Ofbusiness catches an unusual tailwind as it renews IPO plans

Ofbusiness is not your typical e-commerce company. For one, it’s profitable. In fact, it’s been profitable for seven out of its eight years of existence—a rare feat for Indian startups, many of which have been struggling to cope with a funding freeze and moderating growth the past few years.

The online raw materials marketplace for businesses, on the other hand, expects its FY24 profit to jump by 50% from a year earlier, a period fraught with global economic uncertainties and geopolitical tensions. For Ofbusiness, though, this has turned out to be a blessing, enough for it to relaunch its process for an initial public offering of its shares.

The company had planned to go public last year, but deferred its IPO citing unstable market conditions. Later in the year, Ofbusiness approached sovereign wealth funds, private equity funds, and crossover funds to raise $150-200 million at a valuation of $6 billion, as Mint reported in November. Ofbusiness denied the development.

While Ofbusiness has benefited from the China-plus-one strategy, a push for global businesses to diversify their supply chains and assembly lines, the company has in recent times found another factor playing in its favour: Uncertain global macroeconomic conditions and geopolitical tensions, which have encouraged businesses to prioritise India as a sourcing destination. 

"In the last 3-4 years, this is the largest significant tailwind that has come about," said Asish Mohapatra, co-founder and chief executive officer of Ofbusiness.

The company now plans to tap the public markets in 12-15 months, after hitting ₹1,000 crore in after-tax profit, a target Mohapatra expects to reach in the ongoing financial year.

Before listing, Ofbusiness also has to ensure that the companies it has acquired also comply with the same level of governance norms as the parent company, Mohapatra said.

"We are very much in the process of it... we will appoint bankers in about 3-6 months," Mohapatra said, adding that the company will likely file its draft red herring prospectus (DRHP) by the end of this year. He did not disclose more details on the IPO.

Indian regulators require companies to build a suite of independent directors, ensure governance compliance, and consolidate financial control processes before filing for an IPO. Ofbusiness has met most of these parameters and should be in a position to begin work on its DRHP in 3 months, Mohapatra said.

In FY23, Ofbusiness more than doubled its operating revenue to ₹15,342.57 crore, while increasing its profit by about the same measure to ₹462.76 crore. In FY24, profit has jumped to ₹700 crore on a 38% surge in revenue, Mohapatra said. Ofbusiness is yet to officially report its FY24 financials.

Ofbusiness' benchmarks to list publicly are in sharp contrast to what many startups have been doing in recent years. While some startups with a clear path to profitability went public during the pandemic even as they were loss-making, others sought to become profitable and assess the sustainability of those profits for 4-6 quarters before going for an IPO.

Other companies in the B2B segment, too, have seen steep growth rates in recent years. Zetwerk, Infra.Market and others have been profitable and are attracting investor interest.

Ofbusiness has raised nearly $900 million across 11 funding rounds, according to the earlier Mint report. The company, which was valued at about $5 billion in 2021, counts Norwest Venture Partners, Matrix Partners, Alpha Wave Global, Tiger Global, and Softbank Vision Fund 2 among its investors.

A string of strategic acquisitions

Over the years, Ofbusiness has spent about ₹1,300 crore on 10 acquisitions in sectors such as steel, garments and agriculture. Some of its recent acquisitions include steel manufacturer SMW Ispat and Koeleman India Pvt. Ltd, which marked its entry into the food processing sector. 

The company plans three more acquisitions this year, Mohapatra said, adding that Ofbusiness will spend another ₹200-300 crore towards these purchases, which will largely be in the garments space.

Steel is another important area for acquisition as the sector accounts for about 32% of Ofbusiness's revenue. While many of these acquisitions were executed at a conservative scale, "we want to acquire either buyers or suppliers for vertical integration and for market entry into a sector which is very adjacent to what we do today… this gives more value for our customer base," Mohapatra said.

Acquiring companies with specific specialisations or startups with a similar problem statement but which are yet to attain scale will allow Ofbusiness to go deeper into existing markets, according to Mohapatra.

"The more specialised you are, the more value you will generate and the more relevant you will be for your customer," he said. "We started out as a much more broad-based player and hence to actually develop specific industry as well as product expertise in each of our verticals is a tough journey… We have made some segway into it but very early and nascent into each of these journeys. So acquisitions of companies with a lot of speciality knowledge will help actually scale."

Emerging challenges

Founded in 2016 by Mohapatra, Vasant Sridhar, Bhuvan Gupta, Nitin Jain, Ruchi Karla and Srinath Ramakkrushnan, all graduates of the Indian Institute of Technology from different campuses, Ofbusiness provides manufacturing and infrastructure companies with purchases of metals, chemicals, agricultural commodities and building materials.

Ofbusiness, which competes with players such as Infra.Market and Moglix, may see more heat from other established players such as the Tatas, Birlas and the Adanis, which are also slowly venturing into the B2B raw materials supply space.

Additionally, many of the distributors that act as intermediaries between original equipment manufacturers and the end users are now looking "to become savvy enough to create platforms that will be similar to a business," Mohapatra said, explaining the rising competition in the industry.

Ofbusiness has three business segments—lending platform Oxyzo Financial Services, a unicorn in itself, and software-as-a-soultion platform BidAssist. While Ofbusiness owns a majority stake in Oxyzo, the finance business functions as a separate entity. 

Oxyzo provides business loans and working capital to small and medium-sized enterprises in similar sectors that Ofbusiness operates in.

Meanwhile, BidAssist is an engagement tool for the other two platforms and currently has about 900,000 active users. "It is still in very early stages of monetization," Mohapatra said, adding that the overlap between BidAssist and the other two businesses is likely in excess of 50-60%. 

"The way we are structured is that our SaaS arm, while it is a revenue-generating engine on its own, its primary responsibility is to make sure that it is a customer-acquisition tool for our commerce and financing businesses," he said.

Ofbusiness typically serves customers in Tier-2 areas and some city peripheries, with less than 10% of its revenues coming from large metro cities. The company also has an international division that is split into two categories—import and export.

The company imports about 2.5% of its supplies from Southeast Asia and West Asia in particularly two segments—agri products and petroleum derivatives, as these are relatively newer businesses. This figure is expected to touch 4% this year, Mohapatra said. 

The company’s exports in the agri and finished garments space currently stands at 2-2.5%, and is expected to reach 5% this year.