For OfBusiness, small is big

The production of materials in-house has driven down costs giving OfBusiness an edge in the spaces that it operates —construction and industrial steel, finished goods, agri –products, chemicals and polymers.  And also lifted its profits. Operating profits rose to Rs 666 crore in FY24 from Rs 435 crore in FY23 pushing up net profits to Rs 325 crore from Rs 280 crore. Today, transactions on the platform average one lakh a month; materials bought by customers could be  sourced or made at its own units.

“This contributes the bulk of our profits,” says co-founder and CSO Vasant Sridhar. In an unwritten rule, every order must be margin positive. As Sridhar explains, in a high-repeat order business there is the risk of losses continuing. “If you make a loss in one order, you cannot suddenly increase the price and so the losses will rise,” he points out.

Also, Chief Financial Officer Bhavesh Keswani clarifies that orders are not aggregated and are, in fact, placed back to back as and when they come in. What allows OfBusiness to be competitive, and offer customers a good price, are growing volumes and agreements with its suppliers. “We get a discount if, in a quarter we cross a certain volume. If we do more, the discounts get bigger,” Keswani explains. Also, the minimum order size must be one truckload. “That’s the standard we have set ourselves,” he says.

It works for small units. As Pallab De, Partner, PwC, points out, SMEs do not have bargaining power whereas platforms can source materials at a better price and pass on the benefit to the small buyers. Sushma Vasudevan, Partner and MD, BCG observes that given the scale of the procurement by small businesses, getting the right price can be very challenging. “There is definitely value in aggregating their procurement requirements,” she says. 

The platform’s USP, though, is not just in the price. The reason for stickiness, Sridhar claims is in the nature of the platform which is multi-SKU, multi-material and tech-enabled. “The experience is more like in a B2C app rather than a B2B one.The supply can be tracked and the transactions are reconciled online,” he says. 

Also, deliveries are on time and made at the location desired. This, according to PwC’s De, is important as smaller units are often unable to adhere to delivery schedules since they do not get the materials in time. BCG’s Vasudevan highlights how access to timely logistics at the right cost can be difficult for MSMEs on account of their lack of scale.

To avoid disappointments, quality reports are vetted by the buyers before the material is shipped out. 

“We have set processes and quality standards for every supply chain,” says Keswani. PwC’s De says assured quality helps small units where this is a talent gap and where quality often gets compromised as does the final output. OfBusiness’ field operations are carried out by branch offices in industrial pockets that are relevant to the categories it works in. “We have about 14-15 branch offices across industrial hubs with operations and sales teams who reach out to customers within a 100-km radius,” Sridhar says.

While SMEs and emerging corporates are definitely a key focus area for the company, the startup also works with large firms like L&T, Tata Projects, Britannia, Asia Paints and also global MNCs like Uniqlo and Adidas. The aspiration now is to scale up the business. One way to do this would be to ramp up international trading given both exports and imports are inherently more profitable. Also, the startup wants to enhance value addition at its manufacturing and processing bases; it will pause on acquisitions for the moment and invest capital in its units to boost output. 

Meanwhile with a database of 1.4 million users, aggregated at its sister platform BidAssist, OfBusiness is not short of potential leads. On average, BidAsset scrapes 20 lakh tenders a day. “We can use the data to figure out what customers are looking for and where can we reach out to them with a better offer,” says Sridhar, adding that the subscriptions also bring in revenue.

The lead flow from Bid Assist isn’t the only reason OfBusiness doesn’t incur the typical customer-acquisition-cost and doesn’t spend on digital marketing. Word-of-mouth —across buyers and suppliers– also does its job. “While the app is tech-enabled and there is an element of discovery we don’t really have a customer acquisition cost that we need to recover,” says Sridhar. 

With no reason to burn cash, OfBusiness is now trying to polish its P&L. The aspiration is to get an Ebitda margin of 5% plus from the current 3.6%, in about three to five years. “We’re looking to try and hit a ROCE (Return on capital employed) in the late teens from the current 11%, in about three years” says Keswani.  

OfBusiness last raised some $325 million in December, 2021 at a valuation of $5 billion. A check on costs and some deft managing of working capital might have spared the startup the need for money. But to get to the next league it would need some capital which it should have in a year from now.