Indiamart Intermesh Ltd

NSE:INDIAMART

Earnings Call Analysis

IndiaMART's Mixed Growth and Customer Dynamics in Q1 FY 2025

IndiaMART reported Q1 FY 2025 consolidated revenue from operations growth of 17% to INR 331 crores, with a net profit of INR 114 crores. Despite a 15% rise in unique business inquiries to 25 million, new supplier acquisitions were slightly lower, resulting in only 1,500 new paying suppliers this quarter. Gold and platinum customers, around 50% of the customer base and 75% of revenue, continued stable growth. The company anticipates short-term EBITDA margins of 33-34%, down from this quarter's 37%, due to resumed customer acquisition spending. They plan significant product adjustments to curb churn before aggressively increasing gross additions again.

Resilient Revenue Growth in Q1 FY '25

IndiaMart reported solid financial performance in the first quarter of FY '25, demonstrating resilience in revenue generation. The company achieved a consolidated revenue from operations of INR 331 crores, marking a noteworthy growth of 17% year-over-year. This growth was complemented by an increase in unique business inquiries, which rose to 25 million, equating to a 15% increase from the previous year. Moreover, customers saw improved engagement, with total collections from customers hitting INR 366 crores, reflecting a 14% YoY growth.

Challenging Subscriber Dynamics

The company currently faces a challenging situation regarding its subscriber base, with total paying subscribers reported at 216,000. Despite a modest net addition of just 1,500 new paying suppliers during the quarter, the churn rate is a point of concern, particularly among the silver subscription tiers. The churn in the silver category remains stubborn, with monthly churn hitting 6% and annual churn around 36%. The company expects to see improvement in customer retention through targeted investments in customer experience.

Strong Performance from High-Tier Customers

A positive aspect of the earnings call was the continued robust performance among gold and platinum customers. These customers now account for approximately 50% of the total customer base and a substantial 75% of revenue. Their average revenue per user (ARPU) increased by 13%, driven by lower churn rates and successful upselling strategies. Importantly, the churn rate for gold and platinum customers is under 1% per month, suggesting a sticky and engaged customer base.

Cost Management and Margin Expansion

IndiaMart reported an impressive EBITDA margin of 37% for the quarter, primarily driven by operational leverage and cost optimization initiatives. However, management anticipates that the margin may taper down to around 33-34% as customer acquisition costs normalize once growth rebounds. They noted that the current expansion in margins is partly attributable to lower marketing expenses due to reduced customer additions.

Forward Guidance and Strategic Adjustments

Looking ahead, the company expressed caution in terms of guidance due to persistent churn rates and customer acquisition challenges. Dinesh Agarwal, CEO, indicated that any projections regarding net subscriber addition should be taken quarter by quarter. In the previous quarter, the company guided for an increase of 5,500 suppliers, but due to high churn rates, the current stance is more conservative.

Investments in Technology and Customer Insights

To address the current customer churn and enhance service delivery, IndiaMart is investing in improving its platform's capabilities. The company is focusing on better matching algorithms based on user behavior data which will allow for more targeted service offerings. Additionally, a strategic acquisition of a 10% stake in Baldor Technologies aims to strengthen their KYC and risk management capabilities in the digital space, rounding out efforts to grow their market relevance.

Market Penetration Challenges and Future Growth Levers

Despite an increase in monetizable categories and growth in inquiries, IndiaMart acknowledges challenges in existing category saturation. The expansion strategy focuses on continued growth in tier-1 cities while exploring deeper market penetration in tier-3 and tier-4 categories. Management remains optimistic about future growth levers including moving into new categories of services, which could yield additional revenue streams.

Earnings Call Transcript 2025-Q1

[Avijit Vikram, executive]

Good evening, ladies and gentlemen. I'm Avijit Vikram, Head of Investor Relations. On behalf of IndiaMART InterMESH Limited, I welcome you all to the Company's Quarter One FY 2025 Earnings Webinar. [Operator Instructions].

Joining us today from the management side, we have Mr. Dinesh Agarwal, Chief Executive Officer; Mr. Brijesh Agrawal, Whole-Time Director; Mr. Jitin Diwan, Chief Financial Officer; and Mr. Prateek Chandra, Chief Strategy Officer.

Before we begin, I would like to remind you that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer to Slide #3 of the earnings presentation for the detailed disclaimer.

Now I would like to hand over the call to Mr. Dinesh Agarwal for his opening remarks. Thank you, and over to you, sir.

[Dinesh Agarwal, executive]

Thank you, Avijit. Good evening, everyone, and welcome to IndiaMART's Quarter 1 FY '25 Earnings Webinar. We have circulated our earnings presentation, which is available on our own website as well as the Stock Exchange's website. We are sure that you would have gone through the presentation, and we would be happy to take any questions afterwards.

