Indiamart Intermesh Ltd

NSE:INDIAMART

Earnings Call Analysis

IndiaMART Posts Solid Revenue and Traffic Growth

IndiaMART showcased a robust financial performance, highlighted by a 17% growth in its consolidated collection from customers, reaching INR 332 crores. Revenue from operations increased by 21% to INR 305 crores, while traffic saw an impressive ascent to 272 million visits. Besides, unique business inquiries rose by 9%, contributing to the company's growth story. However, the firm faced a higher-than-expected churn in its Silver Monthly and Silver bucket, resulting in a modest net addition of about 2,000 paying subscriptions in the quarter. The growth in revenue was fueled mainly by a 9% rise in paying subscription suppliers and an 11% improvement in average revenue per user (ARPU) from enhanced monetization strategies.

IndiaMART's Revenue Growth Continues Amid Expansion Efforts

IndiaMART reported a robust performance in Q3 FY '24, with its consolidated revenue from operations ascending to INR 305 crores, a 21% increase from the previous year. The company's achievement is highlighted by a 17% growth in consolidated collection from customers, which reached INR 332 crores. Deferred revenue also saw substantial growth, rising by 25% to INR 1,270 crores, indicating a strong forward commitment from customers. Traffic to IndiaMART surged, hitting 272 million for the quarter, while unique business inquiries climbed to 23 million, demonstrating year-on-year progress of 9% and 4%, respectively.

Busy Infotech Contributes to IndiaMART's Momentum

Subsidiary Busy Infotech's performance echoed the positive trajectory with net billings of INR 14.4 crores, marking a 21% year-on-year increase. Revenue from operations grew by 26% to reach INR 12.6 crores, while deferred revenue jumped by a significant 47% to INR 39.9 crores. Busy Infotech's EBITDA for the quarter was recorded at INR 1.1 crores, translating to a margin of approximately 9%, alongside a net profit of INR 2.3 crores. The creation of positive cash flows from operations, amounting to INR 4.3 crores, further signified the subsidiary's strong financial health.

Operating Metrics and Profitability Show Solid Gains

IndiaMART's revenue boost was driven in part by a 9% uptick in paying subscription suppliers and around an 11% improvement in average revenue per user (ARPU), thanks to enhanced monetization strategies. Deferred revenue for the standalone IndiaMART business was at INR 1,229 crores, enjoying a 24% growth year-on-year. A standout aspect is the company's profitability with a standalone EBITDA of INR 87 crores, a margin of 30%, while consolidated EBITDA was at INR 86 crores, with a margin of 28%. The cumulative profits for the company were strong with consolidated net profit clocking INR 82 crores.

Healthy Cash Generation and Treasury Position

The financial wellbeing of IndiaMART is further underscored by its cash generation and reserves. The company generated consolidated cash flows from operations of INR 106 crores during the quarter. The closing of the quarter saw the group's cash and treasury balance stand at an impressive INR 2,039 crores, providing a solid foundation for strategic initiatives and ongoing operations.

Earnings Call Transcript 2024-Q3

[Unknown Analyst]

Good evening, ladies and gentlemen. On behalf of IndiaMART InterMESH Limited, I welcome you all to the company's Q3 FY '24 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; and 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 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. Good evening, everybody, and welcome to IndiaMART's Quarter 3 FY '24 Earnings Webinar. First of all, a very, very Happy New Year to all of you. As we have declared our results just a couple of hours ago, but we have circulated our earnings presentation which is available on our website as well as on the stock exchange website. I'm sure you would have gone through the presentation, and I would be happy to take any questions afterwards.

We are pleased to report that IndiaMART's consolidated collection from customers has grown by 17% to INR 332 crores in this quarter as compared to INR 283 crores last year. And deferred revenue has grown by 25% to INR 1,270 crores on a consolidated basis. Consolidated revenue from operations has grown by 21% to INR 305 crores. Our total traffic has grown to 272 million for the quarter. Unique business inquiries grew to 23 million, representing a year-on-year growth of 9% and 4%, respectively.

Total paying subscription suppliers have grown to 212,000 as communicated in the previous quarter, we continue to see more than anticipated churn on the increased customer base in the Silver Monthly and Silver avail bucket, leading to a net addition of close to only 2,000 paying subscription in this quarter again. Once the improvement in the churn happens, we will come back with the guidance of the net customer addition going forward.

We will continue to make investment in strengthening our organization and undertake the measures to enhance customer experience, reduce churn as well as drive deeper penetration by paying customers in focus cities.

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

[Brijesh Agrawal, executive]

Thank you. And good evening, everyone. Busy has done a net billing of INR 14.4 crores in Q3, which represents a Y-o-Y growth of 21%. The revenue from operations has grown by 26% to INR 12.6 crores, and the deferred revenues have grown by 47% to about INR 39.9 crores. The EBITDA for this quarter is at INR 1.1 crores, that's a margin of about 9%. Whereas the net profit for the quarter stands at INR 2.3 crores. Busy has generated positive cash flows from operations of INR 4.3 crores during this quarter.

We have sold above 6,000 new licenses, which make the closing count of licenses sold at 354,000 at the end of December 2023. The overall performance is pretty much in line with our expectations, and we are focused on increasing the growth rate in this year also.

