Grasim Industries Limited (GRASIM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Grasim Industries Limited Conference Call to discuss the company's foray into new business. We have with us today from the management team, Mr. H. K. Agarwal, Managing Director; Mr. Ashish Adukia, Chief Financial Officer; Mr. Pavan Jain, incoming Chief Financial Officer. [Operator Instructions] Please note, this conference is being recorded. I'd now like to hand the conference over to Mr. Ashish Adukia, CFO, Grasim Industries Limited. Sir, thank you, and over to you.

Yes. Good evening to all the participants. Thank you for joining the call in a short notice. In the last few years, we've been on the journey of defining the growth plan for the business -- for the company rather. In doing so, we've added paints as one of the growth engines of the company. Today, stand-alone Grasim operates in asset-intensive businesses, where the scalability of business hinges on capital deployment. A B2B e-commerce should address the need for high growth, but at the same time, with a reasonably low level of capital commitment with potential to significantly scale up. With this objective of investing in high-growth business and a future-oriented new-age space entering, last evening, our Board of Directors approved the foray into B2B e-commerce platform for the Buildings Material segment. The Building Materials procurement segment in India is estimated at about $100 billion with current digital penetration of just about 2%. This overall segment has grown at a CAGR of [ 14% ] over the last 3 years. This segment, therefore, presents a huge scalable business opportunity with a proven pass-through profitability. With the objective of gaining a pie of the overall Building Materials procurement segment, we plan to invest INR 2,000 crore over a 5-year period. This investment will primarily include manpower, technology, marketing cost and the working capital requirement. So just to clarify, its overall cash outflow. It's just -- it's beyond CapEx. One of the key success factors would be our ability to leverage the large B2B ecosystem within the Aditya Birla Group. It also has clear adjacencies within Grasim's stand-alone businesses as also that of its subsidiaries and associates. We did an extensive research before deciding to enter this particular segment. We did almost 150-plus customer and vendor surveys to understand their pain point and finalize our value proposition. The key value proposition of this proposed platform may include on-time delivery, superior product range at competitive pricing, reliability and consistent quality, access to easy and low-cost financing and other integrated solutions. Initially, the platform will primarily focus on [ MSMEs ] in the Building Materials segments. On achievement of reasonable success in the Building Materials that it would have potential to be extended to other relevant industrial materials as well. We are in the process of building a relevant leadership team with the right experience, which will execute this plan. Overall, in terms of financial numbers, at a total cash outflow of INR 2,000 crore over 5 years, we should be able to achieve a profitable business almost at the end of the investment period. In summary, it is a relatively low investment, scalable business model, which should yield higher returns. I'm now open to Q&A.

[Operator Instructions] We have a first question from the line of Pranav Kshatriya with Edelweiss.

Can you please elaborate a bit on what exactly is the product offering you are trying to create? Is it going to be some sort of e-commerce portal where people can buy material directly? Or you are targeting mostly the distributors or the suppliers of these materials? And where does this largely INR 2,000 crore of investment goes to? I mean, do you foresee some investment in the inventory or logistics or any other? That's my first question.

Sure. So I'll talk about the business model first to answer some of your questions and then the product category. And the third question you had was on INR 2,000 crore. So first of all, there is an end to end right from supplier to the customer value chain that we are going to take care of. So there is a B2B e-commerce platform that we will create, which will be a digital platform, technology-driven right? That platform will onboard the customers, which can be your contractors, your retailers, your real estate developers, et cetera, okay? Before I get into actually value chain, maybe some color on product category will help you to understand the value chain better. So the product category will be in the Building Materials space. So it can be tiles, steel, sanitary wear, plumbing, kitchenware, cement, paint. So all these things that go into building materials, that will be the cost category to start with. And I talked about our suppliers -- sorry, the customers and the suppliers would be typically the OEMs, large distributors, et cetera, who will be supplier on this platform. It's not a very typical -- we are not taking off a typical marketplace where we just create a platform and these two ends come and meet. We will also obviously catalyze these relationships and customer interaction. So I would like to just stay at that and not dwell too much into details, but that's broadly what the platform we are talking about. We'll be involved in entire fulfillment, et cetera, as well as our business model. On the last question that you had on INR 2,000 crore, without specifying the numbers in each areas, of course, given its technology-driven business model, the technology will be #1 cost followed by manpower and marketing. And it is going to be inventory-led so they can be working capital cost as well.