I'm pleased to report that IndiaMart has delivered a consolidated collection from customers of INR 366 crores in the quarter 1, representing year-on-year growth of 14%. Deferred revenue has grown by 23% to INR 1,474 crores on a consolidated basis. Consolidated revenue from operations has grown by 17% to INR 331 crores. Unique business inquiries grew to 25 million, representing year-on-year growth of 15%. Our total paying subscribers have grown to 216,000 as we have been communicating since the last few quarters, we continue to see more than anticipated churn on the customer base in this silver bucket.

In addition to this, our new supplier acquisitions were slightly lower this quarter compared to what we have been doing during the last few quarters. And as a result, we have been able to add only 1,500 new paying suppliers on the net basis in this quarter. On the other hand, our platinum and gold customers, which constitute approximately 50% of our customer base and 75% of the revenue continue to have low churn and grew both very well in terms of ARPU as well as count. We will continue to make investment and undertake measures to enhance customer experience and improve retention as well as drive deeper penetration of the paying customers and then focus at it.

On the inorganic investment front in keeping with the vision of empowering businesses digitally, we are pleased to share that we have got into an agreement to acquire 10% stake in Baldor Technologies Private Limited, which operates IDfy, an integrated identity platform, offering products and solutions for KYC, background verification merchant onboarding, buyer onboarding, risk mitigation and digital privacy. Further, as communicated in the last earnings con call as well as on the stock exchange, we have onboarded Mr. Jitin Diwan as the new Chief Financial Officer of the company.

Now I will hand over the call to Brijesh for the update about Busy Infotech. Thank you, and over to you, Brijesh.

[Brijesh Agrawal, executive]

Hi, good evening, everyone. Busy has done a net billing of INR 23.4 crores in this quarter, representing Y-o-Y growth of 4%. The revenue from operations have grown by 15% to INR 15.5 crores. The deferred revenues have grown by 41% to INR 51.5 crores. EBITDA for the quarter is at INR 1 crores with margins of 7%. The net profit for the quarter was INR 3 crores. The cash from operations was at INR 11.8 crores. During this quarter, Busy has sold [ 9.7 K ] licenses, closing the total count of 373,000 licenses at the end of June 2024. We are focused on growing our new customer base and increased the overall growth rate in the coming quarters.

With this, I'll hand over the call to Jitin to update about the financial performance.

[Jitin Diwan, executive]

Thank you, sir. Good evening everyone. I will take you through the financial performance for the quarter ending June 2024. Consolidated collections from customers was INR 366 crores in the quarter, representing year-on-year growth of 14%. IndiaMart stand-alone collections from customers for the quarter were at INR 341 crores, registering year-on-year growth of 15%. The stand-alone revenue from operations stood at INR 315 crore, registering year-on-year growth of 18%. Our growth in revenue was primarily driven by over 13% improvement in realization from paying suppliers and the remaining by increase in number of [indiscernible].

Deferred revenue stood at INR 1,421 crores, an increase of 22% on year-on-year basis. EBITDA of IndiaMart stand-alone business stood at INR 117 crores, representing a margin of healthy 37%. This margin expansion is due to organic operating leverage, certain cost optimization initiatives and savings due to lower customer acquisitions as our customer growth picks up, the margin expansion will be normalized to gradual operating leverage inherent in the business.

Consolidated net profit for the quarter was INR 114 crores, consolidated cash relating from operations was INR 136 crores. Consolidated cash and treasury balance stood at INR 2,319 crores as of June 30, 2024.

Thank you very much, everyone. We are now ready to take any questions.

[Avijit Vikram, executive]

[Operator Instructions] First question is from the line of Sachin from BofA.

[Sachin Salgaonkar, analyst]

Congrats on a good set of numbers. My 2 questions are first question, wanted to understand a bit more on EBITDA margin. Just wanted to double check that there is no one-offs associated with that? And should we consider this as a steady state EBITDA margin going ahead? Of course, as you know, the operational average comes, you might see a bit of an improvement. So that's question number one.

Question number 2, I wanted to again understand a bit more on net adds for last few quarters, it's hovering in the 2000-odd range, when should we see an inflection point coming where these net adds accelerate going ahead?

[Dinesh Agarwal, executive]

Jatin, you want to take up the EBITDA margin question?

[Jitin Diwan, executive]

Thank you, Sachin, for your question. So EBITDA margin is 37% for the current quarter. So if we see about 2% to 3% was the operational leverage, which we were supposed to get because in Q4, there are higher collections and therefore, collection related costs will also be there, which has not been in Q1. So that is one.

Second, then we were doing few cost optimization initiatives in the last few quarters, which have been now realized. And therefore, there is a saving, which is structured. And then the last bit of it is since as you know that we have not been able to add the customer addition is on the lower side. And therefore, the cost related to that is also on the lower side. Once it picks up, then the cost will again be there on that side. And therefore, you will see a lower EBITDA margin to that extent.