So with this, I will hand over the call to Prateek, who will talk about the financial performance.

[Prateek Chandra, executive]

Thank you, Brijesh. Good evening, everyone. I will take you through the financial performance for the quarter ending December 2023. Consolidated collection from customers and revenue from operations grew by 17% and 21%, respectively, to INR 332 crores and INR 305 crores. Deferred revenue for the quarter stood at INR 1,270 crores, an increase of 25% year-on-year basis. IndiaMART stand-alone collection from customers for the quarter were at INR 316 crores and revenue from operations at INR 291 crores, registering year-on-year growth of 16% and 21%, respectively.

Our growth in revenue was primarily driven by a 9% increase in the paying subscription suppliers and approximately 11% improvement in ARPU due to higher monetization. Deferred revenue was at INR 1,229 crores, representing a year-on-year growth of 24%. EBITDA of IndiaMART stand-alone business stood at INR 87 crores, representing a margin of 30%. Consolidated EBITDA was at INR 86 crores, representing a margin of 28%. Consolidated net profit for the quarter was at INR 82 crores.

Consolidated cash generated from operations was INR 106 crores. Consolidated cash and treasury balance stood at INR 2,039 crores at the end of this quarter. Thank you very much. We are now ready to take any questions.

[Unknown Analyst]

[Operator Instructions] Alternatively, question in the chat menu and we will revert on it. [Operator Instructions]

[Operator]

First question is from the line of Anmol from DAM Capital.

[Anmol Garg, analyst]

So just had a couple of questions. Firstly, I just want to understand the gross paid supply additions for this quarter. So has it come to FY '23 quarterly levels? Or is there a pain there as well? And if not, then when do you think that it can come back to the previous levels?

[Dinesh Agarwal, executive]

Anmol, I think we are -- on the gross side, I think we have about a 1,000-odd customers away from the last year same quarter. So I think -- because this particular year there was Dussehra and Ashtami and Navami on a different month, and Diwali was on a different month, more on working days. So that's about it. So I think we are just about a 1,000 short of the gross addition in the last year same quarter.

[Anmol Garg, analyst]

Sure. And also just on the total paid supply additions. So has there been any change in the strategy for the additions that is happening through channel partners? Are we focusing more towards our own salespeople for paid supplier additions given that we have seen a very strong increase in the sales employees in the last few quarters? I just wanted to understand that strategy.

[Dinesh Agarwal, executive]

So there has been one change that we are now doing. We had all our sales supervision and servicing employees on our own rolls, while we had 2 kinds of outsourced sales: one is the channel partner outsources, that is the DST managed outsource. DST managed outsource, where we have our own area manager, our own branch manager. However, the people were on a different rolls. So if you see the -- and then we have been guiding all of that cost was going into the outsourced sales cost.

What we have seen is that, in general, the attrition and the joining levels and the retention in our own employees versus the people who work out of our own branches but just work on a different third-party payroll is very, very significantly different, and we are not gaining any advantage out of that. So we have decided we have taken a decision that we would want all of them to be now coming on to IndiaMART rolls. That means and that we took the decision sometime around November, post Deepawali. And since then, all the new joinings have been done in the IndiaMART payroll. And we are also in the process of moving all the existing 1,000-odd employees which are there on the third-party payroll also to IndiaMART payroll in the next 2 quarters or so.

So you will see a significant jump happening on that side. A little bit of a ramp-up might be happening, but not that we are going away from any channel partners or that. Channel partners continue to be a very important and significant contributor to our new customer acquisition strategy. As I said last time, in order to control the churn, we will go and do slicing and dicing based upon the tier-wise customer acquisition, based upon the monthly versus annual customer acquisition, based upon the turnover-wise customer acquisition, based upon the industry-wise customer acquisition.

We have gone ahead and done a few of those implementations, where we have decided that for Tier 3 and Tier 4, I think from a proprietorship based businesses, there's no point acquiring customers in the monthly mode. So we have stopped doing that. So that a little bit tweaking that we are doing, but I don't think any big change has happened on that side.

[Anmol Garg, analyst]

And just last thing, when do we think that we can get back to 6,000, 7,000 sort of paid supplier additions on a net basis? Do you think that maybe 1 or 2 quarters down the line, we can achieve this number?

[Dinesh Agarwal, executive]

I'm sure, but I'm afraid to commit any number as of now. Until unless I achieve that consistently for 2 quarters, I will not be able to actually say. So generally, quarter 4 is always bullish in India for everybody. And for us also, you see it has always been bullish. So we might see some improvement, but then quarter 1 is very bearish. So I think anything on a consistent basis, let's wait for Q2 of next year or Q3 of next year.

[Operator]

Next question is from the line of Nikhil Choudhary from Nuvama.

[Nikhil Choudhary, analyst]

My first question is regarding the collection growth, which is like 16%, 17% this quarter for consol and stand-alone business. This is lower than what we have seen in last 4, 5 quarters, and generally the trend has been more than 25% plus. So anything to read here? Is it just 1 quarter downturn, and we expect it to be back to 25% plus trajectory from quarter 4?