If I can just ask one follow-up question. So suffice to say that it will be more of a managed work, I mean, marketplace kind of a model where you will select which vendors can come in? Or you would end-to-end control and everything will start getting booked on your book?

No, no. It's not -- it's a managed platform, control platform where we will focus on quality as well as product range. So therefore, the vendor selection and everything will be on the basis of that. I would like to repeat that we are -- Aditya Birla Group has a very large B2B relationship already existing. So we know a lot of these suppliers and on the other end, customers as well. So therefore, we will also leverage on our relationship. But it is -- why it is an open architecture, but at the same time, it's managed platform where we'll have the vendors and panels. It will be more open for the customers, but vendors will be a little bit more controlled.

We have next question from the line of Prateek Kumar from Jefferies.

First question is, when you say you'll invest INR 2,000 crore for 5 years, we -- in the paint segment, which was the last set of investments, which you talked about, there within a matter of like a couple of years, like you revised your investment upwards and doubled that investment over the same similar time horizon. Maybe you elongated the time horizon by a year. So would this INR 2,000 crore be remain here? Or it can also -- it is also like sort of flexible and you can revisit this investment because you talk about total categories also? Yes. So my first question is this.

No. So let me first of all correct you, okay? I don't think or rather not that I should say, I don't think. But we never doubled the investment in our earlier venture, if that's what your question -- or what your comment was. It's very important that I clarify to you on paints. We accelerated our capacity execution. So the capacity that we talked about of 1,332 MLPA, in our original plan, it was coming in later years, which we have accelerated now and it'll come earlier what we have indicated on the call. And accordingly, the CapEx has also got accelerated, okay? So I just want to clarify, there is no doubling of CapEx out there. There's acceleration of capacity implementation there. Now coming to this particular question, we have a certain target in our mind in terms of the share, the pie that we want to have of this market of the digital penetration, et cetera. It's a very large opportunity, like I said. So it presents us a very large GMV that we can get to. And accordingly, we have built out our business model. INR 2,000 crore is slightly on a conservative side. But we want -- and that has baked in all the costs that are there in terms of technology, in terms of inventory that we may have to carry in terms of manpower, marketing, initial incentives, et cetera, that we need to give. So everything is baked into this INR 2,000 crore all cash outflows.

Sure. Okay. On the same side also rephrase my question. So because you say you are looking to invest into some other categories. So this INR 2,000 crore is related to Building Materials e-commerce segment. And when you look at other categories, the number can go higher. Is that so?

No. So good points. So I missed clarifying that part of your question. So right now, the focus is on Building Materials. Now once the technology stack is ready, your fulfillment is ready, okay, then adding product categories, the incremental cost for that should not be as high as setting up this whole platform. So while we have not currently taken in our business model, other product categories as yet, but what we can conceptually tell you is that added product category incremental cost should be only marginally higher.

Sure. My next question is on -- in general, in Aditya Birla Group, I mean, while we say this is a new age business, which clearly it is. In Aditya Birla Group in general, which all businesses do you count as a new-age businesses as of now, where we are already present, and we believe that we will be able to succeed here like significantly?

So I think from Grasim point of view, I can say that we are working on all our businesses to see how we adopt to new ways of doing things in other businesses. We are looking at value-added products, et cetera. So difficult for us to comment on the group. But maybe Mr. Agarwal can come in out here.

So for example, Prateek, right? Prateek, we are in the viscose fiber business. We are very large. But now the new-age angle is, now there is a theme of circularity and sustainability. So we are working very aggressively to see how we can reuse or recycle the huge comments as a source of raw material. So this is a new way of working, instead of depending on the conventional raw material, like it's already there [indiscernible] . So along -- like sustainability is a big issue today, and we are at the forefront of improving -- of setting new benchmarks in sustainability in our existing businesses. So there may be still traditional businesses, but there is a new way of doing things or new aspects of doing the same businesses.

