IndiaMart InterMesh, the first mainboard IPO (initial public offering) in last two months, opened for subscription on June 24 with a price band of Rs 970-973 per share.
In an interaction with Moneycontrol, Dinesh Agarwal, founder and chief executive officer of the company, spoke about the reasons behind launching an IPO in such a volatile market and the expansion plans of the company.
Q: Given that the market has been so volatile in the last few months, do you think it was the right time to go for an IPO?
A: The IPOs are decided based on the company's own performance as well as the markets. Now, we had a great year, despite the fact that last two years there were major developments such as demonetisation and GST. Last year, we had very good numbers and we started to prepare for our IPO. Now the elections also turned out to be the favour of one single party. So we said somebody has to go first and took the plunge.
Q: In the recent past, multiple IPOs have shown negative results. Did that affect your plans?
A: There are certain global IPOs that have slightly not done so well because of their inherent growth, which is slowly coming down. Secondly, there have been lot of tension going on between the US, China and other parts of the world. Those are temporary concerns because the business model of companies like Uber and Indiamart are robust. This is a temporary phase and will definitely improve in the near future.
Q: An IPO route just to give exits to early investors is quite uncommon in India specially in the internet commerce space. What really led to this decision instead of raising a secondary round from a large equity investor?
A: If you are referring to the companies which are still trying to become profitable, obviously they can't go for an IPO to give exit to their investors. The only possibility they have is to look for a larger fund or a larger acquirer so that it can give exits to the early investors.
But if you look at the profitable ones - Naukri, BharatMatrimony, JustDial - they all went for IPOs and they did very well. It is only in the West that loss-making companies are still going for IPOs. In India, only profitable companies are able to go for IPOs.
Q: The company is learnt to have Rs 685 crore of cash in the bank. Can you share your expansion plans?
A: About Rs 500 crore of cash flow has been accumulated in the last two years alone and then we have been cash flow positive for almost three years now. So, all this cash is purely generated from internal accruals.
In terms of expansion, there are three areas that we are looking at.
The first thing is to get bigger brands. Earlier, we were mainly helping small and medium enterprises. Now we have bigger brands like Jindal Steel, like JCB Machin. So we will continue to invest in building team and sales capability on that side.
Then we will try to see if we can make them institutional buyers on our platform.
We will also continue to expand our SaaS offering. We already provide content management system, cloud telephony and now CRM system. We would look at providing invoice management order management accounts management and we will see if there are any partnership or organic opportunities there. We have recently launched payments and escrow service for debit card credit card. But now new age payment methods are coming up like Zest Money, LazyPay. You can go and use these payment options on large e-commerce firms but SMEs can't have access to these payment options. So, we are aggregating these credit-based payment options. We will also be looking at other fin-tech opportunities like buyer purchase financing and MSE lending going forward.
Q: Are you looking to acquire companies?
A: We will continue to look for opportunities.
Q: How much of investment is lined up for this financial year?
A: The entire cash flow is free. This financial year you can look at a few hundred crores of investment.
Q: What are your expectations from the government on the e-commerce segment?
A: They should focus on infrastructure – road, power, water, education, health, etc. The second is ease of doing business. There are so many archaic laws. The government has already done a lot. They have moved ease of doing business quite a bit.
Now the second term has come and they will do more of simplification of businesses. The simplification is very important. India is a country of entrepreneurship by force not by choice because there is too much population and not enough employment available.
So most of the people have to resort to being an entrepreneur. The compliance becomes an impediment to the growth of self-employed businesses. So I think the best thing that India can do is to simplify things and improve the infrastructure so that larger businesses can move faster at the lower cost of operations.
Q: This IPO is primarily meant to give exits to early investors. What is the roadmap for the other investors?
A: We had about 30 percent total private equity operator and 52 percent of it is with promoters and the rest with employees. So, about 12 percent of the private equity investors are selling and 18 percent will be left, which would be probably more or less equally divided between four private equity investors. Going forward, since the market is open, once their subjective lock-in periods are over, they will be more than happy to either offload to another financial institution of trade in the open market.
Q. What really motivated promoters to sell their stake?
A: We hold about 58 percent and we will be down to 53 percent. So we are diluting about 5% and this to raise certain liquidity and to pave the way for the IPO to happen.
Going forward, there will not be any need for promoters to dilute further. We continue to hold 53 percent in the company. So our interest of promoters and investors remain aligned towards growth of the company. Being listed will help in bring a trust factor to the brand as well as attract better buyers and suppliers.
I have been running his company for 23 years as a private business. Now for the next 23 years, I want to to enjoy the benefits of running a listed company.