The IPO Story
The SmartCEO|October 2016

The journey of three entrepreneurs from the ideation phase to scaling up and, eventually, a listing in the public markets.

Poornima Kavlekar

Going public is a major move for an organisation and a sign of natural progression that comes with scaling up and market expansion. We talk to three entrepreneurs to understand how they took their company from the ideation phase to listing in the public markets, their professional routines one year before the IPO, the changes they had to make to the way they run their companies and what has changed post listing.

All entrepreneurs agree that there is no perfect timing for an IPO and it depends on the organisation’s positioning in the market place, economic conditions, thought process of the management team, and the overall goals of the business. Integrated business service provider, Quess Corp’s founder & Managing Director, Ajit Isaac, believes that a company is ready to go public, when it is ready to take responsibility and the company and management have a compelling investment thesis and are able to communicate the same to the broader market, effectively. For Dr. B. S. Ajai Kumar, founder of HealthCare Global Enterprises (HCG Enterprises), the IPO was more a sign that his organisation is maturing and entering the next phase.

For most organisations, getting ready for an IPO also meant that new systems and processes had to be put in place. After all, for the first time, there is a whole lot of compliance-related deliverables and also the management has to get used to ‘making progress’, every single quarter. However, PN Vasudevan, the founder of Equitas Holdings, says that the company always adhered to systems and processes, as if it were a public limited company, keeping in mind the nature of its business. In the story, he talks about some of the most important aspects needed to deliver a good IPO, some unique challenges faced by Equitas, and how the company was changing its underlying business model right around the time of listing.

The three stories have been narrated to give you a perspective of what it takes for a venture to progress from idea to a successful IPO. Read on.

EQUITAS’ IPO JOURNEY!

Equitas Holdings raised Rs. 2,200 crore from the public in April this year. Incorporated as a company with a distributed ownership model, it was during this period when it changed its business model from that of an NBFC to that of a bank. The managing director and founder, P N Vasudevan, takes us through the various challenges and learnings he and his team had while planning for the company’s IPO.

For the founder of Equitas Holdings, P N Vasudevan, building a transparent company with high level of governance was always of utmost importance. And it was one of the main reasons why the company was ‘IPO ready’ right from the early days. When Equitas hit the bourses in April 2016, raising Rs. 2,200 crore, Vasudevan and team were working round the clock to ensure a successful listing, but one thing they didn’t have to do was to add systems and processes, for governance and compliance; That had been inculcated into the business process, right from day one.

Vasudevan says, “Usually, the merchant bankers study the organisation and make it IPO complaint which involves changes to the composition of the board, shareholder agreements and committee composition and eventually le the draft red herring prospectus (DRHP). In our case we had to do nothing at all.” In fact, there is Clause 49 in the listing agreement which describes the governance standards for a company in India. “On 26 July 2007, when the first board meeting was held, we were already Clause 49 compliant,” says a proud Vasudevan. When the company was started, some principals were laid down for Equitas. That it had to be an organisation run by a set of professionals with no owners; majority independent board supervising the organisation and governance standard complaint.

Through this story, Vasudevan describes some key strategies adopted by Equitas during the public offering process and some lessons learnt during this phase.

Why the IPO?

The company, originally registered as an NBFC, received its license to convert into a small finance bank in October 2015. Once the banking license came through, there was a condition that the 93 per cent stake holding by foreign investors in the company had to become less than 49 per cent. “In India, domestic institutions are not allowed to invest in unlisted stocks and hence, we had to come out with an IPO if I had to get domestic investors interested in our company,” explains Vasudevan.