[Dinesh Agarwal, executive]

Yes, Nikhil, as you can see, the customer growth is slowing down, and it's been 3 quarters and consistent. In the last 2 quarters, we have added only 2,000 customers. Even in the previous quarter, we added only 5,000 customers in the quarter 1. So I think that would have some effect. But should it have gone down below 20% or gone to 16%, 17% is really surprising. And we are working on that to find out the exact scenario why it has gone down to 16%, 17%. Is it one-off the holiday or one-off certain divisions or something.

But I think, yes, from 25%, you're definitely going to see us coming more like 20% collection growth going forward until and unless we improve on the customer growth. So -- and as we can get back to our 6,000 customer growth or 5,000 customer growth per quarter, I think you will see more like 20% collection growth rather than 25% collection growth. Because 25% collection growth has been coming on the top of 7,000, 8,000, 9,000 customer growth. So I mean, obviously, with 2,000 customer growth, that's not possible.

[Nikhil Choudhary, analyst]

Understood, sir. Sir, second question is regarding the buyer -- registered buyer growth or unique business inquiry, which is clearly growing at a much slower pace, single-digit on Y-o-Y basis, right? A couple of quarters back, you mentioned that if the registered buyer do not increase materially by end of FY '24, then you will be concerned, right? So in terms of business inquiry, we haven't seen much material jump. Where I'm coming from, sir, is that if you see the metrics in unique business inquiry per supplier, that metric is going down and back to pre-COVID. So I just want to understand what's happening there. Any action you have taken to increase the number of inquiry growth per se?

[Dinesh Agarwal, executive]

Yes. So the traffic has grown by about 9% year-on-year. And the unique business inquiries have also grown by about 5-odd percent. In terms of increasing the unique business inquiries, I think we have found a few experiments that have worked in the past couple of weeks. That should be visible in times to come. We are experimenting with another call to action like WhatsApp kind of a call to action on some pages on the mobile website, and that seems to be working. So I don't think anything much to read here from '23. I mean if you really see, we were -- pre-COVID we were -- from pre-COVID, we are still much better, and we are fine here. I think we should be able to reach 25 million in times to come.

[Operator]

Next question is from the line of Abhishek Bhandari from Nomura.

[Abhishek Bhandari, analyst]

Can you hear me now?

[Dinesh Agarwal, executive]

Yes.

[Abhishek Bhandari, analyst]

Sorry for that. So I was saying in the last quarter, you had said you had affected the price increase on 10% of your Silver Monthly user base. What is that new percentage now at the end of third quarter?

[Dinesh Agarwal, executive]

[indiscernible] how much is Silver Monthly. I think almost -- by now almost 23% of our Silver Monthly customers are on newer price. And as I said, 75% of the -- 50% of the customer base is Platinum and Gold, and rest is divided half and half between the Silver Monthly and Silver Annual. So out of the 25% total customer base, about 50,000 total customer base, I think about 20,000 is already on a newer price model.

[Abhishek Bhandari, analyst]

Got it. The second question is you mentioned you are trying to get some of these third-party outsourced people to your own payrolls for better efficiency purpose. Does it also have any cost advantage to you from a medium-term perspective?

[Dinesh Agarwal, executive]

Not really. I think we have negotiated that outsourcing model at a couple of hundred rupees per person per month. I think we'll actually pass it on to the employee themselves.

[Prateek Chandra, executive]

So from a cost standpoint, it will be pretty much neutral. I mean we have currently that cost as a part of an outsourced sales. And I think once all these approximately 1,000 people moves to our payroll, it would shift by approximately INR 10 crores every quarter from outsourced sales to our manpower cost.

[Abhishek Bhandari, analyst]

Got it. Got it. And my last question is on your fourth quarter margin outlook, should we expect a similar seasonality in margins as we expect every year, in the sense that you gave on salary increments to your employees?

[Dinesh Agarwal, executive]

Yes. So salary increments have already happened. The letters are on their way out. They happen generally with effect from January. This time we have done it with effect from 1st December. Also, the March quarter, in general, the collections come upfront heavily. So that's why there is upfront cost, which results to the lower margins based upon the recognized revenue. So you can expect the similar seasonality coming in the March quarter.

[Abhishek Bhandari, analyst]

Sir, my last question, if I can squeeze one more. Sir, your experiment of raising price increases on the lower end pack has led to some increased churn. And India being India, where there's so much of sensitivity to prices, do you think longer term in your business model, you should be working more towards higher ARPU increase and worry less about subscriber addition? Or you think, at some point, will -- I mean, what the math you are comfortable with, let's say, you're targeting 20% growth long term? If you could break down what comfort you have on ARPU growth, what comfort you have on subscriber addition growth, more from a medium-term perspective, not nearly next 1 or 2 quarters?

[Dinesh Agarwal, executive]

Yes. On the medium term, I think I've already said, the best would be in excess of 10% growth in both. Ideally speaking, if you want to get to 25%, if you see in the past, whenever we got to 25%, it has been more 15% on the customer growth -- 15% to 18% on the customer growth and 6% to 8% on the ARPU growth. I think given that the size has increased by now. But still, at 200,000 customers, we are just 2% of overall businesses in India, which are GST registered and properly filing.

