IndiaMART InterMESH Limited (INDIAMART) Earnings Call Transcript

Good evening, ladies and gentlemen. I am Avijit Vikram, Head of Investor Relations. On behalf of IndiaMART InterMESH Limited, I welcome you all to the company's quarter 2 FY '27 Earnings webinar. [Operator Instructions] Joining us today from the management side, we have Mr. Dinesh Agarwal, Chief Executive Officer; Mr. Brijesh Agrawal, Whole-Time Director; Mr. Jitin Diwan, Chief Financial Officer; and Mr. Prateek Chandra, Chief Strategy Officer. Before we begin, I would like to remind you that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer to Slide #3 of the earnings presentation for the detailed disclaimer. Now I would like to hand over the call to Mr. Dinesh Agarwal for his opening remarks. Thank you, and over to you, sir.

Thank you, Avijit. Good evening, everyone, and welcome to IndiaMART's Quarter 2 FY '27 Earnings Webinar. We have circulated our earnings presentation, which is available on our website as well as the website of stock exchanges. We are sure you would have gone through the same, and we would be happy to take any questions afterwards. IndiaMART has delivered consolidated revenue from operations of INR 429 crores in the quarter 2, representing a year-on-year growth of 10%. Consolidated collection from customers grew to INR 443 crores, representing a 9% year-on-year growth for the quarter 2. Consolidated deferred revenue grew to INR 2,029 crores, representing a 16% year-on-year growth. In quarter 2, unique business inquiries were 27 million. Our total playing supplier base was 217,000 at the end of quarter 2, reflecting a net decline of 615 suppliers during the quarter. This decrease can primarily be attributed to an elevated churn at the silver subscription. Our platinum and gold customers, which contribute approximately 50% of our customer base and about 75% of revenue continue to have good upsell and retention rate. We are consistently working to enhance our artificial intelligence capabilities across the platform by refining our intelligent matchmaking and standardizing cataloging and leveraging AI for voice-based applications. We are focusing on providing a seamless discovery experience. Parallel to those technologies -- those technological advancement, building a trusted marketplace remains a fundamental strategic priority. We are actively enhancing our multilayered user verification and platform protection features to foster a highly secure, transparent environment. Through these core improvements, we are strengthening our overall matchmaking ecosystem. Our primary goal remains unchanged to serve the highly reliable digital partner of MSMEs, providing the robust ecosystem they need today to grow the sustainability tomorrow. Now I will hand over the call to Brijesh to update about Busy Infotech. Thank you, and over to you, Brijesh.

Hi. Good evening, everyone. At Busy, we've done a billing of INR 46 crores in Q2. This represents a Y-o-Y growth of 20%. The revenue from operations are at INR 37 crores, which is a 27% year-on-year growth. The deferred revenues are at about INR 155 crores, and that shows a 40% year-on-year growth, while the cash from operations stood at about INR 12 crores. In Q2, we sold approximately 11,000 new licenses, bringing our total licenses sold to 466,000. We recently launched Busy Magic, which has a new UI interface for Busy. This is something which is seeing an encouraging market adoption. We are in the process of revamping the entire technology base of Busy, and we are entering the last leg of doing those changes now. Beyond this specific rollout, we continue to broaden our overall product portfolio so that our customers can get better value and more intelligent capabilities by using Busy. And apart from the developments on the product side, we actively work to expand the sales and the distribution channels that we have so that we can continue to maintain decent growth in the business. With this, I'll request Jitin to take over and discuss about the financial performance.

Sure. Thank you, sir. Good evening, everyone. I'll take you through the financial performance for the quarter ending September 2026. Consolidated collections from customer was INR 443 crores in the quarter, representing Y-o-Y growth of 9%. IndiaMART stand-alone collection from customers for the quarter was INR 394 crores, registering Y-o-Y growth of 8%. Consolidated deferred revenue stood at INR 2,029 crores, an increase of 16% on Y-o-Y basis. Consolidated revenue from operations was INR 429 crores for the quarter, registering Y-o-Y growth of 10%. Consolidated EBITDA was INR 159 crores for the quarter, representing margin of 37%. Consolidated other income was negative INR 8 crores during the quarter, primarily due to increase in bond yields, which led to MTM losses. We believe that it is notional loss and will reverse in the next few quarters. Consolidated net profit for the quarter was INR 91 crores. And the cash generated from operations was INR 135 crores for the quarter. Consolidated cash and treasury balance as at the end of the quarter was INR 3,234 crores. Thank you very much. And now we are ready to take questions. Over to you Avijit.

