Infra.Market has managed to ‘Marie Kondo’ the messy business of construction

Anyone who has built a house or a factory in India will tell you what a nightmarish experience it is. The construction materials never reach on time and their quality is questionable, and there are always missing supplies. The project progresses in fits and starts, and ends unsatisfactorily with something broken — sort of like a street fight.

No wonder Souvik Sengupta and Aaditya Sharda found that professionally run start-ups were hard to find in construction industry, especially in the B2B segment. Sengupta and Sharda were familiar with this industry, the former had worked in finance and commercial departments of infrastructure companies after completing his MBA from IIM-B, and the latter had been a distributor for construction-material companies such as Tata Steel and Dalmia Cement.

While start-ups and their funders seemed to shy away, this duo saw an industry ripe for disruption. They noticed that India had a lot of small manufacturers of construction material, operating at 40-50% of their capacity. Without strong marketing and distribution teams, these manufacturers find it hard to sell, though there is demand in the market for reliable material. Sengupta and Sharda decided they could bridge this gap. “We thought, if we could leverage their manufacturing capacity, we could cater to a lot of companies to buy our raw material online. We could take care of all the logistics, supply chain and everything in between,” says Sengupta.

In 2016, they took the leap. They launched a B2B construction-material, e-commerce platform called Infra.Market, under the company name Hella Infra Market. They started off by raising an angel round of Rs.10 million, in 2017, from family and friends. “At that time, we were primarily looking at the Mumbai market. For three years, we remained bootstrapped and we focussed on remaining profitable and having good economics,” says Sengupta.

In 2019, they began looking for equity funding to expand their company, and Accel came in first with Rs.250 million. Prashanth Prakash of the VC fund says they had noticed a significant increase in digitisation across supply and demand chains in the industry. Smartphones were making it possible for organisations to interact easily with vendors and suppliers at a scale that was never done previously. “Till now IT has been largely about what is happening inside enterprises. But now, it is extended enterprise, that is being able to use technology and work with various stakeholders across the supply and demand chains digitally. It seemed like the next big opportunity,” he says.

The second round of investment, in which they raised Rs.1.5 billion at a valuation of Rs.2 billion, saw participation from Nexus Venture Partners and Tiger Global, besides Accel. In little over a year, their valuation skyrocketed — in November 2020, they raised their third round of around of Rs.1.5 billion at a valuation of around Rs.15 billion.

Recently, they raised another Rs.500 million from InnoVen Capital.

Show me the concrete

There are two types of markets for construction material in this country. The first is where you buy from a big manufacturer, paying a premium of 10-15%. For example, Asian Paints charges a premium of 10% over local brands. The second is where you buy from an unknown, local manufacturer but are forever uneasy about the quality or timely delivery. Infra.Market’s platform, with a GMV of Rs.1.2 billion a month, lists both kinds of vendors.

While the platform has provision for large brands to sell their goods, a major part of Infra.Market’s business comes from materials they sell under their own brand but manufactured by smaller manufacturing units (See: Efficient sourcing). They call this cloud manufacturing.

To ensure quality standards are met, Infra.Market selects its manufacturing partners with care, after site visits and audits of their machinery and expansion capacity. After a partner has been selected, the start-up trains personnel at the unit, puts a quality-check process in place and digitises the entire process so that it can be tracked from anywhere, from sourcing of raw materials and production to supply to the end customer. Infra.Market’s revenue comes from the 10% cut they take from the revenue earned by the manufacturer partner. It charges 5-6% from the bigger brands listed on their platforms.

To make their brands price-competitive, they charge lesser as compared to big brands. Their client list includes builders and large contractors such as L&T Realty, Rizvi Builders, Hiranandani, Tata and Phoenix. Their revenue has grown from Rs.125.45 million in FY17 to Rs.3.5 billion in FY20 (See: Growth spurt).

While COVID-19 hurt many businesses, the start-up’s business had been booming during the lockdown —  till February 2020, it was logging in revenue of around Rs.600 million a month, now they are at around Rs..03 billion. This is because there has been an increase in government spending on infrastructure projects. “For the three months of March, April and May, we had a dip in demand but post that the demand has come back. By March 2021, we think we will reach around Rs.10 billion,” explains Sengupta.

During the months of April to June, when the government had stopped construction, the company shifted focus to exports. It currently gets 25% of its sales from its markets in Bangladesh, Malaysia, Indonesia and Dubai.

Other players such as BuildNext, Infra Bazaar, Materialtree and mSupply are now making their presence felt in the B2B segment. But, Accel Partners’ Prakash says that there is no apple-to-apple comparison. “The company has its own product line, which forms about 65% of its supply. In that way, there is absolutely nobody even close to Infra.Market. There are multiple traders in the market but not those who have their own product portfolio.”

Growth runway

Another advantage for Infra.Market is the in-depth industry knowledge of its founders. It has helped them in many ways, one of which is steering clear of work that can hold up cash, such as supplying for build-operate-transfer projects. These projects are first privately owned and operated, and then transferred to the government. They require various compliances and permissions, and therefore there are delays in payments. Traditionally, other companies have focused on supplying to these projects but Infra.Market decided to supply directly for government projects.

Nexus Venture Partners’ Sameer Brij Verma says, “Souvik and Aaditya have been able to underwrite which customers to work with and which customers to avoid. Plus, they have built a strong team across the building materials and technology spectrum. Being a one-stop shop for all building material requirements with a superior service and quality level makes Infra.Market very strategic for their infrastructure and retail customers.”

Accel’s Prakash, too, appreciates the start-up’s ability to pick clients. “They select customers who can be long-term partners, not in one city but across the country,” he says, adding, “They chase the right kind of revenue. Therefore, this is one of the few companies in the country that is profitable not only at an Ebitda level but also at the net profit level.”

The start-up seems to have chosen their clients well and the right moment to enter this segment.

The infrastructure industry is waiting for a boom with the government promising spending of Rs.1.4 trillion over the next five years, under the National Infrastructure Plan. According to Mordor Intelligence, the segment is expected to grow at CAGR of approximately 7% between 2020 and 2025. And as per Anarock Property Consultants, there are over 1,698 infra projects under implementation across the country and more than 1.51 million homes under construction across seven cities. “There is massive demand for raw materials all across,” says Santhosh Kumar, vice president at the consultancy.

Then, there is the towering digitisation wave crashing across every sector. Srivatsa Anchan, partner, EY, says construction companies, both large and mid-size, have realised the importance of digitisation. “They see how it may lead to improved productivity, optimised resource utilisaton and reduced material wastage. It also enables better performance (such as schedule adherence and cost optimisation) through real-time progress monitoring, project analytics and timely management decision-making (risk mitigation and issue resolution),” he says.

Infra.Market delivers on visibility and transparency through digitisation. Verma says, “They have end-to-end operations across raw material procurement, asset-light manufacturing, credit, payments, retail distribution and fulfilment.” The company aggregates demand through an app, and they can see in real-time what need to be produced and in what quantity. They can view the manufacturer-partners’ plant-utilisation level at any given time and see what needs to be provided to the partners to meet demand. “All of this is done without really owning any manufacturing unit. They are asset light,” point out Verma.

Infra.Market has managed to transform the way investors think about a segment that is usually seen as messy and unpredictable. It has done it with intelligent use of knowledge gathered over the years, clever management of resources and diligence in quality control. Of course, they had little to do with other tailwind—of the government's infra push and digitisation post COVID-19 — that has buffeted them forward. But, when you put in effort and hard work, the universe does give you a helping hand.