The IPO Routes for India's Internet Unicorns
Forbes India|April 9, 2021
Will sebi’s new recommendations make public listings easier for india’s internet-based startups?
NAINI THAKER

On February 22, Zomato announced its latest—and potentially last— round of funding of $250 million from five investors, including Tiger Global Management and Kora Management. The online food delivery unicorn is now valued at $5.4 billion, a 1.4x jump from its valuation of $3.9 billion in January 2020, when it raised $660 million. The company is reportedly gearing up for an IPO next month.

“The fundraise adds to the war chest for acquisitions and price wars as the company readies for its initial public offering [IPO],” says Ankur Bansal, co-founder and director at BlackSoil, a credit platform for startups. “It has recently restructured its capital base to create 8.8 billion new shares and tripled its paid-up capital, indicating its intent in the near term.” Plans for the public listing seem to have been advanced due to Zomato’s better-than-expected performance during the Covid-19 pandemic. Zomato, however, reported a 160.6 percent increase in its FY20 losses, to ₹2,451 crore from ₹940 crore in FY19, while revenue increased from ₹1,255 crore in FY19 to ₹2,485 crore in FY20.

Zomato is part of a crop of internet-based companies, including Flipkart, Nykaa, PolicyBazaar and Paytm, which are planning their IPOs in the coming year or two. According to a report by HSBC Global Research, more than $60 billion has been invested in India’s internet-based startups over the past five years, with around $12 billion in 2020 alone.

However, unlike traditional profit-making companies that list on Indian exchanges, these startups continue to be loss-making ventures. The Securities and Exchange Board of India (Sebi) keeps a close watch on pricing and valuations of IPOs, and the kind of companies coming into the market, with profitability being a key factor. But with the emergence of internet-based ventures over the last 10 years, things are changing.

Pranav Haldea, managing director of Prime Database, says, “These companies, which are funded by private equity [PE] and venture capital [VC] investors, require a huge amount of capital investment before they turn profitable. In line with that, Sebi has been modifying its regulations to encourage such companies to get listed in India.”

Last December, Sebi released a consultation paper on ‘Review of Framework of Innovators Growth Platform (IGP)’, with recommendations from the Primary Market Advisory Committee (PMAC). In 2015, Sebi had introduced a similar segment called Institutional Trading Platform (ITP), but it failed to get any interest from startups. The current reforms in the IGP framework, when implemented, are expected to find far more interest among Indian startups and technology companies.

“Sebi has recognised that these startups also need to look at IPOs to provide exits to their PE and VC investors, although they are loss-making. Since most of these companies would plan to list in overseas markets, Sebi is trying to get them to list here [through the IGP framework] so that Indian investors can participate as well,” adds Haldea.

Pepperfry, the Mumbai-based online furniture marketplace, is another startup planning its IPO. According to Ambareesh Murty, co-founder and CEO, the company almost broke even last August. With plans to list in the coming 15 to 18 months, it hopes to turn profitable soon. Neelesh Talathi, CFO, Pepperfry, believes the IGP could be a platform for innovative businesses, not just in India but also in South Asia. “This [the IGP framework] is a recognition that the only similarity between all these new businesses is that they’re all dissimilar,” he says. Pepperfry is open to listing on all exchanges, including the IGP, once the new reforms are implemented by Sebi.

IPOs, however, are not always a means to raise money for all companies; for some, it is the achievement of a milestone in a company’s journey. At Freshworks, a software-as-a-service (SaaS) unicorn, which has just hit $300 million in annual recurring revenue and is growing at over 40 percent, founder and CEO Girish Mathrubootham has both time and money on his side. “We don’t have a definite timeframe,” he says. “But we are a VC-funded company and every VC-funded company knows that at some point, when the timing is right, you have to consider possible options.”

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