Given that in certain cities where we have good penetration, our penetration levels are as high as 4% to 5% already. So why should be the customer growth be constrained at this point of time. I'm sure we have done -- we would have done, because as we have grown from pre-COVID base of INR 700-odd crores collections to now INR 1,400-odd crores collection run rate, I think that's -- and we have decentralized a lot of operations and everything, I'm sure we will find more opportunities to fix slackness in the system.

And at this scale of network effect, even find more opportunities in the product to make it work better. So I don't think I -- on the neither side, we should be looking at anything lower than 10% either side. So I think our math -- long-term math -- long-term means medium-term math should still be 15% to 18% customer growth and 7% to 10% ARPU growth. So I think we will continue to strive for that. I don't see any reason not to happen.

[Operator]

Next question is from the line of Abhishek Banerjee from ICICI Securities.

[Abhisek Banerjee, analyst]

Yes. Am I audible now?

[Dinesh Agarwal, executive]

Yes.

[Abhisek Banerjee, analyst]

Sir, just first question on the productivity bid, right? What is your outlook on that? And recently, one of your competitors actually spoke about using AI tools to do processes which were being done manually until now. So is there any room for you to do something similar?

[Dinesh Agarwal, executive]

Multiple, I think there's always room to do more optimization, more automation. And if you go to a margin lever slide, you will see how margins have expanded over a period of time. And gross margin have come back to the better than pre-COVID time. In pre-COVID, for the full year of FY '20, we got 70% gross margin, we are already at 71%, 72% gross margin. And I think there is always a possibility wherever there are larger-scale people operation to do automation. I think every -- and this is an ongoing process. This is not something that we need to announce. So I think we'll continue to have that improvement done. But at the same time, as the scale increases, you invest in people at decentralized management level and other level. So I think those become typically neutral at 72% gross margin or 75% gross margin.

[Abhisek Banerjee, analyst]

Okay. So does that mean that going ahead next year, at least, we should see the employee benefits as a proportion of revenues start coming off?

[Dinesh Agarwal, executive]

Possibly, yes. Will that happen at the top of the pyramid? Possibly no. Because as we will decentralize further, we would want more state heads to manage their own P&L. So probably, we are going to save at the bottom of the pyramid some by doing automation. But at the same time, we are going to invest in making the company more resilient so that as we have grown in the last 5, 7 years from INR 200 crores or INR 300 crores to INR 1,000 crores plus, how do we grow from here INR 1,000 crore plus to INR 3,000 crores plus? And for that, what kind of management and what kind of systems and processes are needed. So we will reinvest that because I don't think we will be chasing EBITDA margin by saving that 1% or 2%.

[Abhisek Banerjee, analyst]

Understood. So if I look at the employee expenses this quarter, right, I see that the [ churn ] employees are very high employee per -- employee expense per person. Is that because of the hikes that was taken from first of December? As in if I take...

[Prateek Chandra, executive]

You are right. So if you see year-on-year, the employee expenses would have gone up by roughly around 28%. And one of the reason is that we have taken the hike in December that what we used to do in January. So it is not there in the corresponding base of December last year.

[Abhisek Banerjee, analyst]

Got it. But that would also mean that the sequential decline that is characteristic of your Q4 numbers, that will be less sharp this year around, right?

[Prateek Chandra, executive]

I'm sorry, sequential decline in employee expenses, you're saying, Abhisek?

[Abhisek Banerjee, analyst]

So overall, there is a sequential decline in EBITDA margin in Q4 over Q3, right? That is a trend. Now given you have moved 1 month earlier, your hike cycle, that would mean that the sequential decline in EBITDA margin...

[Prateek Chandra, executive]

Yes, you're right.

[Abhisek Banerjee, analyst]

Understood. Understood. So that decline will be lesser. Fair enough. And sir, what was the strategy behind moving forward the increments? Are you trying to do a change in your reporting year -- sorry, I mean employee expenses? Is it going to move forward further going ahead? Or you're going to stay here?

[Prateek Chandra, executive]

No. This year, I think we generally, 1st January used to become very difficult. We were planned -- we used to make annual operating plan. We used to do -- prepare for a bumper quarter 4. And also doing 4,000, 5,000 reviews used to become difficult, so we preponed it by 1 month because the amount of work used to be too much. I don't think it is going to be a regular affair or change. Let's see how it goes.

[Abhisek Banerjee, analyst]

Understood. So now if I talk about gross additions number, right, that I'm guessing would be similar to what -- I mean, at least broadly similar to what it used to be, right? Now where are we seeing this gross addition coming from? As in -- so see, you had spoken about how in Tier 2, Tier 3 cities, you have seen a sharper churn, right, so I'm guessing you would have kind of slowed your gross additions from Tier 2, Tier 3 also, at least from those areas. So I'm just trying to understand what is compensating for that gross additions?

[Dinesh Agarwal, executive]

Yes. So we have not -- I mean, as I said, last we met was end of October, and I said I will go back to the [ drawing board ]. We have just implemented that Tier 3 and Tier 4, we will steadily go one by one, one center by one center. So it has not yet affected -- came in effect fully. Sometime by the middle of the quarter, it will come. It is not just from tomorrow on nothing on that side. So by and large, things are if smoothers rather than one fine day, you're cutting the entire Tier 4 or entire Tier 3. That's not how we do it.

