The term unicorn, coined by venture capitalist Aileen Lee, arguably defines sexiness and oomph in the startup world. Getting to that billion dollar valuation is seen as a sign of success, of wealth, a manifestation that the faster you get there, the sexier it is.
Yet Infra.Market, which has become a unicorn just 20 months after its first funding round, is decidedly and obviously, unsexy.
Last week, Tiger Global management led a $100 million round in the company, valuing it at a billion dollars, with existing backers Accel, Nexus Venture Partners and Sistema Asia investing as well.
Infra.Market is a business-to-business (B2B) e-commerce firm, running a brand of construction material, concrete and chemicals used in infrastructure projects. It doesn't deliver food to your house, or help you make payments online for rewards, or book a cab for you. Infra.Market ties up with contract manufacturers, gets them to utilise idle capacity and manufacture products under its own brand, which it then sells to large infrastructure companies and retail outlets.
By all accounts, it has exceeded even the most optimistic expectations. Prashanth Prakash agrees. He is the company’s first investor and partner at venture firm Accel, which bet on the business-to-business e-commerce space as early as 2015, when very few were even talking about it. “We were the first ones to spot the B2B e-commerce opportunity in 2015. You can create large companies here. This sector can benefit from standardisation, quality and dependability,” says Prakash, a board member, whose Accel was Infra.Market’s first investor.
He sums it up well. “Stellar execution. Their choice of customers, and to run a private label has worked brilliantly. Entrepreneurs rarely get such big calls right the first time. But I really have been surprised by how fast they have scaled profitably,” he told Moneycontrol.
Founded in 2016 by Souvik Sengupta and Aaditya Sharda, Infra.Market makes about Rs 200 crore in monthly revenue currently. In FY20, its income grew five-fold to Rs 350 crore, posting a profit of Rs 8 crore. It has been profitable each of the last four years- a rarity for internet startups and a rarity at scale.
In an exclusive interview with Moneycontrol, CEO Sengupta opens up about the opportunities, possible competition from Udaan, and the nitty-gritty’s of a centuries’ old industry that he is trying to reform from the ground up.
Why did you start this? What were you doing earlier?
I was in the accounts and finance divisions of Supreme Infra for a couple of years. I wasn’t in the building material or buying space at all, but I had an overview of what this sector is and what its problems are. I was a finance guy who used to look at this space and track some of these companies. And there were other startups like Msupply coming up in this space. And while them and other companies tried to build out a marketplace, their model didn’t take care of the entire supply chain issue. Construction supply chain in India is a little broken. Large players win a project, they give it to a contractor, the contractor will order through a distributor and transporter, who will buy from the manufacturer. So we wondered, can we circumvent this - have local manufacturers sell to large projects while we take care of everything else in between.
So 75 percent of our business is our own brand. We want to be a mid-market brand. When you're managing your own brand, your margins are much higher. We want to have the marketplace and brand both, like say AmazonBasics.
And this market isn’t consolidated. Any of these sectors- paints, cement, etc- market leaders don’t have more than 30 percent of the market share. There are large mid-sized players who dominate.
How did you start this?
We started in 2016. The country overall, has a lot of idle manufacturing capacity. India has 550 million tons of cement capacity, but only 270 million is actually utilised. Manufacturing from small local producers is widely available. So our thinking was: can we create a brand in this space? Can we follow the same model for multiple products?
We bootstrapped it for three years. We ran it profitably for three years. But banking in India moves slow for startups, even if you're profitable. So we took our first cheque from Accel, and since then, we have grown exponentially. From seed cheque to unicorn, it has been 20 months for us.
What areas did you start in?
We started in Maharashtra, in stone materials, concrete, and walling solutions. This was the focus for three years. Walling solutions include concrete blocks, plaster sand, and slowly we have gone into water proofing chemicals, cements, some steel. We plan to enter into paint and plywood.
