Indiamart Intermesh Ltd

NSE:INDIAMART

Earnings Call Transcript 2023-Q2

[Kushal Maheshwari, executive]

Good afternoon, ladies and gentlemen. I'm Kushal Maheshwari, Head of Investor Relations. And on behalf of IndiaMART InterMESH, I welcome you all to company's Q2 FY 2023 earnings webinar. [Operator Instructions]

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

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

[Dinesh Agarwal, executive]

Thank you, Kushal.

Good evening, everyone, and welcome to IndiaMART's Quarter 2 2023 Earnings Webinar. We have already circulated our earnings presentation, which is available on our website, as well as the stock exchange website. I'm sure you would have gone through the presentation, and I would be happy to take any questions afterward.

We are pleased to report that IndiaMART has delivered a consolidated collections from customers of INR 264 crores and revenue from operations at INR 241 crores this quarter. This growth was primarily driven by increase in the number of paying subscribers and additional INR 11 crore revenue coming from the Accounting Software services. Consolidated deferred revenue during the quarter increased to INR 984 crores at Q2 FY '23. The growth momentum was primarily driven by strong recovery across industries, backed by strong client demand for digital services. Total traffic on the platform and resulting unique business inquiries remained stable at 261 million and 23 million, respectively. Our 90-day repeat buyers is standing at approximately 53%, represents the continued trust on the platform.

The financial performance during the quarter was primarily driven by growth in the key operating metrics, which reflects customers' confidence in our service offering. During the quarter, we have added 8,832 paying subscribers, closing the total count at 188,000 customers at the end of September 2022.

Overall, we ended the first half of FY '23 on a positive note and expect to continue to build upon the growth momentum. We will continue to invest behind the business in line with our strategy.

Now, I will hand over the call to Brijesh to update you on Busy accounting information.

[Brijesh Agrawal, executive]

Thank you.

Good afternoon, everyone. Let me get started with the updates on Busy.

We have delivered a billing of INR 11.5 crores and a revenue from operations of INR 10.8 crores this quarter. The EBITDA in Q2 has been at about INR 3 crores, which reflects a margin of about 28%. The net profit for the quarter has been at INR 2.9 crores.

Now the underlying strength of this business is highlighted from the fact that Busy has generated positive cash flows from operations of about INR 10 crore in the first half of this year alone. During this quarter, we also sold 7,302 new licenses, with the over licenses -- overall licenses sold to date being 3.18 lakh now.

As you are aware, Busy has been our first acquisition, and it also is a very significant one for us. And therefore, we have been very cautious in managing this entire acquisition per se. You'll be glad to know that we have been successful in managing the transition, post-acquisition. The team is very, very stable. The business has started to achieve growth. We, in fact, now focused on increasing our team so that we can onboard more number of standard partners and also improve our penetration across all the underpenetrated markets in India.

When we started off the year, we had shared 3 goals for this year for Busy. One was to go ahead and double the rate of growth of the business, second was to go ahead and invest behind building up a team and awareness of the product, and the third was to increase the overall number of new licenses being sold. The overall performance is in line with our expectations, and we are confident of meeting our goals that we've set out for this year, especially doubling the rate of growth of the business.

Now with this, I'll hand over the call to Prateek so that he can discuss about the financial performance of IndiaMART. Thank you.

[Prateek Chandra, executive]

Thank you, Brijesh, and good afternoon, everyone. I will take you through the financial performance for the quarter ended September 2022.

Consolidated revenue from operations was INR 241 crores in the quarter, registering a growth of 32% year-on-year. Deferred revenue during the quarter stands at INR 984 crores, an increase of 30% year-on-year basis. On a like-to-like basis, standalone collection from customers, revenue operations and deferred revenue were at INR 252 crores, INR 229 crores and INR 958 crores, representing a year-on-year growth of 13%, 26% and 27%, respectively.

As communicated in the previous quarters, the company continued to invest behind growth, primarily in building manpower across sales, servicing, product and technology. During the quarter, we have added 253 new employees, taking total employee head count to 4,088. Consolidated EBITDA for the quarter stood at 28%.

Other income during the quarter increased to INR 47 crores. That includes fair value gain of INR 14 crores in 2 of our strategic investments, namely Legistify and Bizom, that has led to the rise in the other income. Net profit for the quarter was INR 68 crores with margin of 24%, and cash generated from operations during the quarter was INR 78 crores, while cash and investments balance during the quarter stood at INR 1,975 crores.