Sure. And my last question, why do we think that some of our competition in the same segment where Aditya Birla Group may want to give business to our [indiscernible] -- like, for example, Chemical or cement or ready mix? So would there not be any competition issue, which other players may want to leave and may not give business to you?

No. See, I think this will be positioned, like I said, as an open architecture B2B e-commerce play, right? And I think if you want to make a success out of an e-commerce play, which has superior quality and a superior range available to the customer, at least from our side, we -- all the suppliers of the product that we are also in are our vendors, right? And we will treat them likewise. So we don't see any challenge really either from our side or from the competition. If our platform is superior in reaching their products to the customers, then why would they miss out on this platform. So if we going to do a good job of creating a good platform and a good fulfillment, then I'm sure we won't have that issue.

So basically, this will be a brand-agnostic platform. It is not just drafting product or Aditya Birla Group's product only. So all good quality products, all good quality vendors will have equal position depending on the competitiveness that they want to bring to the platform.

We have next question from the line of Sumangal Nevatia with Kotak Securities.

First question is on the time line. I mean, when do we expect the commercial launch of this platform? And also, if you could -- the second follow-up would be on the breakup of this INR 2,000 crores. You said it includes a lot of working capital, marketing, et cetera. So at least extra working capital, what sort of investments or CapEx are we looking out of this INR 2,000 crores, if you could share?

So to clarify, CapEx won't be much. It'll be just your initial technology stack that you put in, okay? That should be the CapEx, maybe about INR 600 crore or something, INR 500 crore, INR 600 crore. But other than that, that will be on the technology side, other than that are the categories that I mentioned, it's still premature to talk about what those numbers could be. Like I said, INR 2,000 crore is also conservative. So that's what also you have to keep in mind. On the time line that you talked about, these kind of platforms and our plan also typically would take about 6 to 12 months to commercially launch it. The 5-year horizon of investment that I talked about is basically is the fifth year when it reaches cumulative at peak of INR 2,000 crores. But that's because of, obviously, like I said, other requirements like working capital and the costs for building out the platform. But the idea is to put the technology, get some of the quality vendors signed up and then launch it in 6 to 12 months' time frame.

Okay. And then with the 6 to 12 months, I mean this is assuming the start would be once you have the entire team being set up, the management team and the execution team. So I mean, how far are we -- or are we already on the sideline started to set up some team?

So see, I think we are done with the evaluation stage. We've done very extensive study of the entire business model. We will start to now put a team together, right? We're aware of some of the talent, obviously, which is available, et cetera, but we start to put the team together out here. So our idea is to now that Board has supported the proposal, our idea is to aggressive now go ahead and build out the plan. And there is enough, call it, technology, et cetera, that is available in the market for us to quickly implement that. I think -- and we are aware of market through our ecosystem as well. So I think the idea would be to quickly sign up. And of course, you will start geographically in a phased manner in this business. So when we say that we'll be able to launch, it will be in a limited geography, not necessarily PAN India. Over period of time, we'll build it out in the across the country.

Okay. Then just a follow-up question on the cash flows, et cetera. I mean which year do we -- I mean, are we budgeting to be cash positive or overall profitable in this venture?

Yes. So I think, like I said, at the end of the investment period, which I said about 4 to 5 years, we should be profit as an EBITDA positive. And 7 years or so, we should start to be cash breakeven as well.

Okay. And just -- sorry to harp on this and just the positive assumption. I mean what sort of turnover are we looking at?

Look, we are -- right now, we are not talking about, like I said, our market share or GMV. We are not talking about that. So at the right time as we build out, when we get the team in place, et cetera, then we will have better idea of that and we can put those -- give those more concrete ties, if at all. It's too early and premature to talk about those numbers.

Okay. Just one last one from my side, Ashish. Have you engaged with any of the competitors who'll be supplying or who are open to contribute to these platforms? And yes, that's it.

