Securing Initial Public Offering (IPO) is the supreme sought-after capital extension by startups. Successful IPO unlocks the floodgates for additional capital and improvement in the overall startup economy. Despite the businesses’ turbulent times in 2020 due to the pandemic, the year 2021 witnessed some of the most comprehensive runaway success listings so far because of the high liquidity and solid investor sentiment.
According to the HSBC Global Research February 2021 report, more than $60 billion has been invested in India’s internet startups in the past five years, with around $12 billion in 2020 alone. Many of these leaders, which operate businesses, are now on the rim of listing. Similarly, Citi Research’s report in January 2021 suggested that IPOs are set to speed up this year, driven by recuperating productivity and scale in diverse verticals.
Indian startups like Zomato, Nykaa, Flipkart, Policybazaar and Delhivery are fastening to go public. Also eyeing the markets are BigBasket, Byjus’s, Ola, Oyo, and Pepperfry. Here are the details of some of the IPOs which are set to go public this year:
ZOMATO, the largest online food delivery company which delivers almost 2 million orders per day, has over 50% market share in India. The company had strong revenue performance, growing 105% in FY 2020 from the previous year. Simultaneously, the company’s losses also grew by 47%. In the first quarter of 2020-21, the current fiscal year, the company’s earnings stand at $41 million while the losses stand at $12 million.
NYKAA is an app-based cosmetic retailing startup planning to go public at a valuation of $3 billion, considering domestic listing and overseas share sale. In 2018, the founder and CEO Falguni Nayar had told in a media interaction that the startup would list in the next two years. Nykaa is considering a domestic listing, as well as evaluating an overseas stake sale, the report added.
POLICY BAZAAR’s co-founder Yashish Dahiya told the media that the startup plans to raise $250 million in a round of financing at a valuation of $2 Billion before issuing its initial public offering (IPO) in September 2021. The insurance platform is planning to go public at a valuation of more than $3.5 million. Dahiya has said that the IPO size will be $500 million. PolicyBazaar plans to list in Mumbai, but Dahiya is open to a dual listing. With almost 90% market share, the largest online insurance company in India does monthly transactions of 0.4 million, has a health commission rate of 19-20%.
FLIPKART, last year in September, media reports suggested that Walmart was planning an IPO for an Indian e-commerce major in 2021. The Walmart chief executive also noted that with both Flipkart and its digital payments company PhonePe growing at a quick pace, both companies have room for more investors and could diversify in several ways, including IPOs. The report mentioned that the IPO could value Flipkart at over $50 billion. Flipkart would likely choose between Singapore and the US for its IPO.
BYJUS, the digital education company’s last evaluation, was almost $11 billion and had over 70 million registered users.
DELHIVERY, the largest third-party online logistics company in India, delivers almost 1 million parcels in a day and has over 85 fulfilment centres. Customers include e-commerce giants Amazon and Flipkart.
What do Analysts Say
As several startups are launching their IPO this year, many views come from commerce experts about the timing and investment sentiment among investors considering the ongoing COVID-19 pandemic.
Jyoti Bhandari, the founder at Lovak Capital Pvt. Ltd, says “With the current blockbuster performances of recent IPOs, the financial year 2020-21 looks to be a big fat IPOing year as a lot of startups will grab the opportunity to move to the next level and provide a decent exit to the investors who have stood by them in the recent pandemic crisis. While some would offer great listing gains, some will be significant fundamental assets for core portfolios.
For freshers, it became noticeable during the lockdown that tech companies, online platforms, IT Services have become a very integral part of people’s lives. The stock market has doubled in the last year, and the IPO market is looking optimistic.
Commenting on the startup IPO, Varun Malhotra, founder at Edge Institute of Financial Services (EIFS), said, “There are certain limitations. SEBI’s listing rules warrant says to list a company on Indian bourses, and it needs to have a minimum 15 Crores operating profit in 3 of the preceding five years. This is a problem since most startups initially guzzle large amounts of money without turning an operating profit, that is, if they ever do.”
Given this, Gopal Kavalireddi, Head of Research at FYERS, said as long as the valuations are within a respectable range, reflecting the business prospects and financial standing of the company, an IPO would list well and also continue a good performance post listing. If a company that is coming up for listing is trading at valuations higher than its already listed peers, investors might not prefer such companies.
As more and more startups enter the capital markets, there is a clear indication of a changing business landscape and the government of India’s vision for the startup ecosystem. In December 2020, the Securities and Exchange Board of India (SEBI) advised relaxing norms to encourage more startup listings. This will strengthen the overall funding environment, with better confidence from angel investors, VCs, and PE funds looking for the right exit strategy.
Hersh Shah, CEO at India Affiliate of Institute of Risk Management, said startups, with their potential, offer a beautiful opportunity to invest in the next big idea. However, pre-IPO investing, or investing in unlisted companies, can involve specific risks that investors must be aware of.