Thank you very much. We look forward to answering the questions.

[Kushal Maheshwari, executive]

Thank you, Prateek.

We will now begin the Q&A session. [Operator Instructions]

[Operator]

The first question is from the lines of Pranav Kshatriya from Nuvama Wealth.

[Pranav Kshatriya, analyst]

I have some clarity on the cost escalation side. So if I look at honest test, the Technology and Content cost as a percentage of revenue has seen almost 140 basis point expansion. That is almost at 19.4% as a percentage of revenue. This number in FY '20 was also a lot lower than where it is today. So what is driving this growth? And -- because I don't think that we are adding too many new listings or anything like that, so what is the reason for such a sharp increase in the technology and the content cost? And how should we go this going forward? And any sense on the overall the cost structure?

Secondly, I also wanted to understand the costs for Busy because last quarter, the EBITDA was around INR 5 crore, which came down to around INR 3 crores. So what is driving this decline in the cost -- sorry, increase in the cost?

[Prateek Chandra, executive]

Sure. Thank you, Pranav.

So the first part of the question on Product and Technology costs. So essentially, as you know, that most of the cost is manpower. The increase in the Product and Technology costs that you're seeing as a part of the functional P&L is also driven by increase in the headcounts. So if you see the number of people in Product and Technology that we had in this year is roughly around 780 people, as opposed to 685 in the last quarter. And the year before, if you see, there were more like 475 people. So there is a sharp increase that has happened in the Product and Technology, largely because you see that the number of customers that have also gone up, and we need to add people in order to keep in line with the growth and the different product offerings that we have.

[Dinesh Agarwal, executive]

Also, I think from FY '20 onwards, we hadn't hired anybody so there was a pent-up demand of people, and that we also backfilled. And that is how you see. But if you look at the overall cost structure in the gross margin, the gross margin from 68%, 72% and -- has still started to go up much better than the pre-COVID. Pre-COVID, it was 72%. We are currently running at 76%, 77%.

[Pranav Kshatriya, analyst]

Okay.

But should we expect this cost to increase, or this was stabilized at the current level? How should we see this going forward?

[Dinesh Agarwal, executive]

As I've been guiding, there's a lot of volatility in the market in terms of talent availability and pricing of the talent, and especially in the technology. You have seen in the multiple companies, even the larger companies, efficiencies are high. So on the tech side, I'm a little uncertain on the -- commenting anything have been going wrong in the last couple of years.

On the sales side, since we are adding about 8,000, 9,000 customers per month -- per quarter, so I would require at least 150-odd people to service them additionally. And we still have some backfill demand to be filled. So I think the next 2 quarters, you can expect our manpower count to keep going up significantly as in the current quarter. And then, maybe we can start to stabilize.

[Prateek Chandra, executive]

Sorry. To your second question on Busy, Brijesh?

[Brijesh Agrawal, executive]

Pranav, on Busy EBITDA. So the increase in cost that has happened is principally on the count of manpower. We've invested behind customer service very significantly. We've added people across the organization, including sales, non-sales functions, and that is one of the primary drivers of a lower EBITDA than what you saw in the first quarter.

[Operator]

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

[Vivekanand Subbaraman, analyst]

I'm keeping the audio on but camera off due to bandwidth constraints. I hope that's fine.

So my 2 questions. So one is the [ pay ] supplier addition outlook. So it's tracking your guidance, but any color on how this is likely to shape for the next 12 to 18 months? And what can you do to accelerate this 9,000 to maybe 10,000, 12,000 in fiscal '24? So that's one.

Second, further to Pranav's question on the Tech and Content expenses, point well taken the Tech and Content expenses, the percentage of sales going up because you have backfilled some people. And I noticed that the gross margins have gone up from 72% to 76%, so any sense on how we should think about the gross margin number in the next couple of quarters? Because some of the sales people that you have added in the last few quarters, I think by now, they may have matured and started contributing in pay customer addition.

[Prateek Chandra, executive]

First question was?

[Unknown Executive]

Paying subscription addition.

[Prateek Chandra, executive]

So on the net customer addition...

