Indiamart's business-to-business platform eyes $1 billion in GMV sales

Intel Capital-backed Indiamart sees its business-to-business (b2b) e-marketplace arm Tolexo.com achieving over $1 billion in gross merchandise value (GMV) by 2017 and $10 billion worth of transactions by 2020. Indiamart, a b2b marketplace that matches buyers and suppliers but doesn't facilitate transactions, sees Tolexo.com achieving the target by converting 10% of the $16 billion annual transaction value generated through Indiamart.

Brijesh Agrawal, founder and chief executive officer, Tolexo, told dna that the opportunity in b2b is always three times more than business to consumer mainly because of higher value and volume.

"When the Tolexo platform was launched six months back we were doing three orders a day. Today that number has grown multifold and we are doing thousands of orders daily. In fact, keeping the current growth rate in mind, we should be growing 30 times (year on year) in the next 12 months doing 25,000 transactions everyday," he said.

How does Tolexo operate?
Agrawal said while all products are listed on Indiamart – where online buying facility is not available – certain products will have an option to buy online through Tolexo.

"When the buyer clicks on the buy option (on the Indiamart platform), s/he is taken to the Tolexo that facilitates selection, payments, customer support and fulfilment. So, we are basically marrying the two platform," he said, adding that there is no change in Indiamart's subscription business model, which is growing at 40% annually.

While Indiamart will continue to function the same way for the next 4-5 years, the promoters see Tolexo driving significant business growth in the future. "It will be the real growth driver for us and will sit atop the Indiamart platform," said Agrawal, who is fully focused on Tolexo operations now.

From the five lakh products across 21 categories now delivered in 900 cities, Tolexo will have 10 million products across 10,000 categories by this year end, Agrawal said. Indiamart currently has 2.4 crore products across 1 lakh categories.

The products on Tolexo are bought by manufacturers, laboratories, general office supplies and specialised verticals / businesses like construction, hospitality and hospitals. To drive growth and visibility, the company is also planning a huge promotional campaign for Tolexo in the second half of the current fiscal.

Among early adopters of platform for their industrial goods requirements include small and medium enterprises and regional businesses in the Rs 10-100 crore bracket. Large-cap companies like L&T, Lanco, Taj Group, Ashok Leyland, HUL, P&G, Reliance Industries, Indian Oil, Bharat Petroleum, ONGC, Gail, Hero Motocorp, Apollo Tyres, BHEL and Honeywell are also tapping the platform.

To lead growth, Agrawal has got on board a team of four senior e-commerce industry executives including Navneet Rai (former co-founder of Inkfruit and Zovi), Harsh Kundra (former chief technology officer of Jabong), Prashant Chauhan (former head-digital marketing and alliances, HomeShop18) and Nikhil Agarwal (former president of fulfilment services at Delhivery).

On the valuation of both entities, Agrawal said it would be anything between $5 billion to $10 billion in the next over three years. "If I am able to do $1 billion in two years in Tolexo at a multiple of 3x-- which is what that valuations Flipkart and Snapdeal are seeking – my business should be worth $3 billion. The rest of the value will come from Indiamart. And if we are able to improve on that in the third year, which we should be able to, we should be inching closer to the $10 billion figure in a span of five years," said Agrawal.

As for potential competition in the b2b space from the likes of Amazon and Alibaba, Agrawal said Amazon will certainly enter the business as it already has a b2b model under Amazon Supply banner. "They will definitely bring it (Amazon Supply) and I'm absolutely fine with that because the market will then expand in a big way. And I think I don't need to worry about Amazon launching say in about 12 months in India.

"That's because, being a market leader I would have grown Tolexo 30 times by the time Amazon comes in. It's the same logic of Flipkart versus Amazon, it will be very difficult for Amazon to displace a business/brand that has the first mover advantage," he said, adding that Tolexo's clear focus at present is on execution and growth that will help it get an edge and secure more funds for the business.

While the initial capital required to set up the Tolexo business has been pumped in by Indiamart, the management sees $100-200 million capital and operational expenditure in two years. This would be met by raising capital within the next six to 12 months and the senior management has already begun meeting potential investors. However, whether to raise the money in Indiamart or Tolexo is not yet finalised.
Challenges in the business are in in the form of supply chain as packaging in the b2b e-commerce (huge boxes) is very different from b2c. There are also structural bottlenecks (like completely booked air capacity to transport goods) that also do not allow to scale up quickly. In such a scenario, how will Tolexo deal with the issues while also ensuring growth multiples?

"We are working on something like a carrying and forwarding (C&F) agent model that's very popular in the FMCG and pharmaceutical industry. An alternative structure of supplies on the similar lines is currently in the works that moves beyond regional warehouses to a C&F structure. So goods in bulk will be sent to these C&F agents across important cities (especially those with congested air traffic) in the country and they will despatch as and when the orders are received," he said.

India allows 100% foreign direct investment in the b2b e-commerce sector, thus offering a huge growth potential. Wal-Mart, top global retailer, puts the Indian b2b e-commerce market at $300 billion, which is expected to reach $700 billion by 2020. According to Frost & Sullivan research, the b2b e-commerce market is expected to grow to $6.7 trillion in gross merchandise value by 2020.
With over five lakh products, the Tolexo platform has already delivered products to customers in over 900 Indian cities in the short span of six months.