We'll now begin the Q&A session. [Operator Instructions] Please restrict to two questions so that we may be able to address questions from all the participants. [Operator Instructions]

First question is from the line of Kunal Thanvi from Banyan Tree.

I had two questions. One was regarding some of the operational parameters. When we look at, say, net active buyers and the unique business inquiries, we see a declining trend on a Y-o-Y basis. And this has been a trend for a while now. How should one look at it? And what is -- like how long do we think this trend will continue given the fact that we have been tightening the verification process, et cetera, et cetera? And like would you attribute any of this decline to searches coming through Gen AI rather than, say, the traditional Google searches? Like is there any element of that in this decline? And the second question is one of our competitors recently talked about morphing or moving towards a marketplace kind of model -- platform kind of model from just classified. Your thoughts on the same is something that we are looking to hear out.

Kunal, which platform are you referring to going from classified to marketplace model?

Yes, Justdial. There's a change in management in that company. They recently talked about that they are looking -- they aspire to make sure that the entire transaction is done on their platform, and they plan to move towards that direction.

Okay. Okay. Yes. So on the daily business unique inquiries or the active buyers that you've seen, that active buyer and daily business inquiries have been declining a little bit for the past two quarters now. And yes, you are right. One, sometimes in the JFM with so much of LLM-based agentic thing happening, everyone wants to protect his own data and unique advantage. So one, we ourselves also went ahead and started putting many things behind the login. Also started putting that you can't just scrape my website forever without doing any log-in. And third, certain information, which was -- which we thought is very strategic and very proprietary to IndiaMART that we were displaying that we stopped displaying on the search engine and to all the LLM, certain things, and we kept it all behind the login. So yes, there might be certain losses that are occurring from Google landing. And you would remember that at the same time, Google AI overview had started -- had expanded from 10%, 20% now to 50% of the searches or even higher. So yes, 10%, 15% decline on that is happening. Some of it is strategic to us and because we want to save our proprietary data because most of these LLMs are now getting exempt from remembering the data and suggesting the results in their own words. So since these are early days and there is no protection, we are not freely going to distribute our strategic data easily. So that's the reason. So we are okay to let go of this 10%, 20% of the current business inquiry. And that's why we are spending where it matters. So if I look at 100,000 categories, the top quartile of the categories where the maximum amount of business happens at IndiaMART, that's where we spend time, money, energy to derive more inquiries and more leads by doing advertising, specifically on the search, and we will be expanding on to other mediums also. So if you really see there is a little bit growth in Q2 from Q1. But yes, we have lost about 10%, 15% of the -- from the best ever types. Now coming to the marketplace kind of model, so I will not jump to the conclusion that we aspire to do the complete transaction means completely doing away from the listing model, going to the marketplace model. But yes, if you remember our history, we have been trying to do multiple things, slightly secluded from IndiaMART. We had done Tolexo also in about a decade ago, and then we had a payment platform, which tried to complete transactions. We only closed the payment platform sometime around '21, '22. And we are also trying to get into credit facilitation. So whether you want to call it as a complete end-to-end 100% marketplace movement, no. But do we want to go closer to the transaction? Do we want to make sure that buyer and supplier fulfillment is better? Yes, every classified and listing platform wants to know more and more details about the buyer and seller, and that makes it more effective and better experience for everyone. Thank you.

