Improved manufacturing will take 4-5 years to impact exports: IndiaMART co-founder

MSME digitisation, especially in the hinterlands, is a big transformational change, which coupled with improved domestic manufacturing capabilities are revolutionising how trade is conducted in the country, further propelled by increasing domestic manufacturing capabilities. According to a May 2023 report by PayNearby, 71% of retail MSMEs are using digital tools for their day-to-day operations. IndiaMART, a B2B online platform, is seen playing a major role in this digital revolution. Speaking to DH’s Anjali Jain, the company’s co-founder and director Brijesh Agrawal unravelled its growth plans besides the opportunities, challenges and changing trends in the space they operate in.

Edited excerpts.

How has your export vertical been playing out?

Our business is predominantly focused on domestic B2B. But being the single largest aggregator of exporters from India, we still are able to see about 12 to 15% of the business running cross border. From an exporter standpoint, it still continues to be an extremely valuable service, because the opportunities for them to reach out to their potential customers involve very high cost alternatives. Either you will have a sales team, which will travel to different countries to meet customers, or you will participate in trade shows which typically will not cost you less than Rs 10-15 lakh.

How do you think India's manufacturing capabilities can do for exports in the coming years?

(We’re) definitely seeing a positive movement happening in manufacturing after a long period of lull. But for this to start having a major impact on exports, it will still take four or five years. But at least we have started to see Indian business owners setting up large factories in India. As this happens, you will see support setups, ancillaries, people selling input products for those guys.

Working closely with MSMEs, what are the challenges you see them facing with digitisation and taking their business online?

The biggest hurdle that we've seen in these MSMEs coming online is the mindset that they've been running their business in a certain way. And for anybody to change that way of working is not very easy. So this is like a generational shift that is going to happen. And it will take a few generations before you really see large adoption of online platforms. A lot of people need hand holding. They can't do it by themselves. They can't spend time reading through it, understanding, experimenting,and then going further from there. Simplicity becomes very critical, the more simpler stuff you will do, the better will be the adoption.

How do you view competition for your product offerings in India?

B2B marketplaces largely are a winner-takes-all market. In China, Alibaba is the market leader by a distant part. So is the case for IndiaMART here in India. These are not businesses where you will have a lot of large players coming in because these marketplaces typically work on networks. So (if) you will see more suppliers on a platform, more buyers will come there. That cycle essentially makes it possible for these businesses to become a winner-takes-all. I don't expect competition from the domestic companies or from any international company at this stage because those network effects have been in play for the last 6-7 years.

What is your merger and acquisition strategy going forward?

We have done one acquisition in 2022, and it takes time for you to absorb an acquisition. We've done some minority investments otherwise, but we will take each of these things slow from here, rather than trying to be very aggressive, because we need to prove to ourselves that we can absorb these M&As very well and something good comes out of it for the company.

What are your performance expectations for this financial year?

We are still doing 20-30% top line growth year on year. That is what we have been predicting. And our EBITDA margins are in the range of 20-30%.

Our business is driven by two things: net customer addition and average revenue per user (ARPU). We've seen good movement on the ARPU side, but the net customer additions have been happening at a slower pace. But that's a part of the cycle, both combined together, we should still be able to do 20%+ growth rate this financial year.