[Dinesh Agarwal, executive]

Just to add, April and May are generally the examination time. So most of the joinings that you have seen in the headcount are June later half joining as well as some of the joinings have happened in July. So some of these costs will come back, and so we expect the margin to taper off a little bit from here, maybe at around 33%, 34%, and that should be the steady state margin from now on.

On the net add side, as I said, the churn in the silver and -- silver monthly and silver annual buckets, continued to be stubborn, while we have taken certain steps to avoid churn in the Tier 3, Tier 4 -- so we have stopped onboarding customers, which were traditionally high churn location or high churn areas. But the results of that are yet not visible because the main cities are also affected by churn. So I think we continue to make adjustments into our product as well as our strategy to see what is the change expectations from the market? Or what is the -- what is it that we are not able to find correctly.

And the only thing that I can say is that we are continuing to work on that side. I don't want to press the pedal on the gross addition until we have got the handle of the churn. So let's wait for another 2 quarters to see if the churn is able to come under the control, and we are able to get back to a higher customer addition. But on the margin side, as we said, if you really see in the last year, year and 1.5 years, we have consistently improved on the margin from 26%, 27% to now 34%, 35% range.

[Sachin Salgaonkar, analyst]

Just one quick follow-up out here. Assuming what you said, let's say, for next couple of quarters, at least for 6 months, the net adds remain at these levels. So do we assume EBITDA margins be high to current levels? And then eventually, as the net adds pick up, the margin should normalize to 33% to 34%, so ideally and logically, for next few quarters, margins should be in the range of 36%. And when your net adds pick up, that should normalize to 33%, 34%. Is that a fair assessment?

[Dinesh Agarwal, executive]

No. As I said, from 37%, I think the 3% will immediately come back to around 34%. I am pretty sure that we should be able to deliver over the next 2 quarters. I cannot comment when the net adds increase, whether we will go to 33% or whether we'll be able to maintain 34% by then.

[Operator]

Next question is from the line of Jasdeep Walia from Clockvine Capital.

[Jasdeep Walia, analyst]

My question is, do you try to ascertain if the pricing is acceptable to your clients in the sense that the cost that they're incurring on IndiaMart, is it making -- is it driving value for them. So as of now, the ARPU, the increase at 13%, it's pretty high and it looks good on the presentation, the margins have increased. But does it make sense to actually reduce pricing and drive net adds and, let's say, let the margin remain at 29%, 30%, which was the case last year. So I just want to hear your thoughts because if the pricing is beyond the mean of the customer, you might face even more customer churn in future, which is bad for the long-term health of the business?

[Dinesh Agarwal, executive]

Sir, if you see the breakup of the ARPU, most of the gain is coming from top 10% of the customers, while the most of the churn is coming from bottom 50% of the customers. So bottom 50% of the customers, neither there has been any price increase. I mean, we are at the same price point as we were before COVID. So there has not been any price increase on the silver monthly or silver annual, except for the fact that we gave a discount of 20-odd percent during the COVID, which we withdrawn after the COVID. Other than that, most of the ARPU growth has happened in the top 10% of the customers, not in the overall customer base.

So the assumption that the price would help us reduce the churn seems incorrect there. On the top tier of the customer as and when we feel -- also we have not increased the prices on the top tier of the customer. As you know, we told you that we've been experimenting with the category-based pricing, and we have been developing a framework for city and category-based charging. And that framework is now being adopted by larger number of newer sales and that is resulting into the higher ARPU. So it is only when certain categories, which are a very high-value product there only the price has been increased, which is reflecting in the ARPU, but at the entry level of categories, there has not been an increase in the price. And the churn also at the gold and platinum level continues to remain at around 1% per month.

[Jasdeep Walia, analyst]

Got it, sir. So my second question is what's the growth in gold and platinum subscribers, both in terms of number of subscribers and in terms of sales to gold and platinum clients?

[Dinesh Agarwal, executive]

So we don't directly sell in gold and platinum. We generally upsell from monthly and annual silver. So we -- so most of this growth is coming from upsell from silver monthly and silver annual. As I said, we remained at around -- we used to be at around 48-odd percent customers from gold and platinum. Now we are at around 50% of the customers from gold and platinum in the last 1 year, while the overall customer base has grown by only 15,000, I think the gold and platinum itself has grown by 8-odd thousand.

[Jasdeep Walia, analyst]

Got it, sir. And what's the growth in sales to gold and platinum customers on a Y-o-Y basis for this quarter?

[Dinesh Agarwal, executive]

I did not understand that.

[Jasdeep Walia, analyst]

Your revenue, which is coming from gold and platinum customer only, how has it increased on Y-o-Y basis for this quarter?

[Dinesh Agarwal, executive]

So as I said, about gold and platinum customers count about 50% of the customer count and about 75% of the revenue.

[Jasdeep Walia, analyst]

Got it, sir. And what was this revenue percentage last year?

[Dinesh Agarwal, executive]

So last year is about 48% and 72% -- 73% maybe.

[Operator]

Next question is from the line of Kushagra from Oldbridge Capital.

