How small factories are powering Zetwerk

Workers at Zetwerk’s Noida factory
Workers at Zetwerk’s Noida factory


From 2019-20, the company targeted North America as a market. Today, it has 300 global customers. Geopolitics, as well as the pandemic, have played a role in its rise.

Bengaluru: Spacenex Aero Pvt. Ltd’s name was inspired by SpaceX—the Elon Musk-founded company that designs, manufactures and launches advanced rockets and spacecraft. But unlike SpaceX, Spacenex isn’t widely known. It is a mid-sized contract manufacturing company in Bengaluru, which till two years back, could mostly make and test aerospace and defence components. Parts of cockpits; thermal equipment; rocket launchers; night vision lenses; heat sinks, and night vision cameras, among others.

The manufacturer found it challenging to expand beyond aerospace and defence. So, in 2021, it decided to become part of Zetwerk Manufacturing Businesses Pvt. Ltd’s growing network of contract manufacturers.

Zetwerk, which started in 2018, is now a unicorn, or a company with a valuation of over a billion dollars. It is not the usual tech or consumer startup you would come across—the firm aggregates and standardizes factories, particularly small factories spread across the length and breadth of India. Think of it as the Oyo of the industrial world. Zetwerk generates demand from large companies, like Larsen & Toubro (L&T), Tata Steel, and Bharat Heavy Electricals. These orders—let’s say to make 1,000 precision parts that will go into an aircraft—are next routed to the right manufacturers in its network. Manufacturers quote their prices and the work is finally sub-contracted. Such a process helps Zetwerk offer competitive costs to customers and ample capacity. Well, Zetwerk also runs its own factories in emerging sectors such as consumer electronics—while it aggregates factories, the company is also a contract manufacturer itself.

Being in Zetwerk’s network helped Spacenex diversify its business. More orders started coming its way from sectors other than aerospace and defence. “We now access a variety of clients like Ferrari, Mars, Heineken beer, Rolls-Royce, and Bentley," says Guruprasad K, a director at Spacenex.

Guruprasad finds Zetwerk “tech-driven". He is particularly referring to Zetwerk’s homegrown manufacturing operating system called ZISO, which enables online selection of suppliers, real-time tracking, visual updates of products being manufactured, and quality assurance of the final product getting shipped to the customer.

Just how big is Zetwerk’s network? It has aggregated about 10,000 micro, small, and medium enterprises (MSME) that operate factories. On the other hand, orders are generated from about 2,000 customers.

Just how large is Zetwerk in size? The company became a unicorn in August 2021, and is now valued at close to $3 billion. According to a note by ratings agency Crisil Ratings, dated 6 July 2023, the company’s scale of operations has been increasing rapidly. It generated revenue of 11,449 crores in 2022-23, growing at a CAGR of 220% from 2019-20. The current order book, the note stated, stood at about 11,000 crore as of May 2023, which is to be executed over the next 9-18 months.

In 2021-22, Zetwerk reported revenue of 4,965 crore and a loss of 85 crore. The loss, last year, expanded to 109 crore, according to Crisil.

How did an aggregator of factories grow this fast in terms of revenue? Read on.

Bridge to growth

Amrit Acharya, the co-founder and CEO of Zetwerk, calls himself a “builder of things". He graduated from IIT-Madras in 2010. Next, he joined the agri-business division of the ITC group where he noticed that there were hundreds of small vendors but not enough software tools to make the procurement process simpler.

“We realized that there was a clear gap in the market for a better solution," says Acharya. After ITC, he worked with consultancy firm McKinsey in the Bay Area for a while but eventually returned to India.

Like the beginnings of most startups, Zetwerk, too, began from a one-bedroom apartment in Bengaluru. Other founders include Srinath Ramakkrushnan, Vishal Chaudhary, Rahul Sharma and Ankit Fatehpuria.

Initially, it built software to make the procurement process easier but soon, pivoted to also becoming a business-to-business (B2B) marketplace, one that helped larger companies find suppliers. The founders began with the steel fabrication category because Ramakkrushnan, also the company’s chief operating officer, owned a small manufacturing unit that did industrial fabrication. Their familiarity with the category paid off, which convinced them that they were on the right track.

The going, however, wasn’t that easy even until three years ago. Manufacturers were reluctant to trust the online world. And in 2020, the pandemic-induced lockdowns impacted operations— many of Zetwerk’s suppliers shut down. Between March and April 2020, Zetwerk’s revenue fell 80-90%, says Acharya.

But every cloud has a silver lining. The lockdowns also made manufacturers comfortable with the online world and online transactions. This, in turn, helped Zetwerk. “The business went back up to record levels in around six months, as things started opening up," Acharya recollects.

Today, the company has an impressive roster of customers and a wide-range of manufacturing jobs it can execute through its network, or even by itself. In consumer electronics, for instance, the startup offers manufacturing services such as local assembly, semi knocked-down (SKD) manufacturing, and completely knocked-down (CKD) manufacturing. For original equipment manufacturers and engineering, procurement and construction customers, like L&T, it can execute steel fabrication, machining, injection moulding, aluminum die casting, 3D printing, installation and testing services.