[Dinesh Agarwal, executive]

historically, this is the -- I think after 5, 7 years -- 5, 6 years, we have been adding about 20,000 customers, plus/minus 2,000, 3,000. And this year, if you look at till the date, we've already added 9-plus -- 10,000 plus 9,000, about 19,000. And as I guided, because we started ramping up last year similar time. And as you know, the first year churns are higher, next year churns are lower and then the third year churns are even lower. So the churn will -- is catching up, and that is why I've been guiding 8,000 to 9,000 customer addition because overall, when you are gathering new customers from newer industries or from going lower down the line, then this particular thing is to be taken care properly. And that is why for the next 4 quarters, I would say if we can maintain 8,000 to 9,000 and stabilize at that particular level and improve the churn back to pre-COVID levels, then only I would like to invest again in increasing -- accelerating the growth of new customers.

On the gross margin side, because we had this 82% or 80% was a complete aberration due to lockdowns of COVID and we haven't been hiring, and offices were also closed so admin cost and everything was saved. Now that we are back to this 76%, 77%, I would say that our target remains to somehow reach 80% by next year or so. So if we can get to 80% by sometime next year, that should be our target on the gross margin side. Thank you.

[Vivekanand Subbaraman, analyst]

Okay.

Dinesh, you just -- one follow up. Very clear on the new customer addition guidance. But if you could help us understand the churn of customers, the Silver Monthly currently, and you said that you want this to go back to pre-COVID level soon. So where do you stand now versus pre-COVID across the key packages?

And the other one, just a follow-up on the gross margin number. So 80%, you said by end of next fiscal, is that how I should look at it?

[Dinesh Agarwal, executive]

Yes, 80% sometime next year. It is impossible for me to predict 6 quarters, but sometime next year.

On the churn side, look, I think we have 80% to 90% at pre-COVID levels. We are still 10% to 20% behind pre-COVID levels because of the so many uncertainties happening every quarter, some or the other. I mean last quarter, there was war and inflation, and this quarter, there's an interest rate increase and all that. But in terms of churn, Gold and Platinum remains at less than 1% per month. Silver annual and multi-year remains at about 2%, 2%, 2.2%, 2.5% per month. And Silver Monthly, as I've guided earlier, it remains at 5% to 6% on a net customer basis. And since we have started to add customer base quickly in the last 9 months, I think we can see some volatility in the Silver Annual and Silver Monthly customer. But Gold and Platinum is very good at less than 1%.

[Vivekanand Subbaraman, analyst]

Okay.

And lastly, Dinesh, you don't think that this is because you are gathering customers across new categories or those who are lower in categories where you already have a lot of free supplier. It's not because of that, right? or I'm just curious because maybe when you add customers in categories where you already don't have paying suppliers, maybe the churn is higher in those categories. I just like to understand churn better.

[Dinesh Agarwal, executive]

Actually, it is contrary to that. The categories where IndiaMART works, where the competition is higher, then if the ARPU is also higher, retention is also higher. Where we -- probably we have yet not found the product market fit or the industry fit. There, the churn is higher because wherever we have found the product market fit better, the competition keeps going up. And still, we have seen that churn keeps going down.

[Operator]

Next in queue, we have Anmol Garg from DAM Capital.

[Prateek Chandra, executive]

Anmol, we can't hear you.

[Anmol Garg, analyst]

Am I audible?

[Dinesh Agarwal, executive]

Yes, Anmol.

[Anmol Garg, analyst]

Yes. Actually, I have a couple of questions.

Firstly, is my -- right that we would be -- because we are adding 8,000 to 9,000 customers, which is a higher number as we used to earlier. So would it be right to say that most of these customers would be monthly in nature?

And secondly to that, would that mean that we can expect some ARPU increase going in next year, given that earlier, whenever we used to add more monthly customers, then there's a tendency that they upgrade in next few years. So can we expect that the ARPU will increase in the next year going forward? That is question number one.

[Dinesh Agarwal, executive]

Historically, when the customer growth slows down, yes, you are right. As the customer moves up the tier, things improve. But historically, there has been a lot of disruptions in the market, and that is why we could not scale up on the customer.

I don't think we will continue to have many more disruptions every year like this. So I expect that if we -- I mean, my wish list is that if we can continue to grow the customer base by 20% or so. And ARPU, even if we stabilize or grow by 2%, 3%, that's fine rather than 5% per annum.

[Anmol Garg, analyst]

Sure. Sure, Dinesh.

And secondly, wanted to have your views on the ONDC plan, ONDC process. So I understand that it's still early days, however, if you can highlight that what has been our thoughts internally? And if we do go on to the ONDC process, so would there be any change in our business model?