So I think currently, as always, most of the customer acquisition has always been -- 60% of the customer acquisition has always been in the top tier cities and another 25% coming from the Tier 2 and Tier 3, and rest of India has always been 10%. So we have not stopped completely.

[Abhisek Banerjee, analyst]

Understood. Now just 1 thing here. In Tier 3, Tier 4, from the experience of some of your competitors, generally, the churn is high. But it is not like people churn out for lifetime, it is often that they come back after 1, maybe 6 months' time. So are you seeing something like that also happening in Tier 3, Tier 4? Or you have not seen anything like that?

[Dinesh Agarwal, executive]

I mean, the numbers are so small that getting into those is so small. And that is the exact reason -- we're not saying that we are not going to acquire if somebody is coming. We are simply saying that we are not going to acquire it on a monthly basis where our cost of customer acquisition upfront is higher than the money that we realize. Okay. So that is why we are saying that we will move to a more annual subscription for a proprietorship firm in the Tier 3 and Tier 4.

[Abhisek Banerjee, analyst]

Got it. So the outsourced sales partners will continue to exist for Tier 3, Tier 4. However, they will not be giving you monthly sales customers, where the cost is not making sense as per you as of now.

[Dinesh Agarwal, executive]

First of all, let me clarify. All the outsourced -- all the sales partners are in Tier 1 and Tier 2 cities. Maybe a couple of them are in Tier 3. Whatever we are talking is of Tier 3 and Tier 4. So Tier 1 and Tier 2, all the partners, everything remains as it is. No change as of now has been implemented or we are planning to. So we will go very, very slow there, if at all, we have to make any change. We are very sensitive to any partner coming in or coming -- going out like that.

On the Tier 4, most of the acquisitions happened either inbound or telesales. It was not a [indiscernible] sales at all. We hardly -- I don't know, maybe there is a city on the bottom line of Tier 2 and Tier 3, falling in Tier 3, so it is called Tier 3. But otherwise, by design, we do not have any presence in the Tier 3 city -- physical presence in the Tier 3 city.

[Abhisek Banerjee, analyst]

Got it. In terms of these Tier 3, Tier 4 cities, you have obviously spoken about some cities/towns, which were a surprise on the negative side, but where some cities or towns which were a surprise on the positive side as well, if you could -- if you could talk a little bit on that?

[Dinesh Agarwal, executive]

No, I don't have much data to talk on that. Thank you.

[Abhisek Banerjee, analyst]

Fair enough. And just 1 last question for Brijesh. If you have -- could you please explain how things are progressing with Busy? And if you are making any additions to your team there?

[Brijesh Agrawal, executive]

So, as I mentioned, in terms of our growth rate of billing customers, I think they are doing fairly fine there. They've also hired senior folks to look at sales, service and marketing. So the team also has been strengthened with some senior level hires in those key areas.

[Operator]

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

[Vivekanand Subbaraman, analyst]

So my first question is on the elevated churn at Silver Monthly levels. Dinesh ji, what exactly is the problem here? Is it because of the acquisition aggression that you did in smaller towns? Are there any specific geography issues? Or is there any servicing issue of the Silver Monthly users? Could you elaborate on that? Because I couldn't quite understand what the problem is that -- because last time we met in October, you said that you are going back to the drawing board, and I'm sure by now you would have picked up some cues that would help you answer this question better.

[Dinesh Agarwal, executive]

Yes, Vivekanand, I think all of this -- so I think if it was a one single piece that something has gone wrong, it's much easier to identify. I think what we did in the last -- post July 2021 when we saw 2 COVID waves and everything happened and all that, then we expanded quickly over the next 18 months or so. And that whole expansion led to almost double the employee count from 3,000 to 6,000, going higher -- double the channel sales partner also. Also, the servicing staff also is a lot of newer staff. Many of the customers and the brand has run quite ahead with the -- everybody thought that online is the way to do business. So everybody wanted to try online after the COVID.

So I think a couple of many things and each one of them -- in our case, a 30%-plus churn is bad and 20% is very good, I think. So I think margin of error is only plus/minus 5%, where you become a great company or bad company. And I think it's just 1% or 2% each, and that's what we are trying to correct. And I'm pretty sure -- because if there was any problem in product and technology, if there was any product and demand, we would have seen issues at the Gold and Platinum. And all the KPIs of the Gold and Platinum, all the KPIs of the supplier engagement continue to remain very, very strong.

So as I said last time also, close to 50% of our customer base, around 48%, 49%; and close to 75% of the revenue, which is 72%, 73%, exactly I checked yesterday, is coming from Gold and Platinum. And their ARPU is also increasing month-on-month, quarter-on-quarter. And their churn also almost running near the best-ever, ever since even from pre-COVID level. So effectively, the top 10% customer, while the overall ARPU has grown 11%, top 10% customer ARPU has grown by almost 13%. So I don't think there's one big problem. I think it is the small, small things, training the people, getting the processes right, I think, the size right. And as I said, it will take 2, 3 quarters, and we'll be back at a higher growth trajectory soon.