[Kushagra Bhattar, analyst]

Just 2 questions. So on this, what I see is the concentration at the top is increasing, right? So the question really is on the category saturation. I mean are your categories getting saturated, and hence, the star suppliers or the gold and platinum guys are gaining the most in those respective categories. Of course, them being able to corner a lot of lead generation, which is happening on your platform.

So the question is, are there challenges on the expansion within the existing categories? So are your existing categories sort of situating? And then sort of an attached question is -- for you to grow from here on, if we have to look at the growth levers for you -- what would be the growth levers and how important would be the expanding of categories in your overall growth drivers? That's my first question.

[Dinesh Agarwal, executive]

If you see on the category saturation side, if you see from, say, 3 years ago or, say, 5 years ago, our top categories used to be 5%, 6% of our total customer base, when we were like 150,000 paying customers. Now at 200,000 odd paying customers, the top categories are still 7%, 8%. So -- it's not that the categories have grown only on the top side of the platform. In fact, if you see this particular slide, maybe 4 years ago, I think you will see the percentages have not really changed. And so there are multiple categories which are available for us.

Similarly, for the cities also, we have been stronger in New Delhi. We have been stronger in Western part of the country, Maharashtra and Gujarat. We have been okay in Tamil Nadu, but we have not been so great so far in places like Karnataka, Andhra and Telangana. So I think there is still a lot more penetration, which is possible across many of those cities.

Third, so on the growth lever, as I continue to say, every year, our monetizable categories increased by 10% from the previous year. So if we had only 20,000-odd monetizable categories pre-COVID, today, we have about 40,000 odd monetizable categories. And similarly, if we had only 5 big monetizable cities. Now we have maybe 10 monetizable cities today.

So I don't think there is an issue with respect to either the growth lever or a near-term saturation. Having said that, I have still not been able to prove why the silver churn is not coming under control, while the gold and platinum customers are continuing to be a promoter of the platform and be a very, very strong user of the platform. I mean last month, one of the highest engagement in terms of buyer and seller both if you see all of those numbers are going highest ever. So there's something that has changed post-COVID that we are still not -- and lot of our manpower is also new. So we are continuing to struggle on that silver churn side. Other than that, there is no other problem.

[Kushagra Bhattar, analyst]

Okay. So to understand this better, what you were explaining for the category expansion and the cities available, let's say, for one of those industries, let's say, construction materials, you would be very heavy within -- you would be performing very well in Delhi, Maharashtra, Gujarat, Construction and Building raw material, the first one. And -- but Tamil Nadu and some of the southern states may not be as good.

So to understand this right, the question really was within the stage where you have already marked -- where you have already significant presence and the category is big for you, is there a case where whatever leads are getting generated within that particular category -- the top guys, the star suppliers are actually cornering more and more of it. And hence, the pain point is being felt by the silver and the smaller customers. Is this what's happening in your platform or not really?

[Dinesh Agarwal, executive]

So our platform works like this. So in terms of quantity, yes; but in terms of quality, everybody gets equal opportunity to participate. Our quality of the RFQs, whether you are a star supplier or whether you are a silver monthly customer the quality of the leads that you will see are the timeliness of the leads that you will see, there is no restriction on that.

However, yes, since you are paying INR 30,000 versus paying INR 3 lakh the quantity of the leads, you can consume higher. So there is an equal opportunity. Within that, yes, you may be competing with star supplier or leading supply because of the -- on every buyer. However, the younger suppliers also have this agility that they are the owner of the shop or owner of the factory directly deals with the buyer -- and the -- while the larger suppliers typically depend on some IndiaMart staffers, maybe 1 or 2 expert lead managers who work there as a lead management person for IndiaMart.

So I think there are advantages and disadvantage to both while -- so we are able to retain lesser number of the total customers that we used to onboard and used to retain versus the pre-COVID era. And that 10% lesser number that we are able to retain is making all the difference.

[Kushagra Bhattar, analyst]

Understood. Sure. This is helpful. The second question really is on the traffic and the underlying metrics. So if I look at your traffic now even on a quarterly as well as on an annual basis has been hovering around the same range of INR 25 crores, INR 26 crores, quarterly INR 100 crores to INR 110 crores a year. And the conversions basically, which is visible in those unique business inquiries are also holding on to that same 9 to 10 percentage.

So -- the question really is, are there sort of levers to -- for you to attract more traffic or sort of increase that unique business inquiries from here on? And also if you can give a sense on the traffic -- like which categories are getting more traffic and how the category mix has changed in your traffic despite the overall headline traffic number remaining stagnant for the last couple of -- last many quarters actually. Yes, that's my second question.

[Dinesh Agarwal, executive]

So while you are right that traffic seems to be stagnant, but Unique Business inquiries, if you see in this particular quarter have grown by 15% year-on-year. So they have been -- for the last 3 quarters, they've grown well. Yes, you are right, in the FY '24 -- in the first half of the FY '24 they did not grow, but now it is at a healthy run rate of about 100 million unique business inquiries for the year, which is even higher than the FY '21, '22 when there was so much a shortage of material and so much of shortage of medicine and other things.