Just one follow-up, sir, on the first part when you said you have stopped giving the entire data to the AI engines, et cetera. So now this is one big thing that you have spoken in the past also, which is like fight for data, like who will share what with whom, right? In this crossfire, how does a platform, classified platform like one should think about? Today, this number is, say, 10%, 15%. Say, going ahead, will it become a higher number or it will even become bigger because people can't do it on, say, AI platform, so they have to come back to these classified website itself. How should one think it from a longer-term perspective? Because as you said, more and more Google searches are moving towards AI-led searches. Then for our business model, how do we think about this? And like is there any possibility of a partnership with these AI models? Because now we are looking at some of the FMCG companies who are working closely with AI models to get some revenue out of them rather than competing with them. How do one think about this entire position of sharing some data, not sharing some data and letting go some customers from a longer-term perspective?

Three different questions here. So one, on a month-on-month basis or on an immediate quarter-on-quarter basis, how is this going to pan out? Nobody knows because there's a huge technological shift going on and huge fight for data going on right now. And everybody is trying to know where it will land and how it will land and what would be the steady-state situation in a couple of quarters or a couple of years' time. The second part is how is this going to affect or give benefit or loss to our buyers and sellers or users. Users are going to adopt to these things slowly and slowly. And that's why I'm saying the technology is going to happen much faster in months and quarters, while the actual landing will happen in years. So over the next couple of quarters to couple of years, this will remain a little volatile. Having said that, it is the judgment of the management and to see where we feel what data is proprietary to us and what data we should distribute for the purpose of training and what data we should give for the purpose of RAG. So all three are totally different. For the purpose of training, I think redacted data, which is not a PII data should be given, and if there is opportunity to earn revenue should be taken. And even we would be open to doing such things. But for the purpose of training using the PII data or identifiable information, I don't think one should be able to give it for the purpose of free learning to anybody and everybody. For the purpose of RAG, we will have to think who becomes useful for what. For the purpose of actual agency or agents, it is still to be seen what kind of agents we will allow and what kind of agents we will not at what frequency we will allow and what frequency we will not.

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

Just the continuation on the AI thing. So where we are in terms of our AI journey in terms of implementation of tools and agents in our platform and where exactly we are seeing the benefits of the AI adoption? Is it primarily on the margin expansion because we're automating the back end? Or is it also used as a primary tool for enhancing the buyer and the seller experience. So where we are in that journey and where we aspire to be?

Yes, all around. I mean, I think there must be almost like a 20-plus AI things are going on. And you can say from starting from presales data preparation to sales data meeting fixation to service ticket resolution to catalog design and production to category mapping to category audit to user verification to automatic verification to category intelligence, and then if you remember, we've been the pioneer at the large-scale voice AI, almost 1 lakh buyers are being served for the past 1 year now, almost past 1 year, every day, almost 80,000 to 100,000 buyers are being served by our voice AI agent. And on the -- those leads and RFQs are posted live on IndiaMART platform for the last more than a year now. So many different experiments are going on. Some of them are cost advantage, some of them are better intelligence for us and some of them are time advantage. Many different benefits will occur to us over a period of time. We are very hopeful and very delighted to have this technology. I think every quarter, we are learning many new things. Today itself in the Board meeting, I think we are the first time used instead of slides, we used videos, something which is we discovered only 1 month ago. So there are so many things. At -- by also, the entire -- by 21, -- by Magic as a platform, it's UX was designed almost 9 months ago. It was designed using AI-based technologies. So I think AI is everywhere. I mean now it is hard to distinguish where it is not.

No, sir, that is right. But what I'm trying to understand is that whether we are experimenting with AI with multiple things? Or are we very certain about that these things will be kind of a differentiator for us?

We are very certain and we are not experimenting. It is all deployed. It is being deployed, continuously being deployed. It is being improved, continuously being improved. And it is not only deployed at one place, it is being -- it is deployed for the last -- I mean, we have been using AI since 2018. But I think over the last 2, 3 years, every process, every place AI is being deployed.