Not sure. I think it is -- the last question also, it's kind of a similar question that was asked last time around. We've obviously, we've not engaged with all the vendors, like I said, we've done survey across 150, both customer and as well as vendor and to understand the business model and pain points. Like we said, it's an open architecture. We would want to have all vendors out here who are of certain quality and can offer the good range.

We have next question from the line of Rahul Gupta from Morgan Stanley.

I have two questions. One, you understand that tech is an evolving space, and it needs continuous investment. So when you say that it would take around INR 500 crores to INR 600 crores to build the initial tech stack, so have you taken into consideration in your INR 2,000 crore of conservative number that there could be maintenance needed in this stack over the period of next 5 years? That's my first question.

Yes. Both -- that has been already considered in our model. And both OpEx as well as CapEx on the technology front has been considered and the maintenance, like you said, upgradation, et cetera.

Got it. My second question is more out of curiosity. Is it fair to assume that creating an ecosystem is just the first step and you are looking to create a platform where you can control various stakeholders to create a financial services platform as well where you can look to provide, say, payments and lending products as well? The reason I'm asking this question is because eventually, you also have a financial services business in our -- in the group. And I just want to understand if you're looking from that lens as well.

No, these are all good ideas. Of course, we have thought through these things. We will start with a very basic business model. And then obviously, our value proposition will be to add all those things that you talked about.

Okay. Great. Just final clarification. When you said 6 to 12 months -- it will take 6 to 12 months to launch. This time period is after you build the team towards this investment, right?

Yes. So as we speak, we have started -- we will start to build out the team and put together. So it's 6 to 12 months from now to answer your question. We are going on a aggressive way to put everything to [ pass ]. It's not that we will necessarily wait for the team to come in to start the work. We will start the work from tomorrow.

We have next question from the line of Pinakin Parekh with JPMorgan.

So my first question is I'm just trying to understand what is the USP or the advantage that Grasim will bring via this B2B marketplace for the consumers and for the suppliers? Will it be lower cost? Because if it is lower cost then either the vendor is giving a discount or Grasim has to take a large amount of purchases and then sell it out. Is it ease? Is it delivery logistics? So what is that USP in this B2B marketplace around which it will be built out?

So see, I think, first of all, Grasim has a strong balance sheet to support this business easily because like I said, INR 2,000 crores spread over 5 years is something that's a small bite for Grasim to consider. And second is that we have a strong ecosystem like I talked about. Its group ecosystem, but at the same time, most of that ecosystem actually resides in Grasim and its subsidiaries and associated companies as well. So you have financial services arm. You have UltraTech within your whole system. You have epoxy, which goes into the construction. We'll have paints as well. So there are -- and in that ecosystem, the most important thing is relationships. Your relationships on both ends, your suppliers as well as your contractors, et cetera. Like we continuously -- beyond our business also, for example, when we incur CapEx, we are in touch with a lot of these contractors who will eventually become our customers. So there are many touch points which we will -- the team when it's actually and paneling vendors and getting in touch with customers, et cetera it will be much faster for them to build those relationships. So there are a lot of advantages that Grasim brings in out here apart from funding, which will help the business to scale up.

But from a consumer's point of view, is it fair to say that lower price will not be the main criteria because a lot of e-commerce platforms essentially are -- the USP is lower price?

Absolutely not. It's not at all price-led strategy. Like I said, there are many value propositions out here. We are not spelling out all of them here. But at the very basic, there is project -- product quality, product range, timely delivery. I think a contractor or a real estate or whoever cares for timely delivery, the right product reaching in so that he doesn't have to return and -- because his work suffers and his revenue suffers if he doesn't get the material on time. Plus, there is also from working capital, his working capital point of view, you have to take care of financing, et cetera. So there is reliability, quality, et cetera, all those things set up the offering of this platform.

Sure. My second question is that when you look at e-commerce platforms, again, they are not comparable, but there is Jio, there is Flipkart, there's Amazon. Now INR 2,000 crore is a number which the Indian e-commerce companies would have invested in less than a year. Now this is a B2B marketplace, but through the call, you have talked about potentially going into other product categories and expanding it. So just trying to understand that is there a possibility that over the next 5 years, the final investment could be multiple times of the INR 2,000 crore number because the number sounds too small for any kind of a marketplace model given how the competitive intensity in India is?

