Infra.Market derives unicorn tag from brick-and-mortar biz. Can it sustain growth pace?

In February 2021, Infra.Market dashed into the unicorn club of startups with a market valuation topping the $1-billion mark. This was just around four years after the tech startup floated its construction materials marketplace.

Five months later, the startup’s valuation more than doubled when it raised fresh funding from investors.

To be sure, this is not unusual in the world of tech startups. Especially last year, when even new-born companies were commanding valuation running into several thousands of crores.

If we take a peek at its financials the company seems to be ticking the right boxes for even the purists. But before we dive into its financial performance, let’s first take a look at its origins.

The backstory

Infra.Market was started by Souvik Sengupta and Aaditya Sharda in 2016, though it effectively started its marketplace in 2017 with over 50 manufacturers and 20 customers. It offers a one-stop solution to various infrastructure players and provides them credit. The company currently offers products and services such as ready-mix concrete, steel and metals, chemicals, equipment services along with various other construction materials.

The firm follows an asset-light business model where it provides contract manufacturing by unbranded manufactures and acts as distributor for various other branded products.

In 2018, it raised $1 million in an angel funding round and onboarded over 200 manufacturers besides partnering with more than 70 logistics partners. It also launched three private-labelled product verticals.

A year later, it raised a seed round of $3.5 million from venture capital firm Accel and then scooped up Series A funding of $20 million from Nexus Venture Partners and Tiger Global as it hit an annual revenue run rate of $50 million.

In 2020, as it hit a revenue run rate of $100 million and launched an export initiative and a direct-to-retail channel, it raised a Series B round from Tiger Global along with new investors Evolvence India Fund, Sistema Asia Fund and Foundamental.

Last year, it pulled in two big cheques, including the $125 million Series D round, in August 2021. It topped up its coffers again this year.

Profitable growth, tax troubles

The dose of capital that the company raised last year will allow it to spruce up its technological offerings, enter newer markets and move ahead with plans such as private labels, direct-to-retail channel and exports.

The company has also been looking at acquisition opportunities across the construction ecosystem. It acquired Hyderabad-based construction equipment rental firm Equiphunt and later bought RDC Concrete India.

However, the company did have its share of mishaps.

Earlier this year, the company faced income tax raids wherein allegedly Rs 224 crore of undisclosed income from various assessment years was found. Although the issue is yet to be settled, the startup believes that the raid has no impact on the operations and there is no demand made by the tax authorities so it is unlikely that there will be any contingent liability in the books for FY22.

Still, some credit rating agencies downgraded its bank facilities over the matter.

Meanwhile, to say the business has been scaling up consistently would be an understatement. Infra.Market has been growing at a breakneck pace, doubling or tripling its revenue every year.

To add to the distinction, it has been profitable right from the beginning. The profit margins have been at just 2-3% over FY18-FY21, but doubled last year.

Risk factors

One risk factor that the company faces is high geographical concentration and intense competition as around half of the business is derived from the Mumbai market, making it susceptible to a slowdown in a particular market.

Additionally, the end user industry is real estate and infrastructure construction, which is cyclical in nature. If that was not enough, the company faces stiff competition from a large number of small and mid-size players in the construction material supply market, limiting bargaining power with its customers and suppliers.

The move to buy suppliers like RDC Concrete shows the company’s resolve to move into backward integration to have a better control over the supply chain and not just limit itself to being a distributor and marketplace.

Infra.Market has been growing very fast but the nature of the industry it caters to is linked to the state of the economy. Already the economic growth forecast for the current fiscal year is being downgraded by economists and analysts. The slower-than-expected growth could affect the flow of orders and operating levels of the company.

The company is fortunate that it is not yet in the public market, though it would be looking to float its public offering in a not-too-distant future. IndiaMart, an industry peer that has been in a similar business line for years, has seen its valuation crumble by half since last October when it tried to unsuccessfully regain the all-time peak attained in February 2021.

IndiaMart is now valued around $2 billion, despite generating over two times the net profit compared to Infra.Market. IndiaMart has stuck on to its tech platform that brings high margins but has seen revenue grow at a slow pace. IndiaMart generates just around a quarter of revenues compared to Infra.Market.

Given the state of affairs in the public market, where tech ventures are still trading at a fraction of their market cap a year ago, Infra.Market would be looking to improve its bottom-line before moving ahead with a public offering.

The real litmus test for Infra.Market would be on how it builds on the backward integration strategy without losing focus on the bigger picture. The answer would be apparent as the current financial year draws to a close.