L&T is fabricating steel bridges for laying the bullet train rail corridor between Mumbai and Ahmedabad. Zetwerk will supply 10,000 MT of fabricated girders to support the load-bearing capacity of these bridges.

Zetwerk is also supplying machine components to Tata Steel for its factory in Kalinganagar, Odisha, according to Acharya.

The steroid

Zetwerk’s growth story is not just about domestic customers. From 2019-20, the company targeted North America as a market—make in India, supply to the world. Today, it has 300 global customers and geopolitics, as well as the pandemic, have certainly played a role in its rise.

Global corporations no longer wanted to rely on a single country or a single supplier. The pandemic demonstrated how such reliance can backfire—reliance on China for manufacturing, for instance, disrupted global supply chains. Zetwerk has been a beneficiary of the new thinking around geographical diversification.

“It’s called the China+1 trend," says Acharya, who points out that almost 15-20% of the company’s revenue now comes from international customers.

A second factor leading to the company’s rapid growth has been the diversification of industries it caters to, like consumer electronics and solar. As part of its expansion plans, the unicorn unveiled ‘Zetwerk BUILD’ last May, a programme designed to provide supply chain solutions to hardware startups in sectors such as robotics, consumer products, and electric mobility.

The company also pressed the accelerator on inorganic capacity expansion and growth, acquiring companies to strengthen its manufacturing portfolio. Between 2020-21 and 2022-23, it has bought four manufacturing companies at a total cost of over 400 crore—Pinaka Aerospace, Sharp Tank, The Wardha, and US-based Unimacts (to enter the US renewables market). These acquisitions, however, currently account for just around 4-5% of the total sales.

Last May, Zetwerk set up a manufacturing facility in Noida for wearables and hearables. Currently, it is busy with trial runs at a new television assembly unit in Dharuhera, Haryana.

Nonetheless, Acharaya does not want to get into the business of “running factories because it’s not a core business". According to the Crisil note mentioned above, the group “generates around 6% to 7% from own manufacturing facilities, while remaining is through vendors/sub-contractors".

Acharaya acknowledges that there are “reliable manufacturers like Dixon or Foxconn". They run huge factories and have systems and processes in place. One cannot say the same for thousands of small factories across India. Zetwerk fits in here. The company standardizes operations so that even a small plant can offer the reliability of a large factory.

Investors appear happy. In August 2021, Zetwerk announced that it had raised $150 million from D1 Capital Partners and others, taking its valuation to $1.33 billion. In January 2022, the company closed another round where it raised $240 million at a valuation of $2.7 billion. And in June this year, amid a funding winter, the company raised $140 million, a round led by existing investor Avenir Growth Capital. The valuation this time was slightly higher than the number in 2022—not insignificant considering that the valuation of many startups has tumbled in the recent past. Edtech firm Byju’s commanded a valuation of $22 billion a year earlier. Recently, Prosus, a shareholder in Byju’s, slashed the worth of its stake, implying a much smaller valuation of $5.1 billion.

According to the Crisil note mentioned earlier, the promoters and employees own about 23% in Zetwerk. The remaining stake is with private equity players like Greenoaks, Lightspeed, Accel, Sequoia Capital, Kae Capital, D1 Capital and others.

Factory vs factory

Indian B2B marketplace platforms have realized that the path to success is to focus on expanding the total addressable market and increasing profit pools by getting into higher margin categories such as apparel and electronics, tapping global markets, backward and forward integration and private label play," says Varun Gupta, managing director, digital and technology investment banking at Avendus Capital.

He adds that these companies are evolving from aggregation-only models to adding their in-house manufacturing capacity, largely through acquisitions—like in the case of Zetwerk.

But challenges abound. The Crisil note mentioned that while the company’s operating margins have improved in 2022-23 to 1.6% and is estimated to further improve this year, “it continues to remain constrained due to low value addition".

Crisil also warns of integration risks. “The growth has been through increase of existing segment and acquisitions. It has acquired four companies in the past 18 months and aims to grow inorganically with an aim to expand their existing product capabilities as well as add incremental customer base. The other objective of such acquisitions is also to enter higher profitable business segments and thus consolidate the otherwise wafer-thin profitability at operating level. However, the integration risk and associated returns from such acquisitions remain a key monitorable," the rating agency notes.

Crisil points out that while the Zetwerk group’s credit period to customers ranges from 45-90 days across segments, its debtors take more time to pay, and Zetwerk also offers “large advances to a few suppliers/vendors with established track record and relationship", a majority of whom are MSMEs to help them fund their working capital requirements. This, according to Crisil, “exposes the group to high credit risk from vendors".

As the company grows larger, it would also brace up to more competition—from other electronic contract manufacturers like Dixon and even from its engineering, procurement and construction customers. There are many B2B marketplaces in India—Infra.Market, Udaan, Moglix and OfBusiness. However, Zetwerk does not compete with them directly.

“Our competition is other factories. So, in consumer electronics, for example, Foxconn is a competitor. In the steel fabrication business, you will find lots of large factories. But the reality is that there are very few large factories in India, which is why most of the manufacturing is driven by MSMEs, and this is what we are aggregating and standardizing," Acharya says.

Sneha Shah in Mumbai contributed to this story.

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