In 2019, only when we got our first cheque did we start with Karnataka. In late 2019, we went to Hyderabad, Telangana, and in late 2020 we ventured into Kochi, UP, Haryana, UP, Delhi. We're still mainly a west and south company.Why did you start in Maharashtra?
About 10-15 percent of the construction GDP comes from this state. It is a large origination point. Both the founders are also based here. So when you're bootstrapped, you don't want to stretch yourself too thin.
How did you expand your product range?
This year we are starting plywood and flooring solutions, which includes tiles, granite etc. We sell to a lot of retail outlets in Maharashtra. They stock multiple products. So across the same customers we want to increase our throughput. We want to cover the entire gamut of construction products.
How do you decide who your customers will be?
Demand is never a problem. As a consumer, if you want to do a small detail store and buy cement, Ambuja is 10-15 percent more expensive than India Cement or anything else. There are three-four brands and three-four price ranges at which they work. So Dalmia is five percent cheaper than Ambuja, and Penna is five percent cheaper than Dalmia. And then there is Sagar cement, which is even cheaper. Now in cement, which is a pure commodity, there is no brand at play. Quality is very standardized. There is no real justification for giving a 20 percent price difference to large players. Our thesis was: if we can get industry stalwarts to join us, get quality at the manufacturing facility, why can't we give a discount but have the same quality as Ambuja?
Why is Asian Paints 30 percent more expensive than a local manufacturer? That's part of what we are solving. You could argue that's what a brand is, but we think there is huge space for a mid-market brand. Where is the multi product brand in India?
In India, except JSW, most companies don't have a multi-product presence. And they are so fixated on capacity; their ability to service multiple people, across levels, is difficult. Our business customers include KEC International, Ashoka Buildcon, Ultratech, ACC and Godrej Properties.
Could Ultratech and ACC become competitors once you launch your own cement brand?
Right now we provide raw materials for them so it is not an issue. But that potential conflict, I think we will take it as it comes. And why would these companies pick you over someone else?
In some cases it is quality. In many cases it is quantity. Because of our model, where we have multiple manufacturing facilities in the same area, we can provide a quantum of material, which may be hard to get otherwise. In one day we can deliver quantities at good prices, which even large companies may not be able to do.
When you say mid-market brand, does that mean that demand will come mainly from Tier 2 and 3 cities?
Not necessarily. Mid-market brands also sell in Bombay and Bangalore. Among our customers, for infrastructure companies, mid-market brands are important. And even among retailers, we have 50 branded firms who buy our products. The problem with mid-market brands is that it is a good product, but does not have service capacity. So we don’t manufacture ourselves, but we provide the service, scale and quality that any large brand would provide.
Take me through your arrangement with these manufacturing facilities.
We don't own them; we have agreements where we lease out, say 30 percent of their capacity. This capacity will be used only for our production. We put in systems, quality checks, and get data from them. We exercise control.
How important is technology for you, given that you’re in an extremely offline heavy industry? How does it compare to business-to-consumer (B2C) e-commerce, where apps and tech are a large part of the proposition?It is important because all the retailers order online. They are used to the Flipkarts and Udaans of the world, so it is easy to convert retail shops to customers online. Tech also becomes critical when you want to control manufacturing. For example, today we work with 200 manufacturing units. How do you ensure which unit will you pick up your next order from? Which unit has the raw material available, what quality mechanisms they are following...in fact we put up sensors at all our units that provide us a minute to minute record of what they are doing and which batch they are manufacturing. Tech is very important from a cost and route optimization perspective. Wherever you place an order from, we can deliver it from three-four places nearby. Tech helps us decide that, depending on who has materials, where logistics is cheaper and whose manufacturing is utilized the most.
Udaan is not your direct competitor right now, because they deal in different and smaller items, but what stops them from getting in, given the scale and capital they already have? Does that worry you?