[Dinesh Agarwal, executive]

No, I think in case ONDC succeed, and it would be beneficial for everybody in fact because it will be an open platform where anybody can plug in. We -- if tomorrow, first, it will -- has to work, then it will have to work for B2C categories. And then maybe later at some point of time, it might be open and it might be possible to do even B2B there. But that's a probably slightly longer duration for a B2B platform.

I would say over the next 2, 3 years, let us see what is the success rate of ONDC in the B2C e-commerce market, in the digital goods market, and then we will come to the wholesale or not. I'm sure it will present a lot more opportunity on the buyer app side and the seller app side. Even for IndiaMART to aggregate more suppliers or to aggregate more buyers using ONDC platform, whenever that happens.

[Anmol Garg, analyst]

Sure, sir.

So that would mean that immediate plans are not there to go on to the ONDC right now?

[Dinesh Agarwal, executive]

No. I think currently, it is very, very limited and open to mostly B2C hyperlocal deliveries. Then it will go on to probably national deliveries, it will go on to digital goods like tickets and all, and then I think we'll come to the normal discovery search engine.

[Anmol Garg, analyst]

Sure.

And just one last question, if I can ask.

[Dinesh Agarwal, executive]

Please go ahead.

[Anmol Garg, analyst]

So the question is for Brijesh. So I just wanted to understand that what is our strategy regarding the investments that we have done? Why you highlighted for the accounting softwares? But if you can highlight for the other companies that we have acquired as well? And if we are getting any synergies from these companies in terms of our own paid supplier additions as well as the customer additions for our associated companies as well.

[Brijesh Agrawal, executive]

Sure. Can we go to the strategy slide for the expansion?

So Anmol, I will go back and refer to the overall [ space feed ] that we had shared in our earlier calls also. So how we are looking at evolving from being a discovery and a conversational commerce platform to an actual [ 2-commerce ] platform. Our overall strategy has been focused on enabling commerce, enabling businesses. If you see most of our investments that we've made in this phase, has been around business enablement. We have looked at companies, obviously, in accounting space, we have looked at procurement, we look at payroll, we've looked at legal compliances.

So the thesis is that how we get these enabling tools made available to these small businesses. Our view is that when we make these investments and when we work with these associate companies, we try and understand how we could go ahead and collaborate on with these associated companies and help them either expand their market or attract a larger number of customers.

But all of these things essentially go ahead and take some time. We are very, very early in terms of these investments that we've made. If you look at the overall timeline itself, most of these investments have happened in the last 1 year or so. So we are investing time in each of these companies, we are trying to assist them with whatever we can at this point in time.

However, when we look at deeper integrations with them, we will continue to do this as we build better use cases, better understanding. So in fact, one of our earliest investments which is Vyapar, we shared earlier, we now help them acquire newer customers using our base. We invested in them in 2019 itself, so it took us a while. And therefore, even for these recent investments, I think time will be an important factor before we could share with you what would be the specific synergies with those businesses.

[Operator]

The next question is from the lines of Deep Shah from B&K Securities.

[Deep Shah, analyst]

Am I audible?

[Dinesh Agarwal, executive]

yes, please go ahead.

[Deep Shah, analyst]

Yes. Sir, I wanted to understand a bit about how have the incentives moved up this quarter? Because the feeling was that once recovery commences, it will be relatively easier for us to convince more SMEs to come on the platform. While that has happened, it is also coming at a steep cost in terms of incentives payout to the sales personnel. So if you could help about what is on the ground feedback you're getting about the macro recovery. And how do you see these incentives shaping up as we try to accelerate growth in terms of bids and supplier additions?

[Dinesh Agarwal, executive]

So in terms of macros, it remains mixed. At the last many, many quarters, it has remained mixed. When COVID happened, there was so much tailwind to go online. On the other hand, people who are running out of businesses. Currently, also, if you see on one side, there's interest rate rising. So I guess we are probably seeing much, much, much decline on COVID-related items like sanitizer, medicine and other things. There's some -- there's still some demand left from foreign countries a little bit here and there, but mostly, that has subsided.

So I guess on the macro side, nothing much changes big time ever since the one-time upgrade of the COVID adoption has happened.

Now coming to the incentive side, I don't think anything material has changed. Mostly the cost structure has remained more or less similar, our cost of customer acquisition also has remained more or less similar. As we have grown more number of customers I think -- I don't think there is a material change required in the sales incentive. So in general, salaries have increased by 20%, 30% in the past year, and they continue to be under pressure. But other than that, I don't think there has been a big change in the sales incentive or anything.