So in terms of the impact that we're seeing this on our business, so what are the areas like obviously, the margins are higher. So maybe we can attribute it that some of the cost is not increasing because the AI is taking care of some of the cost increases. Plus in terms of matchmaking, the experience is improving, but it is not reflecting in terms of the higher number of inquiries or the increase in the net additions. So whether is it still those benefits are yet to accrue to us? And also in terms of the investments that we're doing in this AI, this is being expensed out in terms of the P&L and also the models that we're using, these models are all in-house models or we are -- or we want to outsource or partner with some of the larger like model companies to enhance the experience.

Yes, just hold on. Let me answer those many, then you can add more. Otherwise, I forget. So first of all, in terms of model, now there is an entire model garden, I guess you can use -- we are using all kind of things. I mean from Gemini to Claude to ChatGPT to Gemma to Alibaba Qwen to Grok to whatnot. And my general tendency is to not develop these inside. But some of the times, we have to. But mostly, my general tendency is as to -- this is not our core area of operations. Your second question was, is it -- should it be reflected into revenue or a repeat buyer behavior or more customer sign-up or reduced churn or reduced cost. See, it's been last 2 years or so, the AI is as much as it is helping people as much as it is also taking away from people. I mean, while it is helping us heavily in many opportunities, which we could never do, it is taking away or giving those similar tools, which we were distributing in the hands of public where a lot of things they can do on their own. So I guess net-net benefit, as I said, over the next 2, 3 years, 4 years can remain very volatile. The good part is that with a tighter understanding and deeper understanding of ours in this particular area, I think we are -- if we don't grow too much, at least we are not going to go heavily in the red or completely do away. So I think there's a downside protection that I can definitely offer to you that we understand the technology well. We are using it well. We can see a lot of opportunities, while there is other things that are going. The greatest part that I've heard most of our consultants and most of our and some of them are PhD consultants, some of them are deal at well-known top 10 universities in the world have told us that your data at IndiaMART is very, very valuable. And AI and your IndiaMART data, if used effectively, can actually become a very useful force in protecting your turf and growing your turf in the times to come. We have started to slowly integrate Busy and Livekeeping and IndiaMART altogether at the back end. If you remember, 4, 5 years ago, when we acquired Busy, we said for the first 3 years, we are not going to touch anything. because this is the first ever large acquisition that we did, and we didn't want it to go wrong. In the last 2 years, we have started to understand how it works. And first, we started to make some changes at busy itself. And now we have started to see what kind of data exchanges that we can do, what kind of technology integration that we can do. So there are many things that we will do and we can do. The good part is that we understand this whole ecosystem and technology. The bad part is nobody can predict given the pace is too much and too many opportunities and too many killers are in the system today. So nobody can predict next 2, 3 quarters or next 2, 3 years.

And sir, like one more question. Lastly, the most awaited one, what's happened to the churn?

Yes. I mean, as I said, the silver level churn until it improves, we are not pressing paddle on the gross addition. So 500 here and there, and we know that last 2 years, we have been flatter on the total customer base. And most of our growth has come in from the ARPU growth and from the upsell growth. But as soon as we get a better handle on the silver customer sign-up, I mean, churn, I think we will press paddle on the growth as well.

Next question is from the line of Ritvik Agrawal from 3P Investment Managers.

I wanted to understand on the quality of growth maybe going forward over -- in 2, 3 years down the line, how do we see majority of growth coming from? Will we continue with this ARPU hike trend? Or do we also expect some growth to come from paid suppliers going forward? And secondly, on Busy, incrementally, I am able to see, you can correct me if I'm wrong, the collection growth has been declining as in terms of what we saw in the fourth quarter '25 to somewhere around fourth quarter '26, that collection growth has been declining. I mean just wanted to understand, is this something which is one-off? And do we expect this to come back? And if yes, then how?

Yes. So let me first -- on a longer-term basis, I think we expect value growth and volume growth to go hand in hand. We always had about 10-odd percent value growth and 10-odd percent volume growth in the longer run. In the last 2, 3 years, most of the growth has been coming from value, not from volume. But in the next 2, 3 years' time frame, if you want to see, it has to be balanced value and volume growth. On the Busy, I think we had made some accounting changes, which has resulted into very high collection of 80%, 90% that you see. On a like-to-like basis, I think we have already given commentary then. Brijesh can clarify more on that. But if you see the net billing or the revenue numbers, they are all okay.

