trend. The EBITDA growth has been really strong this year. So should we -- again, like you indicated earlier, should we assume that you'd increase it by 1% every quarter? Or would it be actually more than that? Because the jump has a substantial on a Y-o-Y basis this year?

[Prateek Chandra, Chief Financial Officer]

Okay. So it would be a little difficult to give you a quarterly guidance as such. But if you look at, historically, our revenues have been growing at the rate of around 25-odd percent, 25% to 30% growth rate. Our expenses have been growing at around 17% to 18%. We expect that the similar trend should continue. So accordingly, I'm sure that you can work out as to what the EBITDAs would look like.

[Operator]

The next question is from the line of [ Rishabh Subedhi ] from Emkay Global. The line for the current participant has dropped off. We'll move on to the next, that is from the line of from [ Aditya Saroig from KG Capital ].

[Unknown Analyst]

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 keep it for other business purposes. So is there any ballpark number that you want to maintain?

[Brijesh Kumar Agrawal, Co]

Okay. So when you look at the total capital, I think this number, if you want to specify what is a 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. So I think giving a specific number is not possible at this point.

[Unknown Analyst]

Okay. And as you mentioned that you are looking into that lending business as well. So 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?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

So this is Dinesh here. One, as I said, we only said that we would look at fintech business. Currently, we are only doing the payment business. Since somebody asked question about Udaan, we say that, that lending to the buyers and sellers looks like an interesting opportunity. So 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 are -- we have only found that space to be interesting, not yet done anything on that -- on the ground.

[Operator]

Next question is from the line of from [ G. Vivek from GS Investments ].

[Unknown Analyst]

Yes. Sir, congratulations on a good set of numbers. First off, I wanted to know what was this other income of INR 14 crores. And secondly, about the current slowdown, how strong is our moat and how sustainable is the moat and how is the opportunity size, sir?

[Prateek Chandra, Chief Financial Officer]

Thanks, Vivek. So to your question of other income, as I discussed earlier that we have close to INR 745 crores of cash in bank as on June 30, most of this investment largely in the mutual funds and the liquid funds. So the other income is essentially the mark-to-market changes in those investment values as of the period-end.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Now coming to your second question, which is around slowdown and moat and opportunity. So opportunity-wise, there are 2 sides of the opportunity. One is what is the total SME size. So about 60 million SMEs are there in the country. About 20% of them use e-mail or some kind of Internet for their business, about 1.2 crore GST registered SMEs are there in the business -- are in country. On the buyer side, as I said, about $700 billion B2B opportunity is there. So I think that -- and on the digital advertising side, about INR 25,000 crore digital advertising market is going to be there.So if you look at the macro side, India is growing, India's 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 reforms like GST has been introduced, the economies have had certain level of hiccups. In fact, India was much better economy to be able to handle that without much disturbance. So 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, very scattered around the country. Only 35%, 36% of our buyer base comes from metro cities. So 2/3 of our buyer base come from Tier 2, Tier 3 and Tier 4 town, cities and villages. So I believe that we have a very good deeper penetration in terms of buyer and very good behavioral data to be able to improve our matchmaking going day by day. So we continue to believe that India is a good opportunity, the SME is a good opportunity and B2B is a good opportunity. I think I have answered...

[Unknown Analyst]

Yes. What about the growth you're expecting, sir, top and bottom line? And any plans of technological upgradation and technology edge, which we have, if you can highlight that also, sir?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

So technological side, let me answer first, because that is closer to my heart being a technologist. We have seen our company evolved from being a pure desktop-based company to mobile website to mobile app to multiple mobile apps. So 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 use 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 the use of artificial intelligence and machine learning on our platform.So 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.

[Unknown Analyst]

The growth rate, sir?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

So growth rate, as you can see, this particular quarter, we have had 30% growth rate. However, in the last 4, 5 quarters, we have had 25% growth rate. So I think going forward, anywhere in between the 2 for the next 2, 3 quarters, we can expect. Okay. We can move to next question.

[Operator]

The next question is from the line of [ Malti Shah ] from CapGrow Capital Advisors.

[Unknown Analyst]

My all the questions have been answered.

[Operator]

The next question is from the line of Deepak Poddar from Sapphire Capital.

[Deepak Poddar, Portfolio Manager]

Sir, we are talking about a big opportunity growth rate, a big opportunity for -- in front in terms of our B2B business. And then 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. So is this a possibility that we can grow it at a much faster rate, given the kind of opportunity we are talking about?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

So 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 the 63 million SMEs that are there in India, only 17%, 1-7 percent, of all the SMEs use Internet for some business purpose, which also includes having an e-mail account. So when you go back and look at this penetration and compare this with what we see in China, China in 2015 alone had a 34% penetration there. So 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.So let's just hope that with the GST being launched, Aadhar being pushed, digital adoption being pushed by the government, we see a higher adoption rate. And I think once that happens, we are probably the best placed company to exploit that increase from there.

[Deepak Poddar, Portfolio Manager]

Right. So sir, is there any kind of data that you track by which -- is there any data you track by which you'd be able to tell that adoption rate has increased or is it on the increasing trend among the SME? Because 17% of 63 million is still about 10 million, right? That is about 1 crore customers, whereas we have about 1.33 lakh paying subscribers.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

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. So we cannot have a direct correlation that is there are 10 million SMEs who are using Internet today, using an e-mail, what would be the net customer add that it'll sort of result in.

[Brijesh Kumar Agrawal, Co]

Let me answer it the other way around also. So if you really see a comparable company, which is 1688.com in China, so that company is the Alibaba subsidiary company and they have about 1 million paying customers. So -- and China is 10x bigger economy and 10x bigger size. And they are exactly very similar model as on -- as IndiaMART domestic B2B marketplace. So I think -- and given that we have 1 crore-odd GST registered businesses, and today, 90% of our businesses come from GST registered businesses only, so I believe that there lies at least a similar kind of opportunities 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 I walk in or a calling-based sales network.Lead management-based sales network is not the cup of tea of the product industry or the manufacturing industry. So that is where most of the churn or most of the adoption-related challenges happen. And 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.

[Deepak Poddar, Portfolio Manager]

So that will inherently increase our customer net addition from 5,000, 6,000 to maybe 8,000, 9,000, 10,000, right?

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

Number, I can't quantify. But yes, I mean, that would be our endeavor.

[Deepak Poddar, Portfolio Manager]

Understood. And then my second question is regarding your total number of paying subscribers, which is about 1.33 lakh. So any kind of vision we have that by how many years you want to reach maybe 0.5 million or 1 million kind of paying subscribers, this is the time period that we want to achieve that? Any vision on those fronts would be helpful.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

I can only give you a historical presentation. In 2001, I had 1 lakh total number of free listed companies as against 55 lakh today. And I had only 1,000 paying customers by then. And I used to tell my sales force that [Foreign Language] we will make all these as our paying customers. And in 2019 or 2018, we became 100,000 customers. So given that now we have 5.5 million, maybe in 20 years' time, we could have a 5.5 million paying customers.

[Operator]

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for your closing comments.

[Dinesh Chandra Agarwal, Founder, CEO, MD & Director]

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. And we are very delighted to have interest and participation that you have shown, and we'll continue to interact with you through various platforms. You can visit our Investor Relations 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 Relations teams. And thank you very much once again. Thank you.