[Deep Shah, analyst]

Right. This is useful.

Sir, secondly, I wanted to ask a bit about the product. So pre-COVID, we did a lot of product innovations. We introduced city-based distance, and then we had more slots for say, Platinum customers. So how should we think about pricing improvement? Will it be product led, or do you think there is a case to be made for increasing the tariff itself of different plans now that we've seen some fair recovery and we are able to add a lot more suppliers than before?

[Dinesh Agarwal, executive]

Yes. So there are 2 ways that we see it. One is the Silver Monthly, annual base level pricing. As I said, base level pricing more or less, we don't want to increase for now, and will remain more or less similar. We started from INR 2,000 a month, went to INR 3,000 a month, came back to INR 2,500, and I think that's the sweet spot, anywhere between INR 2,500 and INR 3,000.

On the Platinum side, if you see top 1% and top 10%, they have been increasing year-on-year -- quarter-on-quarter. So ARPUs have also been increasing and their contributions have also been increasing. I remember very clearly, we used to have top 10% contributing about 40% of our revenue, which has gone up to 47%, very -- and even the top 1%, last time I presented for the first time was INR 790,000 ARPU, that one has gone up.

So I think on that side, we are continuing to do more experiment in terms of Platinum listing and different ways of monetizing. And as I said earlier also, we still have some juice left there in terms of category city combination-based pricing. So I guess -- and we will continue to experiment there, and I don't think there would be a decline in the ARPU on the top slide. The top slide ARPU will continue to increase on a healthy 5% rate.

[Operator]

Next in line, we have Swapnil from JM Financial.

[Swapnil Potdukhe, analyst]

Hello, can you hear me?

[Dinesh Agarwal, executive]

Yes, we can.

[Swapnil Potdukhe, analyst]

Okay. Great.

So first of all, congrats on a good set of numbers. So I just wanted to understand on the collections side, so if I were to look at the standard of business collections, so those grew 13% on a Y-o-Y basis. I understand there was some base effect also. But going ahead, as we -- the base will keep on getting steeper and cheaper. And from that perspective -- and secondly, the customer additions that we are doing are mostly at the lower realizations. So how should we think about the collections growth here on because that will be important to track your revenue growth henceforth?

[Dinesh Agarwal, executive]

You're right, Swapnil. When we are adding customers at a rapid pace, especially at the bottom of the pyramid, we'll have to be little patient on increasing per customer collection because not -- within the first 3 to 6 months, you can't expect a repeat collection from them. So I guess it will take 6, 9 months. Currently, we are at 13% growth, but this particular season was also monsoon and so much disruption. I believe that after October, because October has the [ Shera ] and Diwali holidays, I think we should improve. And generally, we have seen in the last 5 months, things have been better.

And if you really see collections from customer on a stand-alone basis, historically on a larger trend basis have been trending at 20% CAGR. And we believe that we should be able to maintain that definitely.

[Swapnil Potdukhe, analyst]

Okay. So probably speaking, 20% is the number we should be working with in the near term, at least?

[Dinesh Agarwal, executive]

Yes. I mean, on a yearly basis, yes.

[Swapnil Potdukhe, analyst]

On a yearly basis, okay.

And the second question was on the cost of acquiring new customers. So I would like to understand like for every new customer, paid supplier that you add, what are the typical costs that you incur? If you could give some tense on that. Because despite the customer base growing, I understand that you also added some employees over here, but your margins have remained stuck -- have come down on a Q-on-Q basis, if I were to adjust the one-off of Busy acquisition last year in the core business, I'm talking about. So how should one think about that?

[Dinesh Agarwal, executive]

See, we give a number of the functional P&L. If you see in the functional P&L, there is a sales and distribution cost for every quarter, and you have the net customer addition for every quarter. So if you divide the sales and distribution divided by that net customer addition, that will give you a ballpark figure of the overall cost involved.

The cost has gone up on 2, 3 fronts. One, because we haven't added any cost, any people in the 18 months of the COVID-19 period, so I think there was a backfill that we had to do. And secondly, at the later part of the 2021, there was a huge demand for tech and sales talent, and there has been a re-rating of salaries. So on one side, there was a headcount increase, on the other side is that, so that is why you're seeing some pressure on the cost. But as I said, if you look at the gross margin, we were at 70%, 72% pre-COVID. We are already at 75%, 76%, 77%, and I think we will continue to strive for an 80% number sometime next year.

