B2B marketplace IndiaMART looking to raise Rs 600cr from IP…


IndiaMART InterMESH Ltd, which runs and owns B2B marketplace IndiaMART is preparing for its Initial Public Offering (IPO) and have filed a draft prospectus (DRHP) with market regulator Securities and Exchange Board of India (SEBI). The company is looking to raise close to Rs 600 crore through offering 4,288,801 equity shares of Rs 10 each, along with its promoters and investors selling a portion of their stakes in the issue.

Its investors Intel Capital will sell 2.07 million shares, Amadeus IV DPF will sell off 1,70,502 equity shares, and Accion Frontier Inclusion Mauritius will sell 4,75,000 equity shares in the IPO. The company’s promoters, Dinesh Chandra Agarwal and Brijesh Agarwal, will sell 8,52,453 and 5,77,656 shares in the IPO.  The date of opening and closing of IPO is currently unknown.

IndiaMART and its timeline

IndiaMART is an online B2B classifieds platform which enables the discovery of products across some 52 industry categories. IndiaMART provides lead-generation services to sellers listed on their platform and earns revenues through subscription fee paid by the sellers or on a pay-per-lead basis.

The company have five subsidiaries:

1) Tolexo Online Private Limited (TOPL): In 2015, the company launched Tolexo as an online transaction marketplace for business goods, through its wholly-owned subsidiary. TOPL is presently engaged in the business of building a cloud-based solution for SME businesses to help them manage their businesses.

2) Ten Times Online Private Limited (TTOPL): Started in 2013, TTOPL is engaged in the business of operating www.10times.com, a platform for business events discovery and networking.

3) Hello Trade Online Private Limited: The company started travel related Hello Trade in 2008, however, IndiaMART has discontinued the service.”HTOPL is currently not actively engaged in any business, however, it is authorized to engage in certain business, including conducting domestic trade and international business facilitation, including sales, marketing, operational, technological, information processing and other trade and business-related services,” it said in its draft.

4) Tradezeal International Private Limited (TIPL): TIPL was incorporated in 2005, and it is also currently not actively engaged in any business, however, it is authorized to engage in certain business, same as Hello Trade.

5) Pay With Indiamart Private Limited (PWIPL): This subsidiary was started in 2017 for payments services. The company had started an escrow service, in partnership with ICICI Bank, for its buyers and sellers, allowing for buyers to release payments to sellers only upon delivery of goods.

A quick timeline:

1999: Incorporation of IndiaMART.
2007: Received investment from Bennett, Coleman and Company Limited and Times Internet Limited
2008: Received investment from Intel
2016: Raised series C funding from investment from Amadeus, Westbridge, AFIM and Intel
2017: Received further investment from Amadeus, Westbridge and AFIM, and also launched payment protection programmed PayX for the purpose of safe and secure payment
gateway.

How does it earn money

The company currently earns revenues through:

  • the sale of subscription packages (available on a monthly, annual and multi-year basis) to suppliers, which offer a range of benefits including the listing of their supplier storefronts and products on a preferential basis on the IndiaMART marketplace;
  • from the sale of the request for 20 quotes, or Request for Quotes (RFQ), basically, lead generation
  • advertising revenue from our IndiaMART desktop and mobile-optimized platforms and IndiaMART mobile app; and
  • revenue from payment facilitation services

IPO Objectives

The company draft indicated that IndiaMART will invest in mobile web and app development by recruiting skilled workforce and to further enhance user experience. Besides, it also plans to increase the number of its telephone-based and online customer service employees and capabilities. IndiaMART will also be increasing its outsourced sales efforts compared to its physical sales footprint, which will reduce overall costs and increase revenue. It said that it will use its financial resources for the following purposes:

  • grow the number of suppliers and buyers in its marketplace;
  • implement sales and customer acquisition strategy;
  • develop and improve technology infrastructure, hardware and software and replace obsolete hardware and software;
  • expand  premium number service;
  • create online supplier storefronts for new supplier listings on IndiaMART and expand marketplace including into new product and service categories;
  • enhance the buyer experience through apps and platforms;
  • increase awareness of its brands and marketplace through advertising, marketing and brand building initiatives; and
  •  intends to acquire businesses, assets and technologies that are complementary to its business through investments, acquisitions, licensing arrangements and partnerships.

Business Risks

Number of buyers and suppliers

Any dip in the number of buyers and suppliers on its platform may affect company’s business. IndiaMART earn most of its revenue from Indian suppliers purchasing paid services on the platform. The company says a decline in the popularity of, or demand for, certain products and services listed on its online marketplace could reduce the number of buyers. In addition, suppliers may choose to list their products and services on alternative or competing platforms.  IndiaMART competes indirectly with Internet search engines, traditional brick and mortar suppliers and online business-to-consumer service providers. Some of these competitors include Tradeindia.com, Alibaba India, Just Dial, Industry Buying, Power2SME, Moglix,  Bizongo, Google and other search engines – these services allow buyers to locate suppliers.