Yes. No. So I'm very glad that you asked that question. I think it's a very different business model. I think the B2C models that you talked about, there are two high costs. One is customer acquisition cost. And the second is that there is a high return in those platforms, and it's a heavily discounted model as well. All these three elements are not there in a B2B e-commerce platform. So if you see the -- our competition that exist in the market, they have invested probably same or less than what we are talking about investing and they are profitable model. So in B2B, the customer acquisition is much lower and the return is also much lower if you take care of the product that you are delivering.

Sure. And my last question is that while you do not want to give out any kind of market shares. But over the 5-year period, once the investment is ramped up, what kind of GMV are you targeting through this marketplace? I mean, not today, not next year, but over 5 years, there's -- the press release says $100 billion market, 2% is the digital that will grow. But obviously, there would have been a number in mind.

Yes, sure. If you study this space, okay, and if you look at the existing players, and you can extrapolate and see what they would be in the next 5 years, we would like to be amongst the top players in this space.

So top 2, top 3, what is the -- I mean, is it a market share? What is your -- what are you targeting? Like in paints, you said you want to be the top 2 or #2 profitable player.

Okay. Let me clarify. So let me, first of all, again, define the space, okay? And in that space, we would like to be top 3. And the definition of space is building materials procurement, okay? Building materials, I talked about some of the product categories already, right? So in that product category is what we would focus on. And when I say procurement, it excludes the services part. So basically, the materials that has to go from a supplier to customers, excluding this thing. This market is about $100 billion. This market is physical as well as digital is only 2%. Physical as well as digital, total market has been growing at about 14%. So just to give you a flavor of the market side, digital penetration and where would we want to be in terms of our -- at least our ranking, if not market share.

We have next question from the line of Saurabh Patwa with Quest Investment Advisors.

Am I audible?

Yes. You're not very clear, but go ahead. If we don't understand your question, we'll ask you to repeat.

Just wanted your thoughts. The press release highlights, it would be primarily focused towards MSME. By [indiscernible] right now that it will be taking capabilities of the group companies in building up this. So is it fair to assume that wherever the Aditya Birla Group will be present that would have the primary and other categories, it would be more focused towards MSME?

Yes, sure. So when I say the ecosystem of ABG, who we deal with. We, of course, deal with MSMEs as well on both ends, customer and supplier side. The point about MSME is slightly different, okay? The fragmentation in the product categories that I talked about is what presents the opportunity out here, right? So more the fragmentation, lesser the organized sector, that's where the bigger opportunity lies. So therefore, the whole idea would be to actually target the MSME segment on a priority or a primary basis. It doesn't mean that we will ignore the large players in this whole ecosystem.

Okay. So just I understand this slightly more. So the target would be to focus on categories in MSME where the larger players are not -- the leaders are not the market in the larger players. And whenever the leaders are market are larger players, of course, they will get more traction. Is this fair understanding?

No. So let me again try to give you an example, probably that will help you. Like if I pick up one of the categories -- let me pick up two categories, right? One is steel. Steel is highly organized large players that are existing there, right? And then there is, for example, tiles, which is partly organized and largely, there are a lot of unorganized players as well, right? So first of all, we'll deal with in both the categories and we will have access to vendors on both these categories with the large organized players as well as the MSME, but the opportunity in tiles will be much larger.

We have next question from the line of Krunal Shah with ENAM Investment.

Just one clarification. You said that we'll be handling logistics as well in this case?

No. We will organize the fulfillment.

Okay. You will organize the fulfillment. So the clarification that I'm also looking for is that because it's an inventory-led model, do we need to invest in warehousing as well?

So, no. So when I say inventory-led model, again, without dwelling too much into detail, when we say inventory, doesn't mean that I will have and keep inventory of all the vendors. There may be some inventory that I may maintain, okay, but it is more on the basis of back-to-back order fulfillment.