[Vivekanand Subbaraman, analyst]

Fair. I think those observations are very pertinent. Thank you for elaborating. From a servicing standpoint, since you had previously also mentioned that your aspiration was to have that number, the number of paying suppliers to the servicing employees come down so that you could provide better service. But we are not yet seeing or rather your company isn't yet seeing the benefits of this investment made in the sales supervising and -- supervision and servicing employees. By when do you think that these employees that you've added for servicing, they start contributing meaningfully, either in terms of getting more upgrades, which will reflect in your collections growth or reduced churn, which will obviously reflect in the net adds?

[Dinesh Agarwal, executive]

Vivekanand, it's not that it has not rated into better across all the segments. So if you really see our key customers Gold and Platinum segment, if we didn't hire the employees to this level, we would have left certain revenue on the table. And the entire ARPU growth that you see in the Gold and Platinum segment is definitely the investment that we made on the people side, which we had not made during the COVID time.

Yes, the major headcount investment has happened on the Silver Monthly and Silver Annual, and that is where we are since we -- there is very little to show you in terms of either ARPU or in terms of churn. But I am sure that will be visible, and that will be visible soon. So -- but whatever investment that we have done on the Gold and Platinum side, that has definitely gives us a comfort, because without that, we would not have been able to drive even the ARPUs like this.

[Operator]

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

[Rahul Jain, analyst]

Sorry. I hope I'm audible now?

[Dinesh Agarwal, executive]

Yes. Yes. Yes.

[Rahul Jain, analyst]

Just 1 bit on this subscriber addition side of the story. We like your confidence on what kind of growth, this kind of a platform in this kind of a market can deliver. But if you see what -- essentially some of the trend, underlying trend that should support this kind of thing are actually playing out in the market in terms of India as an end market, how we are doing as a country? How we are getting more and more organized? And how more and more digitized we are going into our system and behavior? But why, at least for now, we are not seeing those trends percolating into the kind of an outcome that we desire?

[Dinesh Agarwal, executive]

I think I already answered that, we have grown rapidly in the last 2 years, and we need to manage that growth efficiently.

[Rahul Jain, analyst]

Right. And just -- yes, yes. Just 1 more thing. Like since we have a much lower penetration in terms of registered supplier to paid supplier ratio, and we may be following the activities of potential registered supplier who could turn into a paid supplier given the activity increase that they are seeing at their end in terms of consuming lead and other things. Is it that the action which needs to be done on that part of leveraging that cohort and converting them into paid suppliers, that part needs to be improved to a much better outcome? Is that something that we can work on?

[Dinesh Agarwal, executive]

So I don't think our gross additions has been much of a challenge. I think it is the churn, and it is the first 6, 9 months, first year churn. The 12-month retention. And it is always true with every marketing platform that we see for SME business. So whether it is Google or whether it is Facebook or whether it is Amazon, the number of people that try on any marketing platform. And whether it is Alibaba, are in the first year, generally very, very high, and the retention rate at the end of the year is low.

While once they learn how to do -- how to utilize the digital marketing platform for their business for the segment, they end up becoming an ambassador for that segment and end up becoming the leader in the times to come. So similar thing is visible in our case also. The first year -- the churns actually come down by half every year. So the first year churn is 50%, and that will come down to 20% -- 25% next year, and come down to 12.5% the third year. So I think we need to constantly find the right kind of suppliers and find the right kind of tools to educate them properly. There is no question that the penetration levels will go to 10% in the next decade or so.

[Rahul Jain, analyst]

Right, right. My small slight part of the question is not getting addressed here. What I was trying to also understand is that when we are going for the gross addition, this is a much larger universe that we are chasing. But there could be a subset of that universe cohort, which may be using our platform far more effectively in an unpaired scenario, and the probabilities of those people benefiting out of a paid subscription would be relatively higher. So is that, that cohort is something which is fructifying better?

[Dinesh Agarwal, executive]

I mean that you are pointing it again and again, we'll go back and see. But I think our -- all hard lead generation, all our prioritization, all our AI and ML, all our segmentation does day in, day out, this only, which are these free sellers, which are getting more inquiries, which are the resellers which are getting better engaged with our platform, which are the -- and that is how we learn which cities are doing well, which industries are doing well, which kind of turnovers are doing well. So we have all kind of segmentation data, which we track in detail. But if you're saying that there could still be some segments which are, which could be left out, we will definitely go back and take your suggestion to see if there is something left out.

[Rahul Jain, analyst]

Great, sir. And congratulations on strong margin improvement. I hope that these trends continue on an annualized basis.

[Operator]

Next question is from the line of Swapnil from JM Financials.

[Swapnil Potdukhe, analyst]

So my first question is with respect to the categories, if you can call out where the churn is significantly higher right now. And a follow-up to that is, where do you think the churn to customers are going right now? I mean what are the other alternatives that these guys have apart from IndiaMART? And -- or what else are they doing? That will be the first question.

[Dinesh Agarwal, executive]

So on the Industry side, you'll see that services industry, we are still not very good. Certain very consumer-ish industries like apparel, we are still not very good. Despite the fact that it is one of the very large industry, we are still not very good. Agro, food, vegetables, such a large category, we are still not very good. And the churn is always very, very high on these kind of segments, which despite the fact being such a large, continue to remain at #10 and #15 in our category list. That doesn't change as much.