Moreover, the company said that it invests substantial capital resources and employee resources in acquiring suppliers. However, the company does not earn revenue from suppliers until they purchase paid services on IndiaMART. “If large numbers of the suppliers that we acquire do not become paying subscription suppliers, we may not recover the costs of our supplier acquisition expenditures, and our business, financial condition and results of operations may be adversely affected. In addition, competitors may seek to employ the same supplier acquisition strategies, and a competitor with significantly greater human resources and access to capital may be able to match or exceed the extent of our supplier network.”

On Legal Troubles

The company said that it has encountered allegations and lawsuits or negative publicity in the past claiming that items listed and content available its marketplace are pirated, counterfeit or illegal. It anticipates that it will continue to encounter the same in the future. When the company receives such complaints regarding infringement, passing off or counterfeit goods, it follows certain procedures, which incurs additional expenses.

May continue to post negative net worth:

IndiaMART incurred significant operating losses in the past and have a negative net worth as of March 31, 2018, and the company said that it may not be able to improve its financial position or generate sufficient revenue to achieve positive net worth. It attributes its negative net worth to its increasing expenditures related to employee benefits, content development and advertising in order to expand sales network, develop in-house technologies, provide premium numbers to participating suppliers, and increase the scale of operations.

Need for additional capital

The company said it might need additional capital, which will affect company’s liquidity and financial position.

On Intellectual Property 

The company says its draft that intellectual property may not receive the same level of protection in India as it does in the United States and certain other countries. “Our failure to protect our intellectual property rights in a meaningful manner or challenges to related contractual rights could result in erosion of brand value and limit our ability to control marketing on or through the Internet using our various domain names or otherwise, which could adversely affect our business, financial condition and results of operations”.

On data privacy

The company indicates in its draft that as privacy and data protection become more closely regulated in India, it may also become exposed to additional potential liability. It indicated that the introduction of new IT legislation, including for the protection of privacy, may require the company to modify its existing systems, or invest in new technologies to ensure compliance with such applicable laws, which will incur additional expenses.

The IT Act provides for civil and criminal liability including compensation to affected persons, fines and imprisonment for various computer-related offences, which includes unauthorized disclosure of confidential information and failure to protect sensitive personal data. The GoI has notified various rules under the IT Act, pertaining to handling, disclosure and protection of sensitive personal data and in relation to storing, transmitting and providing any services with respect to electronic messages. India has also implemented privacy laws, including the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011, which impose limitations and restrictions on the collection, use, disclosure and transfer of personal information. Additionally, the Government of India, in December 2017, released a white paper inviting comments on ‘Data Protection Framework for India’, which provides for a data protection framework based on controller accountability.

IndiaMART said that should such a framework be notified, its ability to collect, use, disclose and transfer information to suppliers and buyers may be further restricted. It may also be restricted to collect information from suppliers, buyers and paid advertisers under new data protection laws. And, this could have an adverse effect on its business.

Metrics

As on FY18, the company had 4.7 million sellers listed on their platform with products across 97,000 categories. The number of suppliers using paid services increased from 72,000 in FY16 to 96,000 in FY17 and 108,000 in FY18. Of these paying suppliers, 50% subscribe to monthly packages and 15% subscribe to annual packages, the balance subscribing for other packages. The company claims to have around 60% market share of the online B2B classifieds space in India in FY17.

IndiaMART said that its mobile app had been installed 6.76 million times and 62% of paid suppliers have been active on the app in the last 30 days as of March 31, 2018. In terms of user traffic, it gets 72% of total traffic from mobile currently, as compared to 63% in 2017, and 59% in 2016.

(in Rs crore) 2016 2017 2018
Revenues 237.3 308.6 403.5
Net Worth (327) (390) (321)
Total expenses 301.2 335.4 597.5
Total loss (59.1) (13.6) (73.4)

 

Paying subscription suppliers:  The company had 108,347 premium sellers on its platform at the end of 31st March 2018, as compared to 96,025 in 2017, and 72,335 in 2016.

Business leads: A total of 156.84 million business enquiries were delivered to IndiaMART suppliers in fiscal 2017 from its 39.37 million registered buyers, and 289.98 million business enquires were delivered in fiscal 2018 from its 59.81 million registered buyers.

Employees: As of March 31 2018, the company had 2,539 permanent employees, as compared to 2,713 in 2017, and 3,249 in 2016. Besides, it has a total of 2,921 sales and service representatives as of March 31, 2018, spread in multiple cities across India.

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