Not really. Nothing stops anyone, but this space requires more understanding of industry-level dynamics, more than any other space. It is similar to healthtech, where a lot of technical expertise is needed. We have been doing this for four-five years, and I think we have built enough of a moat. We have tied up with a lot of manufacturers, many customers; anybody who wants to enter will have to source that kind of manufacturing capacity. But it is a large enough market; if someone wants to come in, that’s fine. Udaan’s model is more distributor-based, so it may work better for them.
In the construction space, steel is also a massive market. How important is that for you?
Not very. I don’t think there are great margins in steel to create a separate brand. So it is not much of a focus.
How are you profitable while scaling? What are you doing differently?
One big reason is the brand play. Two, this industry is broken up into tiers. Ultratech will have stockists, who will sell to the wholesaler, who will sell to the distributor, who will sell to the retailer. It is very fragmented. And the kind of capacity we have, these guys are willing to sell to us at a price where we can make enough money; we are sitting at 30-40 percent idle capacity. We get it at the best prices, which is where we make our margins.
Also inherently, building material companies in India are very profitable. It is a profitable segment, and we are not saddled with the problems of a large manufacturing unit. See, we tested this out for three-four years before we took our first cheque. We built this very organically; we never gave discounts of any kind. We always focused on economics.
Why did you choose to raise money after three years?
Till then we had funded it using bank loans and by mortgaging our assets. And bank loans just got harder, given our pace. They would lend us Rs one crore, then Rs four crore and then Rs seven crore. It was step wise. You need to take it slow, when there is an opportunity to be fast. We met Accel- we didn’t meet too many funds- they liked us and we liked them.How did you meet Accel?
I approached them on LinkedIn and messaged an associate called Kanishk Tyagi (now with Falcon Edge Capital). I give him all the credit and all my gratitude.
Is there an opportunity to make this an international business?
Of course. We already export to Dubai, Bangladesh and are looking at some Singapore orders. We are exploring those areas, but domestic orders itself are so large. About 85 percent of our volumes are domestic, while 15 percent is export. Exporting means blocking the supply chain, so we aren't focusing too much on it, but we do want to grow it out.
How has the pandemic been for you?
April and May were tough. We struggled with it. Construction started in June. But recovery was fast. By July we were back to our February numbers. A lot of the manufacturers we work with, they got moratoriums on payments and loans, which helped, and because labour shifted back to their hometown, that cost came down as well. So they managed to survive.
Have you seen any differences in the industry, pre and post pandemic?
Smaller manufacturers suffered badly and were slowly moving out. But it led to consolidation on the customer side as well. Large customers were much better placed to handle it than small customers. Larger players are doing much better now.
What has growth been like in the last year, and what’s the path ahead?
In March last year, we were at a run rate of $100 million (monthly revenue 12 times), and today we are at a run rate of $400 million. By December we should grow at least another two times from here. We have huge orders in hand from some of the largest projects in India. We supply to Kochi Metro, Delhi Metro, Bombay Metro, the Apple factory by Foxconn (in Tamil Nadu) and majority of Godrej’s real estate projects, among others.
What are the other states on your radar?
Uttar Pradesh and Madhya Pradesh are priorities along with West Bengal and Odisha. Andhra Pradesh is also a place where our presence isn’t big, so we are looking at that as well.
Where would money from this round be deployed?
About 25 percent of the money will go in tying up with manufacturing units and setting up supply chains in new areas. Another 25 percent will be spent in adding products at the existing locations we are in, to tie up with manufacturers in new product lines. Current products in current areas also need more investment.
Lastly, what is your biggest challenge today?I think the only challenge for us is macroeconomics. If there is an overall slowdown in spending in the infra space - it doesn't look that way because the budget was very infra focused- that could be a challenge. At least the next couple of years, with the kind of spending and market dynamics we are seeing, we visualize a very good period for us. The previous three-four years, maybe you could say infra wasn’t in a boom period. But right now I can see a lot of projects coming out with many of them doing very well.