Grasim to invest Rs2,000 crore for B2B portal for building materials
Grasim, the holding company of the Aditya Birla group with predominant consolidated interests in Ultratech Cements and Aditya Birla Capital, is now driving digital plans. It may sound surprising, but the digital plans are meant for creating an agnostic ecommerce portal for building materials, which would obviously be a B2B market place. According to Grasim, the building material segment presents a huge scalable business opportunity and that is what Grasim is looking to tap effectively by creating a central situation.
Diversification and group dynamics streamlining is nothing new for Grasim. It had recently made a high profile entry into the paint industry with a focus on the OEM builder segment and with a view to capture the nascent market and give the established players a run for their money. Now, Grasim Industries plans to develop a business-to-business (B2B) ecommerce platform for selling building materials. To begin with, Grasim has planned a rather liberal investment outlay of Rs2,000 crore for this project over the next five years.
While the idea of this B2B market place would be to empower and catalyse growth in the adjacent segments like paints, construction, cement, building materials etc, it would also expect the ecommerce business to add value to the group of its own accord. So apart from engendering efficiencies in operations, the B2B market place would also have a dedicated revenue model of its own over a period of time. To keep it youthful and professional, it will be manned by a set of newly recruited leadership without the legacy business baggage.
The reasons are not far to seek. Grasim estimates that the overall building materials procurement segment in India has grown at a CAGR of 14% over the last 3 years. However, they also believe that as of now even the surface may not have been scratched. Currently, the industry is dispersed but has a consolidated potential of around $100 billion. However, it currently has a rather paltry digital penetration of just 2%. As much as that sounds like a stumbling block for the company, Grasim also sees a huge opportunity in this gap.
For the Birla group, this is a very strategic and top level decision that would be gradually articulated and shared across the group ecosystem. The foray into B2B e-commerce is a manifestation of the intent and commitment of the Birla group to invest in the new-age, high growth digital space. It is not just a business opportunity, but it is also huge, untapped and has a huge potential to become more efficient by scaling up.
The B2B platform can address the plethora of problems that companies face in procuring building materials.
For Grasim, there are also tremendous synergies in this step. For instance, Grasim would be able to leverage the large B2B ecosystem within the Aditya Birla Group. Grasim has already committed Rs10,000 crore for the paints segment and it now plans to take the brick-and-mortar businesses one level higher. It will be engendering price and location efficiency by leveraging technology and connectivity very effectively. Obviously, for Grasim, this fits like a T into their larger business game plan for the construction industry in India.
Here is how the B2B platform would be leveraged and address various challenges within the existing supply chain. For instance, Grasim’s online platform will target to sell cement and aluminium products manufactured by UltraTech Cement and Hindalco Industries; both Aditya Birla group companies. They will focus more on creating an internal ecosystem of MSMEs where the efficiencies cannot be replicated at the customer end and something that would genuinely add value to the users.
Such platforms are not new. JSW is already working on the JSW One platform. Even Tata Steel has an online platform, Ashiyana, for the B2C segment. This is, however, primarily targeted at individual home builders. Overall, the moral of the story is that it is expected to be value accretive for shareholders in the medium to long run.
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