startup of the year ofbusiness: ETSA 2023 | OfBusiness seeks ‘high’ of having its ticker on exchanges

Business-to-business (B2B) ecommerce platform OfBusiness, which won in the prestigious Startup of the Year category at the Economic Times Startup Awards 2023, was chosen by a preeminent jury for achieving the scale of revenues and profits it has – particularly at a time when the ecosystem’s focus is shifting towards sustainable business growth.

As the company begins to gear up for its initial public offering (IPO) expected to be launched next year, OfBusiness cofounder and chief executive Asish Mohapatra said that while the exercise is being undertaken to allow some of its early investors to exit, there was a “philosophical high” to see the OfBusiness ticker on the stock exchanges.

“I think there is that feeling in us. When we started off, we said we would do it in eight years. It’s almost eight years now, and it’s not going to happen until next year, but there is a passion that you want to see the name,” he added.

OfBusiness was founded in 2015 by Mohapatra, Ruchi Kalra, Vasant Sridhar, Bhuvan Gupta and Nitin Jain.

While Kalra leads Oxyzo, Sridhar also spends time in running the financial services unit. Mohapatra and Kalra are married to each other. Oxyzo was spun out in March 2022 and raised its first external funding of $200 million from Tiger Global, Alpha Wave Global and Matrix Partners India at a valuation of over $1 billion. According to Tracxn, OfBusiness holds over 70% stake in Oxyzo.

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Mohapatra said OfBusiness’s IPO, which was initially slated for later this year, has now been pushed to December 2024-January 2025. The listing of its lending business Oxyzo will happen a year after the OfBusiness offering.

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He underscored that the commitment to take the company public is one of the key drivers of good corporate governance in the firm. “The belief is that we have to list…in listing, if your corporate governance is good, you will get a premium of 10-15%. If I take a shortcut, then I won’t get money or people won’t come. So, there is that inherent belief that you get a premium…so why take that risk? It doesn’t make sense”.

His comments on corporate governance come at a time when the Indian startup ecosystem has seen multiple cases of alleged poor business practices at new economy companies, including Byju’s, BharatPe, GoMechanic and Mojocare.

IPO outlook

The delay of a year in OfBusiness’s IPO, Mohapatra said, was on account of several factors.

“Firstly, the market on the IPO front is dry. Secondly, there is a runup to the general elections. So, to do it just prior to that means that you could miss the buzz. Generally, after general elections, markets heat up, especially if there is an incumbent government that comes back,” he said.

The company is also cautious about foreign institutional investors participating in Indian offerings on account of the global meltdown of tech IPOs. “Domestic investors are still active, but foreign investors may not come,” Mohapatra said. “We were actually readying ourselves about six to seven months back with an aim to do it this December…but if you see, most of those who were lining up for this December have pushed it back”.

Notwithstanding the near-term factors that are making the company push its timeline, the OfBusiness chief executive said while there is no lack of depth in the Indian markets to take on a large IPO, it is looking for more near-term returns. He drew on the November 2021 Paytm IPO, which saw the shares hitting the lower circuit on debut, after what was the biggest Indian IPO at the time.

“What happened at the time of Paytm is that it was a big IPO and the multiples were very forward looking. They were more based on what the company was projecting 3-5 years out…that won’t happen. There has been a realistic compression in terms of how much investors can pay, and they are paying more for the immediate term returns. That has changed,” Mohapatra said.

Growth strategy

For FY23, OfBusiness, which is backed by the likes of SoftBank Vision Fund, Alpha Wave Global, Matrix Partners India and others, posted revenues of Rs 15,200 crore with profits of Rs 460 crore. The bottom line saw a more than 2x jump from FY22 when the company reported Rs 201 crore in net profit.

The Gurgaon-based company, which operates as a marketplace for small and medium enterprises, offers products such as steel, non-ferrous metals, chemicals, agricultural products, polymers, energy commodities, textiles, construction materials and leather.

Over the last few years, Mohapatra said, acquisitions had emerged as an important part of the company’s growth strategy. It has so far acquired 19 companies and plans to bring this number up to 25 by the end of this fiscal, he added. These include smaller firms in the agricultural produce, steel products, metals, and manufacturing.

But the broader plan towards making these acquisitions is not to enhance the company’s top line, Mohapatra said, indicating that the firm was targeting backward and forward integrations through these.

“We don’t want revenue. For example, we do steel, and have grown at a faster pace than some of the suppliers, or there are suppliers who are not able to catch up to the pace at which the marketplace is growing. Hence, I need to lock my supply. That’s how we started into acquisitions, which was backward integration, so at least we have supply assurance,” he said.

“In forward integration, we are looking to add one more level of processing, so that our margin improves, and customers get good, relevant products. We give them exactly what they want rather than expecting that they will get the processing done,” he added.

Lending business

Oxyzo Financial Services, which started as a purchase finance platform to support buyers transacting through OfBusiness, is expecting to have a billion-dollar loan book (Rs 7,800 crore) by the end of this fiscal. As of March 31, 2023, its loan book was Rs 5,578 crore in size.

Kalra, who heads the business, said during the interaction with ET that the company’s primary focus was on small and medium enterprises. “It fits into the OfBusiness story because the OfBusiness story is all about B2B, how to address all gaps in the B2B ecosystem and hence one of the most important is obviously credit,” she said.

Kalra added that the firm typically targets enterprises in the Rs 20-200 crore turnover range and has expanded its focus to the Rs 200-500 crore market. However, she said that it will avoid going much further down the ladder. “The Rs 20 crore may go down to Rs 5 crore, and hence we may have a micro lending model compared to what we have today relatively, but we would remain focussed on B2B. We believe that’s the ignored part and where the opportunity is,” she said.

“Retail is crowded…banks, credit cards, small non-banking financial corporations are there. It’s very competitive and crowded,” she added.