So if you compare pre-COVID, I think we are -- which we are going to be about 30% higher unique business inquiries. In terms of traffic, yes, there is a flatness. And we believe that if that flatness continues, we will try and address that through the digital advertising and through the digital video advertising. But we have not yet going there. But if need be, we'll go there.

[Kushagra Bhattar, analyst]

Right. Just one last data question. If you can give us the gross adds number in first quarter, that's it.

[Dinesh Agarwal, executive]

We only disclose the net add numbers.

[Avijit Vikram, executive]

So next, we will take a question from the chat box. This question is from Abhishek Bhandari. So are we on track to achieve 20,000 paying subscribers additions in FY '25? Do we expect a significant improvement in net addition in H2 FY '25?

[Dinesh Agarwal, executive]

Given the last 2 quarters -- last 3 quarters of 2,500, 1,500, I'm in no position to commit any numbers on the net adds as of now. I can only say let's go quarter by quarter. And as soon as we hit 5,000, 6,000 again, and then only I can give you any year-end number. On the revenue side and on other side, I think most of our numbers are driven by collections, so that you know already what is going to come.

[Operator]

Next question is from the line of Vivekanand from AMBIT Capital.

[Vivekanand Subbaraman, analyst]

I want to start with the functional P&L that you presented where you have a disclosure between the customer service cost and the sales and marketing cost. So my question here is that yes, churn is an issue, and you are struggling with your manpower as well as perhaps consumer behavior or supplier behavior. But why are you cutting on the selling and marketing costs that is something I want to understand because we saw something similar payout in FY '21 as well, right?

You curtailed your selling and marketing costs. And then suddenly, when things opened up you then had to run to hire people. And that is currently still hurting you, right? Because you are saying that many of your sales and marketing staff members are new. So why curtail this in the first place? I understand that you are curtailing gross adds, I understand that. But why curtail manpower [indiscernible]. That's question one. And do you want me to ask the second question? Or do you want to respond...

[Dinesh Agarwal, executive]

I think about the last 3 quarters, we have been trying to do is to cut down on the areas where -- to identify the area whether cities or the category, where we were onboarding customers and losing them at a faster speed. So what we have tried to do is cut down on those areas. And that is what is being reflected here. As a percentage -- also as a percentage of revenue, there is some bit of a natural leverage that is coming because the most of it is coming from customer service cost. So customer service cost is the manpower of the existing customer servicing. And sales and marketing is the manpower of the new client acquisition side.

So we have only curtailed on the gross addition side -- and we will -- as soon as we get the handle on the churn, we will probably reinvest on that. But you are right, we should not go quite up and down from 17% to 14% like that.

[Prateek Chandra, executive]

Also, Vivekanand, this selling and marketing, essentially, this is a cost of acquiring a new customer. And roughly around 50% of our sales comes from the channel partners, wherein the cost is completely variable to the acquisitions made in that particular quarter. So in case if there is a change in the acquisitions, this cost will accordingly move lower or higher for that matter.

[Vivekanand Subbaraman, analyst]

Your channel partner strategy remains the same. Is that correct, that's the approach of adding new suppliers, new paid suppliers, half of them are still coming via channel partners even though you have curtailed gross adds?

[Dinesh Agarwal, executive]

Yes, by and large, yes, by and large.

[Vivekanand Subbaraman, analyst]

Okay. And sir, if I may press a little bit on this, the in-sourcing strategy that you were discussing about does -- that hasn't had any bearing on this channel partner model at all, is it? Or am I confusing...

[Dinesh Agarwal, executive]

So there are 2 things. One is our own -- see there are about 50% sales were coming from our own staff, but they were not on an IndiaMart role, they were on a third-party temp staffing role. While there is channel partners, the channel partners have their own different-different channel partners at their own. So what we have done is stop using a third-party payroll temp staffing service because to contain the employee attrition a bit.

And in the last 2 quarters, I think employees attrition has come down, which should help us increase the -- increase the efficiency. And some of this has also resulted into reduced cost of customer acquisition on a gross basis. However, on a net basis since the churn is so high, the net customer addition pathway still looks very, very high. But those efficiencies have also resulted in improved operating margin.

[Vivekanand Subbaraman, analyst]

Right. Okay. I know Kushagra asked this question, how much can you stretch the ARPU lever and -- if you can help us understand, like we know that the top 1% ARPU is almost 4x of that of the top 10%, within the top 1% also, is there a very big differential in the ARPU? Or are they -- are these 2,000 paid suppliers roughly paying something similar? I'm just trying to understand what would be the highest that a supplier is spending on IndiaMart? Is it like INR 5 crores, INR 2 crores. Is it that big? Or is it very closely?

[Dinesh Agarwal, executive]

INR 50 lakh.