[Swapnil Potdukhe, analyst]

Okay.

And just on the margins, keeping on that one. So typically, 4Q is the weakest in terms of margins for us. We are already hovering around 28% in 1H. So would it be fair to say that your 2H margins would be even weaker than your 1H margins? And at an annualized basis, it might be lower than -- it will be closer to below pre-COVID levels of around 28% that time?

[Dinesh Agarwal, executive]

So Q4 is a very big -- because Q4, you get highest collection, highest cash flow from operation, and that is why we have now included one slide on slightly larger time duration so that you can see some seasonality on the collection from customers. The slide number is 62, 62, yes. Yes. 46 is more consolidated.

So on the same times, since the collections go up, the incentives and everything go up, but the cost is immediately factored-in in the revenue. So -- and that is why you see that typical dip in the EBITDA margin in the Q4. Ideally -- so the way to look at it is collection minus expenses is equal to cash flow, that's a better way to look at our business. And our deferred revenue which gives you more sustainable revenue over the next 20 months or so. So you may be right because if we are at 28%, 29% currently, it will definitely have a 3% kind of a hit in the Q4.

[Operator]

Next in line, we have Amit Chandra from HDFC Securities.

[Amit Chandra, analyst]

Can you hear me?

[Dinesh Agarwal, executive]

Yes, we can.

[Amit Chandra, analyst]

So now my question is on your initial comments that you made that one for an addition -- so for quarterly addition of -- on 8,000, 10,000, you may require an employee addition of around 180 to 200 people every quarter. So is -- so that comes to around 45 to 50 around like net additions per sales employee. So this ratio is going to remain at these levels, or can we see some like nonlinearity? Because you mentioned that the gross margins can, like, move up to 80%. So is this the factor to watch out wherein the sales growth will be higher than the employee -- employee cost of the employee growth? When can we see that like coming in?

And also on the sales hiring that we have been doing over the last 4, 5 quarters, so how do you like the sales efficiency there? And also, if you can comment on what has been the attrition and the sales people that we have hired? And have you seen some spike there or are you seeing some concerns in terms of productivity for the sales?

[Dinesh Agarwal, executive]

Yes.

So coming to the margin lever first. Historically also whenever the customer suddenly goes up, the margins are under pressure. But as the customers would migrate to higher level packages or next year, our cost of servicing keeps going down. So currently, since we are adding a whole lot of customers at the bottom of the pyramid, we need to add those. The way I divide them is 100 customers per person, and then for every 4, 5 people, 6 people, there's an assistant manager and then for every 4, 5, 6 people, there is the manager. So that's how it comes to about 60, 70.

And as these customers start to go up, which you have seen in the past also. As these customers start to move up, the margins will definitely improve. But since we are already running at 80% margin, I don't know how much more juice is left there on that side. I think gross margin side, no. But yes, on the net margin side, there may be possibilities but not in the near future in the next 12 to 18 months.

[Amit Chandra, analyst]

And sir, on the additions that we have been doing on a monthly basis. So as you said, that, like, migration to higher packages is the core of the business. So if you can give us -- if you can provide some more color that how the migration happened over the last, say, over the last 4 quarters? So how you track that maybe the -- in terms of churn or in terms of ARPU? Because if top 1 and top 10 ARPUs go up, then we can see that there has been a migration. But is that -- the ARPU that has gone up over the last 2, 3 quarters, is it because of the migration thing? Or is it because of some price increases that you have done?

[Dinesh Agarwal, executive]

So mix of both. The good part is that despite the fact that we moved from 150,000 customers to 190,000 customers in the last 1 year, we added -- but the top 10% customer base has also grown, the ARPUs have not had issue. So it is -- this again reinforces our previous thought that those customers who were acquired 1 year, 2 year, 3 year before, they continue to see more and more value and continue to renew better and upgrade better. The same is going to happen, but these 9 months, the newly acquired customer, we will know the typical upgrade pattern in the next 6 to 9 months. Historically, our typical upgrade pattern has been approximately 20% of the customers upgrade to higher services every year.

[Amit Chandra, analyst]

Okay.

So in terms of the total revenue mix, has the contribution of the Silver Monthly customers has gone up, Silver?