So just to clarify, if you are referring to the overall growth of billing that we saw in Q1 and Q2 of this year, you would have seen a 14% and a 20% improvement in this year. This has also happened because of, one, when we looked at billing in the last year, right, the overall changes that we had done in the methodology of the billing as well as we had done a specific focus on customer winback during that time period. Both of these two things have resulted into a higher base for last year, quarter 1, quarter 2. And you can already see that as we move from quarter 1 to quarter 2, our quarterly growth rates have improved. From Q3 onwards, you will actually be able to see far more comparable growth rates, which should be in line with the 20% to 30% overall growth rates that we have been seeing.

We have made certain changes, right, 88% to 90%.

No, no. So both of those resulted into a higher.

Understood. And sir, one more question, if I may. On the margin side, I can see our margins have been improving sharply. In a steady state, any trajectory or where do we envisage this can go? Any comparable from global peers would be helpful here.

You're talking about IndiaMART or Busy?

IndiaMART. IndiaMART.

IndiaMART we have been guiding 33% margin. And I think that's the margin we are comfortable with in the long run. So on EBITDA margin, right? So IndiaMART, we have been guiding long term 33% gross margin.

This quarter, I can see we had 40%.

Yes, because it is quarterly it depends -- our margins are -- cost is upfront. revenue comes from behind from 18 months past. That's why the margins are never comparable. So if you have to compare, we have to compare I mean last year, same -- this particular quarter because we are not investing heavily on the sales side. So that's why you are seeing elevated margin. As we get better understanding of the churn, we will start to invest in the sales side heavily.

So from 1Q '25 onwards, I can see it's always been ahead of 35%, except for 2Q FY '26. So 33% sounds to be a little lower, right?

Just be a little conservative.

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

Quickly, just a couple of questions. First, on the margin, right? There was -- the ESOP costs have actually gone down this quarter from what has been the trend. So do you expect ESOP costs to be around this level only for the remaining quarters at least for this year? And given we have been talking about AI allowing a lot of efficiencies to be built in, right? So is there going to be any leverage that we'll get on personnel cost as a proportion of revenues from, say, next year or something or at least in the foreseeable future?

Yes. So let me first answer the AI thing and then ESOP thing Jitin can answer. So on the AI part, I've been saying for last year -- since last year, in the short run, the cost of experimentation and the not letting -- not being behind, I think it will add to the overall cost. In the longer run, it may improve our margins substantially and it may improve our revenues also substantially. So I'm saying in the short run, whatever saving that we get, we end up spending at some other place for the more opportunity spend or sometimes even higher. So that's why you see many large tech companies are actually running at the lowest ever profit margin today because they are investing a lot on the AI experiments. Many of those people are capitalizing it. So I think somebody had asked the question, are we capitalizing any of the expenses. So we are not. 100% of our expense are expensed out, whether it is in the manpower, whether it is in the or whether it is in the -- none of the expenses at Busy or IndiaMART or Livekeeping or IIL Digital, any of our subsidiaries are ever being capitalized, at least no manpower expenses, no software expenses. Only the real capital nature of expenses like the fixed asset or others, which are required by law, those are the only one being capitalized. So many of those are seeing as capitalization expenses by large tech companies. In our case, it is all being expensed out immediately. In terms of ESOP, I think it is purely timing effect.

Just a couple of points on ESOP. One is the way ESOP is designed every year, the expense goes lower. So we are in the second year of when we had our first ESOP scheme. So that's how the expense was supposed to be lower. Second is about the organic churn of the employees, which goes. And it depends if the employee has gone -- which had longer ESOPs that gets adjusted in the overall expense. But the ESOP expense, which you're looking at now is the baseline, so it should remain as is.

As and when we will create new pool, then it will increase suddenly and then slowly, slowly go down.

We'll have our next renewal of ESOP.