The Covid-19 pandemic has been a downhill spiral of valuations for many Indian companies. The trend has now impacted India’s digital payments giant Paytm and cab-hailing services Ola with US-based mutual funds T Rowe Price and Vanguard reassessing their investments in these companies.
To start with, T Rowe Price has cut down the valuation of its shares in Vijay Shekhar Sharma-led Paytm by 26%, as of June 2020. The investment firm had led Paytm’s $1 Bn round back in November 2019, along with the participation of Ant Group, SoftBank Vision Fund and Discovery Capital. This was the largest funding round raised by an Indian startup in 2019, and had valued the company at $16 Bn.
T Rowe Price is said to have invested at least $150 Mn in Paytm in December 2019 and had acquired shares for $254 each. Now, multiple funds held by the investment firm have slashed the value of these shares to $188, according to its filings.
Paytm is currently the most valued Indian startup, besides Walmart-owned Flipkart with its at $24.9 Bn valuation.
On the other hand, Vanguard has revised the valuations of its shares in Ola by nearly 50% as of August 31, 2020.
According to an ET report, Ola’s shares are currently being valued at $162.5 each by the company against $311 per share value accessed in February. Ola’s valuation had reached $6.2 Bn during its $352 Mn Series J funding raising back in 2019. South Korean automobile maker Hyundai and Kia Motors had participated in this round.
The downward revision is primarily due to fall in Ola’s revenues and business during the pandemic and the resultant lockdown. In May 2020, Ola had laid off nearly 1,400 employees from its workforce across mobility business, Ola foods and Ola financial services. This step was taken as the company’s revenues fell by 95% in March and April.
In an email to employees, Ola cofounder and CEO Bhavish Aggarwal said, “We had all hoped in the beginning that this would be a short-lived crisis and that its impact would be temporary… But unfortunately, it’s not been a short crisis. And the prognosis ahead for our business is very unclear and uncertain. It is going to take a long time for people to go out and about like before. The fallout of the virus has been very tough for our industry in particular.”
Vanguard group had slashed Ola’s valuation by 40% in 2017 as well.
But What’s Beyond Valuation?
With $116 Bn in total valuation and over $35.7 Bn in total funding, Indian unicorns are also the largest job creators and employers in the Indian startup ecosystem. But in the post-pandemic era, higher valuations will no longer be an indication of the success of a startup, especially a unicorn.
Beyond the glorified valuations of the majority of unicorns in India and at their bare financial metrics, a very different picture emerges. As per an Inc42 Plus analysis, based on a sample set of 30 out of the 35 unicorns, a mere 30% or nine unicorns are EBITDA-positive i.e with profitable unit economics. Given the economic crisis globally, survival and scale for startups without the prolonged inflow of venture capital investments is out of the question.
You can read more about this in our report, Towering Valuations But No Sign Of Profits: The Story Of Indian Unicorns In 2020.