I won't say that the medical as a category has increased churn because whatever was that to happen, that has already happened in the past 3, 4 quarters because whatever came during the COVID time, that is now nullified. Now coming to the city side, certain city clusters, again, are more susceptible. Earlier, we had seen Tiruppur like that, now we have seen Surat like that. So I think not fair to call out names here, but I think we do take segment by segment to check out which particular segment is causing higher churn and why.

And we try to fix that by doing category work so that we can improve the matchmaking better. We try and talk to 10 different suppliers, 10 different buyers, which particular -- what can we do better so that they can keep coming back to the platform. So we do all that. What was the second part of the question?

[Unknown Executive]

[indiscernible]

[Dinesh Agarwal, executive]

A lot of these customers are the first-time triers. I think a few of the customers -- because at the end of the day, there are only 4, 5 large platforms that I can think of, and I name them all the time, between IndiaMART and Google and Amazon and Justdial. These are the 4 big ones.

[Unknown Executive]

Facebook.

[Dinesh Agarwal, executive]

Yes. And Facebook and WhatsApp and Instagram. So between these 5 people, by and large, they move. There could be certain very specific verticals here and there, where those people might be trying, but I haven't seen any vertical gaining significant momentum so far.

[Swapnil Potdukhe, analyst]

Got it, sir. And the second question related to the churn again, is like do you think limited real estate that we have on the platform could be one of the reasons for this churn? Because typically, when your limited number of suppliers can come on the first page of any search page. And especially for Silver category customers, their lead visibility will always be low. And therefore, the ROIs for them may not be meaningful. And that may be one of the reasons that you -- the churn rate for them is quite high. And if that is the case, is it -- yes, yes.

[Dinesh Agarwal, executive]

Yes, I understood your question. So if we were a one-way matchmaking platform, if we didn't have an RFQ system, then you are right, whether it is Google or whether it is Amazon, only top 10 people end up getting the 90% of the business and everything. But since we introduced the RFQ model back in 2012, I think the entire situation changed dramatically, where every buyer is up for grab by all kind of sellers, whether he is a Silver or whether it is the Gold or whether he's Platinum. The only limitation is the number of buyers that you can grab on to. So it is not purely and purely buyer related.

So one side of the matchmaking, you are right. People pay us money in the Platinum and Gold to come up is because more buyers can see them. That's like a traditional advertising model. But with the RFQ system, we ensure that every -- each and every seller, if he's active on the platform, if he's vigilant, there is no preference given to the platinum supplier or to the -- against the Silver supplier that he cannot consume a BuyLead or an RFQ. And that is when our model start to scale. And -- so if we have been able to scale to this level, it is because of that. Otherwise, you are right, if you have 100,000 categories, you have only limited real estate of top 3, 5, 10 people to be monetized.

[Swapnil Potdukhe, analyst]

Just a follow-up question to that. I mean -- and this is basis a limited research of mine. The interaction that I have had with the different category of customers, that suggests that your Platinum and Gold category customers' ROI is significantly better and they're quite happy. But Silver category customers typically tend to be -- they don't -- they do get certain leads, but obviously, the conversion rates and the ROIs for them are significantly poor. And that's a broad feedback that -- I mean...

[Dinesh Agarwal, executive]

It is the other way around. Those who are engaged better with the platform, they find the ROI so good that they become Gold and Platinum. The ones who are not engaged better with the platform, they don't find enough value and they don't become the Gold and Platinum.

[Swapnil Potdukhe, analyst]

Okay. Got it. Got it, sir.

[Dinesh Agarwal, executive]

Because if we just become a Gold, Platinum subscriber at IndiaMART and not do the follow-up, lead follow-up and not consume the RFQs, you are more likely to get worse ROI than an engaged Silver customer.

[Swapnil Potdukhe, analyst]

If I were just to ask that point again, what happens given that the current year churn is very high. The number of people under Silver category, obviously, are not those who can move to the higher categories immediately. Like we said in the past that it takes 1 year, 1.5 years for this guys to move to the higher category. So should that reflect on your premiumization for next 1 or 2 years, the impact of the current year's inability to grow the Silver customers?

[Dinesh Agarwal, executive]

Not really. In fact, if the gross addition was the reason for not adding the base, not growing the base, then you are right. But if the churn is the reason for not growing the base, then this is not -- this doesn't hold true. Because by the time somebody -- 6, 9 months, either the customer will churn or will stay. And if he'll stay, he will upgrade better. So I think our opportunity to upgrade typically has a top quartile customers, while the churn comes from the bottom quartile customers. And then there are in the middle, there are trendsetters who neither upgrade nor churn, but continue to remain in the same category. So I don't think the upgrade potential is very much directly linked with the churn-led growth. Yes, if it was the gross addition-led growth, you are right.

[Operator]

Next question is from the line of Anirudh Shetty from Solidarity Investment Managers.

[Anirudh Shetty, analyst]

So my first question was essentially on this buyer behavior given that fundamentally drives traction on the platform, given that we have a fairly sizable number of registered buyers, already around 16 crores, 17 crores buyers and the number of active buyers has kind of remained flat, so what is your broad sense around the usage of IndiaMART potential buyers in India? Would you say that we're at a fairly mature stage or there's room to go even further? And what is the strategy essentially? Is it to get more buyers on the platform, get them to be more active, get more inquiries for buyer? If you could just share granularity around that given that it's very important to our business.