The MSMEs or the customer will directly ship to the vendors and will be just an intermediary in the middle and not taking part in...

Yes. And we'll ensure -- absolutely. So we'll ensure that there's a quality fulfillment that gets done, et cetera. So because in these large materials, you can't keep inventory of steel, et cetera. It's more back to back. There may be some inventory of certain things that we might keep.

We have next question from the line of [ Nisha Agarwal ] with VT Capital.

So my first question was we just came back for the investment funded through internal accruals or the management plan to take [ debt ]?

See, on the funding side, how do you always look at Grasim, is that it's a single balance sheet. So depending on the cash requirement, as the business is growing out, what we have available in our treasury or what we are earning from what the cash surplus we have, et cetera, that's how we decide the funding. So it has to be looked at on an overall consolidated basis. So based on that, for this business, it will be a mix of internal accruals. Frankly, the amount as such over 5 years that we don't see a large need of adding debt out here.

Okay. And the second question is if you can help me with any guidance, how would it add to the revenue potential or the asset turn, specifically particular new segment?

Yes. So see, I think the way I look at it is that it's a huge opportunity, scalable opportunity that lies out. If we are successful in this market with our platform, relationships, fulfillment, services, value proposition that we've talked about, then it can be a very, very large opportunity without much of investment out there. So it's a new age -- typical new-age digital technology-driven business. But at the same time, like I said, because of the low CAC and low return, the business has proven profitably players available -- profitable players available, I apologize. I would not -- with low capital cash [indiscernible].

Okay. So is it that it can help me with any specific growth number or asset turn?

Not at this stage. At some point, we should be able to give you better guidance.

We have next question from the line of Navin Sahadeo with Edelweiss Securities.

Just a couple of questions. You said this model per se has a proven record of success. So whom would you consider as your competitors in this particular field, especially building materials, as you said, to begin with?

So without specifying any names, there's a mix of startups. There are some groups also who are present in this phase.

Okay. Okay. Fair. Fair. Then second question is then if it's building materials and in that space, your subsidiary, UltraTech, like already offers this UBS kind of stores, UltraTech, I think, building solutions. So why not have like this platform per se, have it in that particular entity because that would have been more close to that. They're already doing it in that hard store manner. So whenever, let's say, this digital platform requires an element of touch and feel, you mentioned tiles. But when it comes to customers' individual selection, it requires maybe an element of touch and feel in that sense. So why not have this platform in that space because that is also would have been far more like adjacencies to building materials industry as such?

So see, I think their value proposition is very different. They are focused on the home buyers and their requirements. And their offering is limited to certain product ranges that they have chosen out there to supply to the home buyers.

Individual home builders.

Individual home builders, sorry, not buyers. Thanks for correcting. And our value proposition is very different. It is a digital play. It's not really moving from a physical store to like an omnichannel kind of approach. We are building out a business, which is open architecture, digital B2B e-commerce play where there is no restriction of any brand. It's available to all brands. We'll have to see which one -- there will obviously be empanelment, et cetera, but that's the idea. So there is a good range and superior quality range that is available to the customer.

Fair. Okay. Just one last question. You also mentioned that there are clear adjacencies to the existing stand-alone business. So paints, I can understand as and when it comes, it can be, but how is like VSF or chemicals business factors having any kind of synergies with this, too? I mean, in the current stand-alone business, are there any adjacencies too or it's likely paints that we are referring?

So we talked about adjacencies and subsidiaries and associates as well. So cement is one of the products that we're talking about. Paints is the other. At some point, we may add construction materials, chemicals, et cetera. So there are some adjacencies that are there, including the subsidiaries out here. But for sake of repetition, there is no exclusivity that we will only sell cement of what our brand, it can be any cement or anything.

Fair point. And just one last, if I may? Revenues, you said by the time the entire technology platform and like this entire portal is up and running, it should be at least about 12 months. So it's only next fiscal that we can start seeing this business getting into some sort of operations, correct?

Yes, that's right, so 6 to 12 months in that range, we should be able to up -- we should be up and running.

We have next question from the line of Amit Murarka with Axis Capital.