[Dinesh Agarwal, executive]

Yes. For now, it has. Because we did not acquire Silver Monthly, we could not acquire Silver Monthly for almost like 18 months. Sales force was not going, NACH forms could not be signed, things could not happen. So most of that churn also happened in the Silver Monthly bucket only. So now that we are adding about 2/3 customer at Silver Monthly and 1/3 customer at Silver Annual, so there's some increase in Silver Monthly customers.

But in terms of revenue contribution, it will still be very miniscule. Prateek can give you the revenue contribution. About 27%, 28% customers are in the Silver Monthly bucket, and they contribute about 18% of the revenue. So from 15% to 20%, they remain as a contribution to the revenue.

While top 10%, if you see in the last 3 years, it has gone up from 40% to now 46%, 47%.

[Amit Chandra, analyst]

So this top 10 customers will be how much of your overall Platinum customers?

[Dinesh Agarwal, executive]

No. I think that the top 10% customers, so today, there are 188,000, which means top 10% customer is 18,800 customer. So these 18,800 customers are very similar to what our Platinum customer account is.

[Operator]

Next in line, we have Anirudh Shetty from Solidarity Advisors.

I think Anirudh has left the call, maybe we can take up Vivekanand Subbaraman.

[Vivekanand Subbaraman, analyst]

Just on the point, Dinesh-ji, that you made on customers upgrading, Silver Monthly customers upgrading. Could you talk to us about the upgrade journey of these Silver Monthly customers? Is it similar across categories in terms of the number of months it takes for them to upgrade? Or is there anything to note here? I'm just trying to understand because you said that last 18 months, you've not -- rather during COVID, there was an 18-month period when you could not acquire monthly customers. Now, you have been doing that for the last 9 months. So how long will it take for you to upgrade these customers to Gold and Platinum?

[Dinesh Agarwal, executive]

It's a continuous process. Whenever you come to Noida, I'll show you how the cohort moves. About 2% of the customers in the year, there are 20%, so we start to pitch upgrade only from the third month onwards. Okay, third or fourth month, because we don't want -- somebody has been sold and immediately, we start to be upgrade. So we start once they have a 3 months of good thing, and then approximately 2% of the customers upgrade every month. And the most of the maturity comes between 6 to 18 months time, 9 months, 18 months' time.

So I guess -- and that's also a function of -- we were completely work from home, and then now we are trying to completely work from office. We are also trying regional centers, so a little bit of execution issues. But by and large, we have seen in many, many years, last 5, 6 years, it's by and large 2% per month. And it doesn't change too much by industry because our number of new customer acquired are also in the same similar manner as in the -- it might change by way of if there are private limited companies, if there are partnership firms, they tend to be more resilient and more adaptive than proprietorship firm with less than certain turnover. So as the company sizes are slightly bigger, they have a slightly longer-term view on the thing.

And as I said, those categories where we performed better, there -- and which are the categories on the top, if you see electrical and electronics, if you see construction, industrial, those are the categories where the upgrades are slightly easier because those are capital goods kind of item. In the fashion and a smaller value item, we are still not as good as this.

In terms of monthly customer mix, three year ago, we used to be at 33% customer. Now, we are about more like 27% customer. So overall if you see, the Platinum, Gold and Silver Annual multi-year has been increasing. We were trying to balance 1/3, 1/3, 1/3, but that's not always possible.

[Vivekanand Subbaraman, analyst]

Yes. Just one last question.

On the channel partner model that you were pushing for over the last 12 months, any update on that? What percentage of your new customer acquisition happens through channel partners, and how many are in-house?

[Dinesh Agarwal, executive]

Yes.

So as I said earlier, pre-COVID, 80% of sales used to come from our own field sales force, and about 20% from various online and telephone channels. Now with the channel, we are about 50-50. So 50% comes from channel partners and 50% comes from in-house case.

[Operator]

Next in queue, we have Abhishek Banerjee from ICSA Securities.

[Abhishek Banerjee, analyst]

Sir, just a couple of questions, right.

So did you just guide for a 25% to 26% kind of EBITDA margin for Q4?

[Prateek Chandra, executive]

So Abhishek, what we suggested was that our current margin is roughly around 28%. The way we advise everyone to look at the margin more on a yearly basis, because every quarter would have some kind of seasonality. So if you see about quarter 4, particularly in that quarter, we have our best ever collections, therefore, best ever cash generated from operations. There are certain costs which are linked to collections which hits our P&L in that quarter itself, and as you know, since the revenue comes from the deferred revenue, we are unsure as to how much of the revenue will come at that point of time. But there could be a scenario wherein the margin for that particular quarter could go down.

