IPO Lights For Indian Startups

Diwali is all about lights, celebrating with our close friends and family, and a time to take stock of our health and wealth. Of course, it’s also a time to recharge and come back rejuvenated after the celebrations.

This is as much true for individuals as it is for the biggest startups in India. Indeed, there are quite a few parallels between the traditions and rituals of Diwali and what startups are wishing for later this year. For them too, it’s a time to take stock of their health, reward employees and refuel themselves before resuming the hard yards post the celebrations.

Several of the biggest names in the ecosystem are lining up for IPOs and by next year, we might even have more clarity on giants such as Flipkart, OYO, PhonePe, Zepto, Groww, Razorpay, CRED and many other unicorns. Not to mention the mega Swiggy IPO which will come up for bidding just after Diwali, and potentially set the tone for the next year.

So this Sunday — even as we are in the throes of our festive mood — it’s time to look closely at this wave of IPOs and what this means for not just for those heading for the public markets but for hundreds of other Indian startups that may be eyeing this route in the next few years.

As usual, that’s after a look at the top stories from our newsroom this week:

• BigBasket’s Quick Commerce Bet: One of the earliest grocery ecommerce platforms is feeling the heat from quick commerce. Can Tata-owned BigBasket adjust to the new reality of the Indian consumer market and find its groove again?
• Razorpay’s Tightrope Walk: Scaling up the payment aggregator business is key for Razorpay to maintain its profits which have grown nearly 6X in FY24, but the startup has to contend with from thin margins, high compliance burden and stiff competition
• PhonePe’s Super App Brigade: PhonePe is already acting like a public company with a healthy amount of disclosures in its FY24 annual report. And this gives us a peek at the horizontal and vertical layers of the company’s leadership structure, both of which are vital for PhonePe’s super app ambitions

Behind The Startup IPO Wave

After a slump in the IPO market in 2022, there was a spurt of IPOs in 2023, but this is nothing compared to the boom seen in 2024, with Indian companies showing their bullishness about the domestic economy and market sentiments.

In 2023, for instance, India saw 57 mainboard IPOs raising INR 49,434 Cr. As many as 70 mainboard listings have already taken place so far this year, collectively raising more than INR 1.4 Lakh Cr.

On the SME boards on both NSE and BSE, a whopping 217 IPOs have been recorded in 2024, as per publicly available data. On the startup front too, SME boards have witnessed frenetic activity, with Trust Fintech and TAC Infosec listing at significant premiums on the NSE SME platform.

While fintech company Trust Fintech listed at a premium of 42%, cybersecurity company TAC Infosec listed at a 173.6% premium, highlighting the potential of smaller IPOs in India.

As per market analysts, the year 2024 is expected to see these green shoots further bloom, with three more IPOs coming in the first week of November, including the highly anticipated Swiggy listing.

Despite the frenzy in the IPO market, Mahavir Lunawat, managing director at Pantomath Capital Advisors, believes that there is an appetite for more IPOs. As per Lunawat, India is very short of capital formation, and as an economy, the country needs more than INR 2.5 Lakh Cr of capital formation if it has to double its economy by 2030.

“If we look at it from a liquidity perspective, we have more than INR 2 Lakh Cr coming in the capital market from mutual funds, insurance, pension, and other modes annually. So, if there are fewer fresh equity issuances and IPOs (which currently stand at INR 60K-INR 70K annually), where will this money flow?” Lunawat told Inc42 in an earlier conversation.

And some believe that India’s IPO market is not yet reaching its full potential since many companies are not able to raise as per their business needs, but have to kowtow to expectations around valuations. For instance, there is a feeling among analysts that the Indian market needs to beef up its IPO activities by 4X from the current level for demand and supply equilibrium.

The Valuations Caveat 

It’s in this context that we have to question the unbridled enthusiasm of some upcoming public listings, where the valuations may be a concern.

Rajesh Sawhney, founder and chief executive of GSF Accelerator believes that some listed startups did the right thing by raising money at a lower valuation than their last private valuations. This shows that startups are learning the ropes when it comes to public markets.