So like I was just wondering like when you assess such opportunities, like what is the thought process like how did you arrive at this kind of opportunity that is something that we should be doing because this is nothing like how you've done anything like you've done before? And then there's a second question as well. If you could help us understand the thought process behind zeroing in on this B2B opportunity?

Sure. So I think what we look at as a group when we evaluate these opportunities, okay, number 1 is, of course, is the growth in the business model that we are talking about, right? We don't want to invest in a business where we don't see growth. I think second, given our group, the size and scale that we are in, that work in, we would like to keep scale in the business. It should be a scalable business in terms of the size that is there. The third is profitability. So we are quite focused on the IRR, the risks that are there and the returns that are there. So very IRR focused approach that we follow in the businesses that we enter into. And it's -- and lastly, if it is a new business, we look at adjacencies and ecosystem as well, right? So can the existing ABG businesses has a positive drop off or provide support into incubating this business. So these are broadly the factors that go into evaluating business opportunity.

Mr. Murarka, do you have any further questions? [Operator Instructions] We have next question from the line of Prateek Kumar from Jefferies.

Some question. Do we also plan to have like private labels in this business eventually because that is also something with B2C commerce companies and B2B commerce company also do?

See, whatever is required for this business to succeed, it will be considered. We're aware of all business models that is possible out here.

So that could mean like sort of contract manufacturing for like, let's say, Thailand putting a [indiscernible] or some other brand tag on that and sell in that same?

That's a possibility.

We have next question from the line of Sumangal Nevatia with Kotak Securities.

I'm not sure if this is asked because I got disconnected. My question is with respect to the overall capital allocation priorities for the company. Now after years of investment phase in the VSF and chemicals, we've concluded that. And now in the next -- in the last 12-odd months, we've kind of incubating two new businesses, paints and now this venture. Now in the past, we've never been a good dividend paying company. And also despite a very high holding company discount, you've never used buyback as a vehicle to pay out to the shareholders. So just want to understand, I mean, where does shareholder returns in terms of dividend buyback for the management in terms of capital allocation priority for the management?

See, if you look at this particular opportunity that we have, I think I've talked about our strength in that, I've talked about the growth opportunity, the scalability, the fact that the capital investment out there -- out here would be limited and that to, we've given a number which is conservative in the sense that we may just end up spending less than what we've talked about, it's a very attractive unit economics. There's proven path to profitability. It's not kind of a B2C e-commerce kind of business, which will continue to burn cash and it actually starts to impact other businesses. What I mean to say is that this business doesn't impact other businesses in their plans of growth, et cetera. You're right, VSF has already done a large CapEx. Chemicals is already finished some of the CapEx of their own, they may have when they see the opportunity, they may have some more expansions, but paints or this B2B e-commerce is not going to necessarily impact overall Grasim, et cetera. And the point you mentioned about buyback, I think that's more relevant. If you don't have investment opportunities here. There is investment opportunity, which can get you a much better return than your cost of capital. If you -- if we were investing in cost -- in opportunities that are lower than cost of capital, then, of course, buyback becomes a better option. So I think that also needs to be kept in mind when we are taking such decisions.

Understood. Sir, actually the coming years, one should assume that these payouts, et cetera, will remain low and Grasim will be the vehicle to kind of incubate new business opportunities for the group.

There's no change in our dividend policy or strategy. This is, again, like I'm repeating that it's not much of a fund requirement. I think -- of course, we have entered into investment phase of paints as well as this one will also be there, but that's about a couple of years, right?

We have next question from the line of Kushagra with Old Bridge Capital.

A few questions. One, I would just like to pick your thoughts on build versus buy, right? You mentioned that the models are already there in the market, tried and tested. So was this largely related to the valuation of all these businesses have? Or was there a different thought process behind build versus buy for your [indiscernible]?

I think there was an interesting question that was asked earlier that on the basis of what we decide. And I said that one of the basis is IRR. I think most of the -- in last -- both the cases of paints as well as B2B e-commerce opportunity. If you were to go and buy the multiples at which [ the tray is at ] is extremely high, which doesn't justify necessarily the IRR, unless there is a lot of synergy that sits in that business, which you can realize later and justify the IRR. So in this case also, a buy unless it's giving you an IRR would not make sense.