[Dinesh Agarwal, executive]

Both, I think one is to attract newer buyer on the platform. So if you see when we -- the total registered buyers every quarter, they grew by 5 million to 6 million, 5 million to 6 million every quarter. So that is the new registered buyers that came in. So 5 million, 6 million is the new. And then how much they can come repeatedly. Currently, we say 90-day repeat ratio is 53%, which is maybe just once in 90 days, 1 or more time. But if I see how many 2 or more time or how many 3 or more time, that number is very little. We have to work on that for people who have used IndiaMART for 3 or a couple -- 3 or more times, they become the perfect audience of IndiaMART.

Every time they need something B2B, they don't forget to check out IndiaMART. But for most buyers to have a first experience and very good experience, and then becoming a top-of-the-mind recall, that journey is still under progress, work in progress. Over the next many years or so, I think the number of new buyers which we can attract will probably become slower and slower. And the repeat -- while the 12 months active base may not increase dramatically from 40 million to maybe 80 million.

But the number of times they're coming in, so the most important number is unique business inquiry. Because how many people came and inquired in a unique day -- because this unique business inquiries is, if I come out of these 90 days, 3 different days, these are the 3 different unique business inquiries. So how many days do I come to IndiaMART and send an inquiry for a different product? That's the number to be -- final number to be looked at. And that number, if you see, has been growing at 20-odd percent. But can this grow at much, much faster rate than the CAGR level? Why we are not able to do that across so many categories and across so many cities? Is what we work day in, day out.

[Anirudh Shetty, analyst]

From the customer's viewpoint, is the buyers looking for products that are very bespoke, very discrete, such that their consumption for such products will be actually very infrequent? Or are they actually more like the repeat type of buyers who kind of needed on a more frequent basis? Just to understand the inquiry within that...

[Dinesh Agarwal, executive]

On IndiaMART, most of the time -- the first time they buyer lands is probably because he's looking for something which we could not find typically in his neighborhood or in his -- or he's looking for a price or he's looking for a customization. So these are the 3 things for which the customer comes for the first time. But then he realizes that all the 3 things are very good here at IndiaMART. If he realizes that and if he realizes that 3 times in a row, then he becomes our regular buyer. But making him realize for the first time that -- because first time many of the -- for many of these people, many of these buyers, it could be very overwhelming.

Suddenly there are so many suppliers, so many products. Whom to talk to? Price are 30%, 40%, 50% cheaper than a retail platform. How to get it done? Is a challenging and overwhelming opportunity for a buyer and seller, both. So getting the first experience right in varied categories as apparel versus machinery, versus nut bolts versus vegetables versus pharmaceutical is a challenge for a horizontal marketplace. But at the same time, the horizontal marketplace gives you the stress that tomorrow -- today, he might have come for a nut bolt, tomorrow he might come for the entire machine; day after tomorrow, he might be able to come for furniture and next time maybe for apparel.

So I think there is an advantage and disadvantage both of being a horizontal and being a vertical. We have been both [indiscernible]. So we have been a vertical with full transaction platform. And at IndiaMART, we have been a horizontal. It takes a really, really long time for a horizontal to become -- feel like a successful repeat platform. It takes very quickly for a vertical to do that. But at the same time, the number of total buyers that you can attract, the number of total sellers that you can attract is very, very limited, so the revenue opportunity is lower. So I mean that is what we keep learning and trying to do every day.

[Anirudh Shetty, analyst]

Absolutely. And just 1 final question. We are exploring Tier 3, 4 cities, towns, and you mentioned it's a long process. But I wanted to understand that finally for the suppliers there, we think that the value proposition for an IndiaMART is strong and their ability to kind of cater to buyers' requirements exists or other constraints around just the infra being underdeveloped, or them being so deep in the [indiscernible] of the logistic cost doesn't make sense? So what are the challenges that you think you could face in these markets that weren't there in the metro Tier 1, Tier 2?

[Dinesh Agarwal, executive]

So one -- if I heard you right, you're saying that we -- are going for Tier 3 and Tier 4 suppliers? We are actually retreating from Tier 3, Tier 4 suppliers. We are actually focusing more on Tier 1 and Tier 2 suppliers. On the buyer side, you are right, because a lot of value -- because of the large availability, the prices on IndiaMART attract a lot of Tier 3, Tier 4 buyers. And the logistics as well as the payments, as well as the trust, all 3 are the challenges.

And we try and build trust, we try and build discovery, but I think that payment is straight forward today, if you want to pay in advance or if you pay later. But how do you pay escrow and how do you do that, that remains a challenge. So I think currently, a lot of Tier 4 buyers use us as a price discovery platform and maybe try to still buy it from their local vendor or somebody. But there are all kind of mix possibilities here.

[Operator]

Thank you very much, everyone. It has been a very engaging session. I would now like Dinesh sir to give his concluding remarks.

[Dinesh Agarwal, executive]

Ladies and gentlemen, thank you very much for asking very deep questions this time. This has been truly enjoyable today. We have tried to address your queries in the time available. But if you still have any questions, please feel free to contact our Investor Relationship team on our website. And have a great new year ahead. Thank you very much. Bye-bye.

[Operator]

Thank you, everyone. On behalf of IndiaMART, we now conclude this webinar. Thank you.