Hello and welcome to E now. You're watching IPO Central and my guest today is from Meesho. It's a technology platform driving e-commerce in India. Its IPO is opening on December 3rd and closes on December 5th. Price between 105 to 111 rupees per share. It has a fresh issue of 4,250 crores, offer for sale of 1,171 crores. The total size of the issue is 5,421 crores and that gives a company a value of a little over 50,000 crores at the upper end of the price band. Joining me is Vidit Aatrey who is the CMD and CEO of the company and Sanjiv Kumar who is the co-founder of the company. Gentlemen, thank you very much for joining us on ET Now. Vidit, let me start with you. You know it's a technology platform catering to e-commerce. Give me your business model first.
Yeah. So our mission statement is very simple. How do we really democratize internet commerce for everyone? That includes consumers, businesses, everyone in the logistics ecosystem. Over the last 10 years, we have built a very vibrant ecosystem that offers a very strong value proposition around affordability to our consumers. We have grown to become the largest e-commerce platform in India in terms of the number of customers that we serve as well as the order volumes that we do. So for the last 12 months ending September, we had 23 crore customers in India who bought at least once and we did 230 crore orders. Both of these are the highest for any commerce platform. And the way we monetize our platform is through the services to our seller partners. One is through the logistics services and second is the advertising services. We have a product that allows them to promote their listings on our platform and because of that you see consistent growth in our contribution margins over the last 2 years.
You know you're raising 4,250 crores in primary issuance. What is it going to be used for?
So we're going to use the proceeds to grow our ecosystem. So we are doing a lot of investments toward technology as well as AI. And I will ask Sanjiv to talk about it. And the second thing we're investing towards is basically growing our annual transacting user base. If you see for the last two years, it has been growing at a very good pace. Last year at about 30% year-on-year. So there's still a lot of growth potential in growing number of customers. So marketing spends towards making that happen is a big focus area for us and we're also looking at can we find some inorganic opportunities over the next coming years. Anything that is aligned to our mission statement would be interesting for us. Sanjiv, can you talk about our tech investments.
So we rely heavily on AI to simplify the consumer experience. It's extremely important because the kind of consumers that we are catering to, they need simplicity in shopping experience, especially because about 75% of the orders today come from ranking and recommendation real estate, which means people are not explicitly telling us what they want. We get clues from them based on the kind of categories that they're browsing, the products that they're spending time on and so on. So one of the big focus areas is for us to continue to upgrade the ranking and recommendation models to state-of-the-art and this field is evolving pretty fast with the latest generative AI models coming in. It's also more important to continue to figure out how do we use and how do we improve shopping experience in the best way possible. Also with GenAI coming in, there's a potential to disrupt the entire shopping experience. So if you look at the current shopping experience, it hasn't largely changed over the last two decades. It's a static feed of static images and maybe some videos. But if you compare that to offline shopping, that's very conversational in nature. Today already in the current tech stack we have capabilities through which we have automated largely our customer support chat and a decent percentage of our customer support voice calls again through in-house built AI. There we plan to use the same capabilities, enhance it and use it in shopping to help new users who are coming to the app to help them navigate through the app, find the relevant products, so create a lot more engaging and conversational experience. So this is again a new bet that we're exploring.
Vidit, you have a unique model. You provide services to businesses, you don't charge commissions and you don't have a platform fee. Give me a sense of the revenue generation model that you have.
Yes, so as I said, we monetize today via two things. We offer logistics services to our merchants. And because today Meesho has the lowest cost logistics platform, Valmo, we are able to offer a much better value proposition in terms of affordability to our consumers while also basically monetizing there. We are able to charge through a markup on our logistics fees. Second is a lot of our sellers who want to grow on the platform, they are willing to spend on ads. And if you look at globally, some of the largest value commerce platforms in geographies like China, Southeast Asia, Latin America have been able to grow profits a lot through advertising services to their merchants, which is what we are doing. In both of these we have a long runway of growth of growing our revenues both in terms of logistics as well as advertising and get to similar levels of profitability as you see in the global markets.