Sure. Sure. Second, on basically, so the entry -- the timing of your announcement, right, what we are seeing in terms of commissions, there are some challenges for the other models as well. And second, government is also sort of working towards democratizing the use of technology with ONDC and all those sort of things. So I mean just want your thoughts on how you are thinking about all these developments going forward? And also, what sort of commissions you have planned for your model -- platform?

The way I look at it, the way we look at it is that it's $100 billion market alone, where there is only 2% penetration. And this -- the growth of this space, the digital segment of the space is going to be exponential. Yes, absolutely. And that gives enough for all the players that are existing if they are efficient with their model. So I think the success out there is not going to be on the basis of commission, et cetera, it's going to be on the basis of what value proposition you are offering to the value chain. That will determine the success. And at that time, you'll be able to make whatever commission you want to make.

Got it. Last one from my side. So basically, while giving the example of tiles and steel, you sort of mentioned that tiles is a larger opportunity for you, right? So within those $100 billion, which you have called out, what could be the value of those similar tile-like opportunities, which are fairly large, unorganized catered by unorganized tiles? And second question, in your overall 4- to 5-year journey by the time you build, how many -- how much people you are sort of thinking of hiring as of now?

No. I think our team, we will -- I think we'll have to first start with, of course, the leadership team, et cetera, so then we will see what kind of the size that we need. You'll need touch points. Of course, street on the -- feet on the street as well. So it will be commensurate to the scale of the business, hiring, et cetera. I think -- I'm glad you asked the question on tiles. I just want to clarify, I was giving more as an example between steel and tiles in terms of organized and unorganized. And when I say a large opportunity or segment is because of the fragmentation in terms of number of vendors that are there who are unorganized. And when there is large unorganized players, then the opportunities to a digital platform is hired because of inefficiency that exists because the large organized players would always have a more efficient value chain and capability to provide working capital, et cetera. So from that aspect is what I meant to a large opportunity.

Right. So basically, let's say, within those $100 billion steel, cement would be the larger segments and probably the paints as well. So just trying to understand when you sort of calculate that $100 billion figure, what sort of breakup you had in mind? There is a large opportunity because of fragmented market and where you can really add a lot of value to the market.

I think that's an industry data available. I think what I meant to say and what we need to focus on is that within those category, size, growth and fragmentation, these are the three things that you have to apply will determine the attraction of that category.

Your next question from the line of Amit Murarka with Axis Capital.

I had a follow-up question to my earlier question. So like when you're saying that you're assessing the opportunities on size and IRR potential, like is there also an earmark amount that you are willing to kind of such opportunities like this is one of them. I believe there would be more such investments that you would like to make over the next few quarters or years. So is there any earmarked amount for that?

No. So the way we look at it is, of course, there is a capacity of Grasim also that comes into the picture, right? I think I have said in the past that we are an investment-grade company. We would continue to maintain that investment grade to -- of Grasim. So that capacity, we unfortunately don't have unlimited funds. So that will also come into play when we're deciding how much to invest in any opportunities.

Okay. And also just one more thought, if I can ask? Like, it also seems like you're exploring, I mean, a few new ideas and ventures to see which one works. So like is that a fair thought? Or -- I mean like we should not think about this opportunity or this venture as the one of the variants that could work out?

No, no. We are not evaluating any such opportunities. I think see -- in our daily lives, we keep -- that's our job, to keep evaluating opportunities, okay? We have to be convinced about it, about the factors that I mentioned to invest in that.

Sir, that was the last question.

Yes. Thanks to the participants. Any other follow-up questions, please feel free to reach out to Saket. And of course, to Pavan as well. We would like to, of course, welcome Pavan and perhaps more formally and properly introduce him when we meet next time after the -- on the quarter results. Thank you.

Thank you very much, sir. Ladies and gentlemen, on behalf of Grasim Industries Limited, that concludes this conference. Thank you for joining with us, and you may now disconnect your lines.