[Operator]

Next question is from the line of Nikhil from Nuvama.

[Nikhil Choudhary, analyst]

My first question is again on margin. I just want some clarity here. So Prateek, what you mentioned that we generally pay lower to channel partner when there are less supplier addition, but that should not impact your margin on Q-on-Q basis, right? Given supply addition remained low since last 2, 3 quarters?

And second thing, again, here is what Dinesh sir mentioned that the sales and marketing expense is lower because of less gross addition, and that's why we are not investing. So are we saying that given we don't have clarity in terms of what is causing the higher churn. That's why we are controlling the spend on sales and marketing. As soon as we, let's say, figure out the challenges in algorithm or some other issue will start pressing the case again, which will help us in supplier addition and will lead to, again, increase in sales and marketing?

[Dinesh Agarwal, executive]

To some extent, yes, because if I want to go aggressive on the gross addition -- until I have a sufficient visibility on the churn, I don't want to because we acquired customers at -- who will pay me INR 3,000 a month. So until and unless he pays me for a 6, 9 months period, it will be a loss making customer to us. So if we are not sure of retaining the customer then why unnecessary -- I mean, not that we are reducing the gross addition, but we are not growing the gross addition.

[Nikhil Choudhary, analyst]

Sure, sir. Just trying to understand it better. Let's say, what you mentioned earlier that Tier 3, Tier 4 customers, which were -- you acquired earlier and leading to higher churn, then the cutting cost on those areas, why we are not investing in the area like you mentioned that we are not very well penetrated in Karnataka, right? So why...

[Dinesh Agarwal, executive]

We are doing that. So we are -- that's why I said -- on the overall gross addition, we have not reduced. I think we are still at 95% of the highest ever gross addition, okay, 5% plus/minus keeps happening. But -- so we have cut down from those areas and doubled down into the metros and those areas.

[Nikhil Choudhary, analyst]

Okay. So last one on margin, sir. Let's say, in steady state where you are adding a supplier at INR 5,000, INR 6,000 per quarter. Where should be your margin when you will be again spending on sales and marketing, you will be again spending on servicing, assuming whatever operating leverage you will still have. So what would be steady state margin in that scenario?

[Dinesh Agarwal, executive]

Too imaginary to tell because by that time, if this salary certainly change has happened in 2022 and '23, all my [ professionals ] go back. Otherwise, I would have -- during the COVID, I guided you for 35%, but suddenly the salary market changed big time, so the guidance went back. So I think let's just see next 2, 3 quarters -- and then come back there.

[Nikhil Choudhary, analyst]

So Dinesh Sir, basically, what I want to understand is, would we be investing more compared to what we are investing now? And our margin can go down lower than [ 33% ]?

[Dinesh Agarwal, executive]

A bit more -- our normal operating leverage will also show up right? It is because we -- most of the gross margin is -- most of the margin is coming from top -- gross margin bucket, not from the bottom sales and marketing and G&A and all that.

[Nikhil Choudhary, analyst]

Sure, sir. The second thing is last quarter, you have guided that you will achieve 5.5 K supplier in quarter 2 over quarter 3. This quarter, you said that we are not guiding any supplier addition. So what has changed between the 2 quarters?

[Dinesh Agarwal, executive]

Yes. I mean the first -- entire first quarter churn has been very, very stubborn. So for the entire quarter, we have been able to do only 1,500 net adds. So I'm still not able to see that by just doing Tier 3, Tier 4 cut here and there, those were anyway 10% of the overall customer acquisition. So I think the bigger issue is how do we handle Delhi, Bombay kind of a bigger geography churn. And we still don't have much answer on that. So I think we are going to make big changes on the product side now.

If you see the unique buyer to multiple -- do you have that slide, Avijit? The number of times a buyer is being introduced to a supplier. If you -- the ratio of total inquiries -- total business inquiries delivered to unique business inquiries. That ratio, we are slowly and slowly again converting. So that ratio, we are looking at probably going towards more like 4 from 6.

[Unknown Executive]

Currently, we are [indiscernible] 25 million inquiries and 128 will be delivered, currently we are at 5...

[Dinesh Agarwal, executive]

Yes, which used to be at 6 -- now I'm planning to bring that down to 4.

[Nikhil Choudhary, analyst]

Sure, sir. Understood. Just the last one in terms of data. How much is your churn in silver, gold and platinum category?

[Dinesh Agarwal, executive]

So gold and platinum, less than 1% per month. And silver monthly is about 6% per month, and silver annual is about 36% -- 3% to 4% per month.

[Nikhil Choudhary, analyst]

Sure, sir. Churn actually slightly increase in platinum as well because last quarter, you mentioned 0.5%?

[Dinesh Agarwal, executive]

0.5% in platinum, 1% in gold.

[Avijit Vikram, executive]

So we have another question from the chat box. The question is from Mr. Girish Shetty. Is there any common feedback you are getting from the silver customers who are not renewing?