But as we said that it would be again a seasonal sequential quarter 4 dip, and then in the quarter 1, it would again kind of would come back to the similar levels because these costs, which were associated with the collections will not be there in quarter 1.

[Abhishek Banerjee, analyst]

No, that is fine. That I understand.

So are you still sticking to the full year guidance of around 20% to 30% EBITDA margin? Or are you kind of revising that downwards?

[Dinesh Agarwal, executive]

I think given that we were trying to add 8,000 to 9,000 customers in the last 2 quarters, we added 13,000 customers and 10,000 customers, so we have added 4,000 additional customers. And every time we acquire customers, we pay upfront cost. And then, the customers' long-term value comes over the next 3 to 5 years time. Most of our customers become profitable by 12 months or so, so that is why the more customers you acquire, the more upfront cost you incur. The good part of our model is that most of the cost gets factored immediately while the collections and revenues flow over a period of time.

So you may be right, we might be 1% or 2% here or there for the entire year. But as we guided, it will be 28% plus minus.

[Abhishek Banerjee, analyst]

Okay.

So basically, then the question that comes in is that what is happening with your efficiencies of scale from these at least employee costs, right? And that is obviously a very potent question in a business model, which is as manpower intensive as yours. So when do we actually kind of see the -- as your existing employees tenure, when do we see that impact come in?

[Dinesh Agarwal, executive]

So let's go back to the margin lever slide again. I can only guide based upon whatever has been historically done, and these 2 years, FY '21 and FY '22 were in operation. But we are back to 72% gross margin, which was there for the entire FY '22. And 72% of the cost is there, sorry.

So I think as we stabilize a little bit, it will start to improve, but it has been improving whenever you are around 20% growth rate. It is starts to improve by 3% to 4% every year. But as you keep going up, it will keep getting tougher.

[Abhishek Banerjee, analyst]

Okay. Fair enough.

Now if I move to the point of the acquisitions that you have made, right? So there is a lot of growth which is happening in the support, back-end support part of the B2B e-commerce space, right? Like, we have now seen Busy become a meaningful part of your P&L. What is next in line?

[Dinesh Agarwal, executive]

I think in terms of overall investments that we have made, it is about INR 1,000 crores, out of that, INR 650 crores has gone into accounting space. And within that, also INR 500 crores alone has gone into the accounting space -- into acquiring Busy. Busy, since it was acquired in one go with 100% acquisition, it immediately started to add revenue. We will see -- as I guided earlier, that for the first year, I don't want to disturb that acquisition. I just want to digest that acquisition. This is the first ever acquisition we have done.

Now, most others are minority investments. And those minority investment, we only get to see the share of profit and loss depending upon whether they are less than 20% holding or more than 20% holding, where we try and see if those businesses will become INR 50 crore to INR 100 crore, and at that point of time, we'll -- hopefully, if we find some of them good for acquisition, where we can increase to more than 51%. But that only -- another 2 years of time will tell.

[Abhishek Banerjee, analyst]

Okay. Fair enough.

And sir, what are -- I mean, what are the underground trends that you're seeing in this space? In the -- I mean, you are also trying to do an ordering and fulfillment kind of a function, right? So are you seeing anything there that is worth reporting?

[Brijesh Agrawal, executive]

The overall space, Abhishek, when you look at accounting or order management, fundamentally with the introduction of GST and with its implementation, there is a lot of positive movement that is expected in this space. Businesses will continue to use software to manage their compliances and slowly also start valuing improving customer experience using the software. So we remain positive.

Do we look at anything in the immediate term which is significantly different? No. There is a continuous improvement in the adoption of SaaS software, business software, accounting software by the small businesses, and we see that trend continuing for a long period of time.

[Kushal Maheshwari, executive]

Thank you. Thank you all of you for joining this call. I'll just ask Dinesh to give his closing remarks for the call.

[Dinesh Agarwal, executive]

Thank you very much, ladies and gentlemen, for joining our quarter 2 conference call. We have tried to address your queries in the time available. Please feel free to connect with our Investor Relations team in case you have any questions.

We wish everyone a very happy Diwali and festive season ahead. Thank you very much. Thank you.

[Unknown Executive]

Thank you.

[Brijesh Agrawal, executive]

Thank you, everyone. Happy Diwali.