And so if I'm not wrong, the driver for your profitability or revenue growth would be volume growth on a year-to-year basis. And how much of a leeway that you will have with respect to the kind of logistics services you provide will or getting better realization from logistics because many of the logistics players are loss making in this business.
Yes. So I think you can even see it now. We've been consistently reducing our cost of logistics because we become more efficient. We created this Valmo platform which is an innovation in the logistics ecosystem that kind of reduces the cost even more and hence we have been able to pass back a lot of that value to our consumers, make value proposition even stronger while also making money in the process. So there has been a lot of opportunity there. Just talking about growth. So if you see the last 6 months of this year, our NMV grew at about 44% and our orders grew at about 50% year on year, right? Which is very very different than anyone else in India. So we are definitely growing really fast and we believe we can continue to grow much faster than the market for the next few years. That is reflected in some of these numbers. So I think all of that points to very high potential of monetization both through logistics as well as advertising in the coming years.
Yeah but you know I'm seeing your numbers as well where your advertising and marketing expenses have also gone up in the last 6 months, accounting for nearly 9% of the net merchandise value there. Is that the going rate for growth going forward that your marketing and advertising expenses would be in that range of 9%?
No, I think it's just a matter of time. So if you see last two years, we have been able to improve our value proposition to our consumers quite a lot and because of that we saw a very attractive CAC which is cost of acquisition of customer and payback periods. So we said why not go out and aggressively acquire these consumers and that's reflected in our growth. So because we saw very strong payback periods we are willing to invest. We internally have very strong financial discipline. We only invest if we are seeing a certain IRR return on all our investments. So I think because we are seeing very attractive growth, we are willing to spend marketing. But if for example tomorrow we see we can't acquire new customers at the same pace, you will see some of these spends going down. So I think it's just because our value proposition is much stronger, we believe it's the right thing to do for the long-term platform to basically go out and acquire these consumers.
Sanjiv, you spoke about how you're going to use machine learning and generative AI. How is that helping you in acquisition of customers and retention of customers?
Great question. I think AI, the way we use AI in the marketplace is each and every critical decision making is driven by AI. So right from when consumers come to the app, they open the app, the feed is hyperpersonalized for each and every customer. So on the marketing side, for example, when a new customer comes to the app, it's extremely important to understand and predict what are this new consumer's preferences going to be and it's harder because then you don't have enough data about that customer. It's a new customer. So we invested in AI algorithms to make it work with limited data points because we do profiling, we do a bunch of other pattern matching to understand what kind of products is this customer going to like a lot more. I think that is one. Even beyond that, we continue to optimize the entire funnel after the consumer comes to the app, which helps in reducing the payback period of that CAC. So as consumers continue to come to the app and transact more, that naturally helps in building retention. So if you see, today we have the highest amount of time spent per consumer per day on the app and that is because the kind of feed that we show to users is just so engaging, it's just so relevant for the customers that they continue to browse and continue to keep coming back to the app, which naturally helps in having much better retention than anybody else.
And how does it help you to penetrate into cities like tier 2 and other cities? Because my understanding is that you've been able to do that much better than others.
Yeah. So there are few things here. First and foremost, the shopping experience needs to be extremely simple for these users because many users who are now coming to Meesho, they are buying online for the first time. Now most of the other apps that they would be using would be maybe WhatsApp. So you have to keep the experience extremely simple. So if you look at our app today, it's a simple feed of personalized products. There are no banners, there are no widgets, there are no complex decision-making that is required to navigate the app. Even simple things like address. If you go to small towns in India, address is not very structured. So you don't have flat numbers, a clear street name in many cases. So we have built this technology we call GeoIndia LLM. What it does is it understands Indian way of describing address like '300 meter from this petrol pump, take a right' - very typical way of describing address in small towns. So this AI model understands it and converts it to a location on a map which then we are able to deliver. I don't think most people out there are able to understand this kind of address and deliver it to our customers. So we rely heavily on AI to make it work at our scale.