[Dinesh Agarwal, executive]

I think people are saying -- and that is why we are acting on the competition side. People are saying that it is difficult to do the maturity. There are buyers, but they are not yet converting. They are very price-sensitive buyers. The buyers have become very price sensitive. And we are not able to mature. So that is something has led us to introduce one buyer to lesser -- earlier, we used to do 6 suppliers now at 5, and we are planning to go towards 4 may be.

[Operator]

Next question is from the line of Mr. Amit Chandra from HDFC Securities.

[Amit Chandra, analyst]

So my first question is, obviously, we have seen the growth coming from the ARPU. But if I see the ARPUs in the top 1 and top 10 customers that there the growth has been much higher than the average levels. And if I see the increase in the top 1 customer that has been almost flat or 4% to 5% Y-o-Y. So most of the growth in ARPU is coming from the existing customers. So is it fair to assume that the existing customers are buying more. And so if you can explain what kind of value-added services they are getting versus others?

And also in terms of the churn that you mentioned, that's difficult to judge what is causing the churn. So if you can throw some light in terms of the selling process, is there some misselling happening from the channel partners and in terms of how the acquisition engine and the renewal engine functions? Is it the same person who is acquiring -- he is doing the renewals? Or there is some separate teams for both?

[Dinesh Agarwal, executive]

So we have separate divisions for new client acquisition and silver customer servicing and key clients division, which serves mostly gold and platinum customers at various places. For Tier 3, Tier 4, we have a centralized team here in Noida as well as in Chennai for Tamil speaking areas, Tamil and Malayalam speaking areas. For the silver monthly, we have a dedicated customer team again here in Noida and one in Chennai. So this is how our divisions are structured.

In terms of ARPU growth. So yes, you are right because most of the changes have happened at the platinum level, it is not the price increase, but it is the price rationalization for categories, which are of higher value and the price rationalization for categories, which are of the lower value. Earlier, there was a flat price for everything. So it has actually become more rationalized pricing for the customer as well as better realization for us. And as I said, we haven't changed any pricing for silver monthly and silver annual customers in the last 5, 6 years. The only change that we did was during the COVID where we passed down 20% discount, and we removed that discount in end of FY '22.

So that's the -- so the most of the -- and that's the strategy also. So that -- at the bottom of the pyramid, you play the leadership role, whereas the marketplace becomes more richer and richer in terms of data and in terms of verified supplier availability. And once you have enough number of suppliers, and it is able to attract enough number of buyers then you monetize the suppliers who are competing with each other to go towards gold and platinum for more and more buyers and RFQ [indiscernible].

In terms of number of customers, net customer growth in the top 10 customers, yes, if we have only moved from 200,000 to 215,000 in the last 5-6 quarters, the top 10% has also increased only from 20,000 to 21,000. However, from the 20,000, if you really see, there was 10% -- 10%, 12% of the churn, that also got filled. So most of the upgrade is happening from the silver monthly and silver annual towards the gold and platinum.

In fact, this year, we have seen a lot more number of gold customers over the last -- that came because of the 50,000-odd customers that we increased in the FY '23 and mid of FY '24. So that is what has resulting into the continued growth. And if this customer growth stagnates for a longer period of time, as I said earlier also, it can become a problem for any marketplace.

[Prateek Chandra, executive]

And Amit, just to add, when you look at the overall ARPU increase in the gold and platinum subscribers, it's also indicative of the fact that the ROI that they guide that justifies the extra ARPU that they are willing to pay for subscription to IndiaMart. And we have not seen the churn increase despite this increase in the ARPU in the gold and the platinum category. So that's a sticky customer base, which continues to pay us more for the ROI that they are already deriving out of the platform.

[Amit Chandra, analyst]

So obviously, what we're trying to understand is what value the top 1 and top 10 customers are deriving. Obviously, it's the power of the platform, wherein they are getting the bulk of the traffic, but in terms of the silver monthly, is it very different in terms of how the platform functions for silver monthly versus in terms of RFQ generated or in terms of quality of leads being generated...

[Dinesh Agarwal, executive]

The only difference in the quantity, nothing -- no difference in the quality of the lead. Only difference is you get more inquiry, more visibility, but it does not differentiate between the RFQ quality being distributed either to a silver or to a platinum.

[Prateek Chandra, executive]

And in fact, most of these customers, which are in gold and platinum from the silver category itself. These are customers who have been able to build a team, call up on leads, convert customers well. And that is when they have transitioned to a gold or platinum subscription base. So therefore, the gold and platinum subscribers are coming in from that same base of silver itself, just that they've been able to use the platform a lot better than some of the other silver subscribers.

[Amit Chandra, analyst]

Sir, lastly, are we seeing any risk from the ONDC or -- is ONDC an opportunity for us, wherein it can create an additional channel in terms of the MSLs?

[Dinesh Agarwal, executive]

Whenever they become popular enough for -- to be able to attract a B2B, I think it will be good for us. They are only trying to do very few categories like taxi and food and maybe some grocery little bit.