“Ola Electric did the right thing by pricing the company’s IPO lower than its last valuation. Ola Electric and ixigo left money on the table for new investors during their IPO,” Sawhney said, adding that ultimately they were rewarded by the increase in their stock price after listing.

It’s another matter that Ola Electric’s long road to profitability, slowdown in EV sales, and a challenging after sales service situation have resulted in the stock falling and hovering close to the issue price. What Sawhney and others have pointed out is that it’s much easier to get to the IPO stage in India today, than it was a few years ago, as long as startups compromise on pricing and valuation to a certain extent.

Are Startups Adapting In Time?

AceVector Group (Snapdeal and Unicommerce’s holding company) cofounder Rohit Bansal believes that there is a perception shift happening among Indian startups, as more and more and tilting towards public markets at earlier stages.

“I expect a large number of Indian startups to go public early in the next few years. I also believe the current fixation of startups zooming their toplines before taking the IPO plunge is also set to change as more companies will look at listing at earlier stages,” Bansal said at Inc42’s D2C Summit in August.

It’s not just scale; startups are cleaning up their act around disclosures and corporate governance well before they file their pre-IPO papers.

Newly-listed travel tech giant ixigo’s cofounder and CEO Aloke Bajpai is a big proponent of private companies having strong corporate governance guardrails and professional management teams in place before any plans for IPOs.

“After the 2021 era, some of the learnings from public markets are now acting as a feeder into the private market, which necessitates companies to have strong fundamentals and a sustainable business model, as well as the realisation that they need to turn profitable at some point and start delivering positive cash flows,” said Bajpai.

Indeed, we have seen a marked improvement in how companies disclose their financials, for instance, even though the level of disclosures is not great. Some startups have resorted to sharing cherry-picked or adjusted numbers to highlight their financial health, and while this may not be enough, it’s certainly a change from the past when financials were routinely delayed by six to 12 months in some cases.

One pertinent example is PhonePe’s FY24 annual report, which clearly stated that the fintech giant wants to act like a publicly listed company and be as transparent about its operations as possible.

From VCs To Stock Markets

Thus far, startups have relied on venture capital in the later stages to fuel growth and expansion, but these days, VCs are more keen on backing startups at the earlier stages or just before the IPO, rather than infuse capital in growth stage companies and run the risk of value erosion.

For startups looking to list publicly, profitability and solid fundamentals are the key pillars, but the IPO frenzy in 2024 means that many companies are willing to impress public markets investors with their scale alone or with their potential to disrupt existing industries, as long as valuations are sober.

Currently, the high valuation chased by Swiggy and the large issue size will make it the key IPO to watch out for. Given Zomato’s gains in the past year, there will be a lot of scrutiny around Swiggy’s scale, its relatively weaker profitability quotient, as well as the lack of momentum for its quick commerce operations when compared to Zomato’s Blinkit or Zepto.

Besides Swiggy, close to a dozen new-age tech startups are looking to make their public debuts soon,

Delhi NCR is expected to lead the startup IPO parade, with MobiKwik, Ecom Express, Smartworks and Zappfresh having received SEBI approvals for their listings.From Bengaluru, Swiggy, Ather Energy and BlackBuck are lining up for the bourses after getting the regulator’s nod.

Besides these, a host of other startups, including Zepto, Shadowfax, IndiQube, Pure EV, Physics Wallah, have public listings on the cards in the near future.

Many of these startups have been around for less than half a decade and have scaled up rapidly on the back of VC funds. But now their eyes are firmly on a listing, which means adapting their ways to suit public markets.

“While Mamaearth went for IPO in just 6-7 years, companies like MakeMyTrip took close to 10 years,” Info Edge founder and executive vice chairman Sanjeev Bikhchandani said at September’s MoneyX by Inc42.

However, it must be noted that this acceleration has only come as a result of the scale that startups have reached in the past decade, much of which was built on VC dollars. Now comes the time for more responsible growth and proving that profits will follow the scale.