[Amit Chandra, analyst]

Are we having any plans to go live on ONDC or any like...

[Dinesh Agarwal, executive]

Until and unless they become popular enough in the B2C category and -- there is no point being a very early adopter there.

[Operator]

Next question is from the line of Rahul Jain from Dolat Capital.

[Rahul Jain, analyst]

Sorry to go into this question, which has been asked so many times, but in a different way this time. While you're trying to solve this attrition issue or subscriber issue, whatever you want to call it. Have we done any analytics around the age demographics or, let's say, [ digital ] behavior profile of the retail subscriber versus high attrition to understand a much more deeper cause of it rather than the numerical part of it?

[Dinesh Agarwal, executive]

We are doing a lot more case studies, lot more statistical analysis within the same category, within the same city, some of the customers end up doing better and some of the customers end up having a lot more to tell us about why this platform is not working for them. So there are [ confirmatory ] things available. One of the most common thing is that we could see is that it is becoming very, very difficult for us to mature the buyer. And that is why we are trying to reduce the competition, manage the competition within the marketplace. So that's one thing that has come out clearly.

Other than that, not anything very common that is emerging. Some of the time is very -- many suppliers are very hyper local suppliers. So I don't want to deal outside of the Noida, Greater Noida. While IndiaMart as a platform, historically, was a global platform, then became a national platform, then became a regional platform. Even today, it's not a hyper local platform. I mean, you can't have that I only deal in the sector 18 and around in Noida.

So sometimes, some of those customers who come in, they come with the wrong expectation. But other than that, mostly, it is with respect to either maturity not being there or we are getting very retail buyers, because IndiaMart had become popular during the COVID even for medicine, even for consumer items because consumers were -- so a lot more retail buyers end up coming to IndiaMart despite the fact that there is a minimum order quantity written on the platform. The price is so lucrative, because IndiaMart is majorly known for 2 things. One is a variety of products, variety of suppliers. And the number 2 is the cheapest price, because IndiaMart does offer the cheapest price for anything.

In order to -- and there is no way to avoid retail buyers coming on to any web platform. The only thing that we can do is not reform their inquiries or not reform their RFQs because if we are -- if there is -- if we can identify that this buyer is a retail buyer then do not match make him with 3, 4, 5 sellers. So these are the 2 common feedback that we are getting difficult maturity and retail buyers.

[Rahul Jain, analyst]

Okay. I think that's very helpful. Just one more thing on the ARPU side. We've seen significant improvement. So is there -- I mean, obvious things unknown. But is there anything you are doing specifically to raise the value for the high-paying subscriber that is driving this kind of a growth -- and what is the more sustainable growth in ARPU for FY '25 and '26 if you have that in your mind?

[Dinesh Agarwal, executive]

So on the value front, the effectiveness -- the effectiveness of relevant matchmaking is increasing. The hiring engage the supplier is -- the better we have his behavioral data, so we are able to push the more right kind of inquiries and RFQs to be -- and that happens even better for a platinum or gold subscriber because we have a very large number of data points, which kind of lead his purchasing and which kind of lead he is not purchasing.

So that's the value system because if we have no data about you, we will try to send you buyers only from your locality and for all categories that you have indicated. But if we have data about you, then we are able to send -- show you more RFQs, which are of your area of interest and of your categories of interest rather than the categories that you've indicated initially because your behavior is a lot more repetitive -- and since gold and platinum has almost like a daily basis, they use the platform, they end up leaving a lot of footprint on the platform for us to be able to do a better matchmaking for them. And that helps them get a more relevant leads. So that's a general algorithmic thing that is built into the platform. The second question was?

[Rahul Jain, analyst]

Yes. I appreciate the color. I mean you touched on important element where you said you can't help out much in terms of retailer -- retail buyer coming on to the platform. But definitely just like you have taken better control on the telesales part of it. Maybe the next step over a period of time would be to take care of the customer acquisition, the channel partner think eventually into the system, wherein the understanding of the onboarding process and where is the mismatch happening in terms of expectation versus outcome would be more closely monitor within the guardrails of the organization. I think that may probably helped at least on an incremental basis, if not for the existing set.

[Dinesh Agarwal, executive]

Thank you. Good suggestion.

[Operator]

Thank you, ladies and gentlemen. That was the last question for today. I now hand the conference over to Mr. Dinesh Agarwal for closing comments. Over to you, sir.

[Dinesh Agarwal, executive]

Thank you very much, ladies and gentlemen, for joining our quarter 1 FY '25 conference call. We have tried to address your queries in the time available. But if you still have any questions, please feel free to connect with our Investor Relations team. Their contact details are available on our website. Thank you very much. Have a great evening, and see you next time.

[Operator]

Thank you, everyone. On behalf of IndiaMart, we now conclude this webinar. Thank you for joining us. You may now disconnect your lines.