However, the management took the decision to apply for an IPO even before it got its banking license. “Even if we had not got the license, we would have come out with an IPO as an NBFC,” says he. The reason being the company was growing and so was its capital requirement and SEBI’s rule that Indian VCs cannot invest in unlisted NBFCs did not help much. The only other option Vasudevan had was to seek a new investor to raise money. “In the private equity market, upto a certain size of investment, you get a large number of investors who are ready to pump in US $10 million to US $20 million in companies. When your requirement increases, the number of potential investors reduces and they want certain strategic relationship with the company,” adds he. They are not interested in just attending board meetings, but want more participation in themanagement and decision-making of the company. But, since the philosophy of the organisation was distributed ownership (was willing to give away a maximum stake of 9.9 per cent to investors), Vasudevan found it hard to raise funds from large PEs.

When asked why Vasudevan didn’t want a promoter run business? He says, “I was the one who started the company and I didn’t have money to be the promoter. I knew that this company will never be mine. And, I wanted to ensure that all decision-making and operations were extremely professional. Even my continuance here is only because the board approves my performance.”

Challenges galore

Shareholding pattern: The fact that the company had no promoter was one of its biggest challenges. The company was high on governance standards and did not allow any shareholder to have more than 10 per cent stake, including Vasudevan. This, however, did prove to be a challenge at the time of the IPO as SEBI regulation for an initial public offering is such that whenever a company taps the capital market, the promoter should lock in 20 per cent of the post issue capital for a 3 year period. However, the company got an exception under one clause in the SEBI guideline. “In India, only L&T received it before us. A private company, L&T went public without a promoter and is still listed as a company without a promoter.” Equitas is the second company in that category where SEBI gave an exemption to the promoter clause,due to its governance structure.

Business model swap:Equitas operated as an NBFC for 9 years and received its license to convert into a bank in October 2015. During the IPO, the company could not give any forward looking statements. “When we led the DRHP, we mentioned that we have a license to convert into a bank in the next year or so. And beyond that we were not allowed to mention anything else,”states Vasudevan. This was a unique situation as people had a lot of questions on how the company raise deposits, brand and marketing strategies and its interest rates. So while the company’s entire business model was undergoing a dramatic change, it could not communicate on how it will manage that change. However, the company decided not to change the IPO timing and to counter this challenge, it put out a few strategic plans for the bank in its DRHP. “We were allowed to talk within that DRHP document. We highlighted our strengths as an NBFC, that is, large distribution, customer base and the fact that this particular customer base we serve, is not serviced by the mainstream banks even for liabilities,” says he.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM THE SMARTCEOView All

Timely Recognition For Thejaswini

Mini Mathew, Publicity Officer, Coconut Development Board, Kochi-11 a model FPO for their farm and home activities

7 mins read
The SmartCEO
January - February 2018

Welding The Gap

While typical technical training institutes take about a year to upskill workers, Ankur Capital and Michael & Susan Dell Foundation-funded Skillveri has designed training simulators which can help welders pick up the skills within two or three weeks. With its R&D efforts focused on developing more such simulators in related fields, the founders are keen on taping India’s manufacturing sector with the hope that they can skill at least one lakh people for the 90 million jobs expected to be created in the next five years

4 mins read
The SmartCEO
January - February 2018

The Idea Issue

5 Rapidly Scaleable Business Ideas for the Entrepreneur in You

10+ mins read
The SmartCEO
January - February 2018

Making Cell Phone Towers In Space A Reality

Kepler Communications envisions building a satellite-to-satellite communications network in space in the next 20 years. In the road to this goal, it has adopted a handful of near-term and medium-term strategies such as building infrastructure for IoT applications and broadband backhaul apps.

4 mins read
The SmartCEO
January - February 2018

Are You Listening To Your Machines?

Augury Systems envisions taking predictive maintenance from large, niche market players to lower end markets by offering it as a SaaS-based solution. The company has developed two solutions, Auguscope Portable Diagnostics, and Halo Continuous Diagnostics, to diagnose machines based on the sounds they make.

3 mins read
The SmartCEO
January - February 2018

Anecdotes From This Investor-turned-entrepreneur

In an interview with Smart CEO, Bala Parthasarathy, serial entrepreneur and investor, takes us through the various stages of his professional life, the lessons he has learnt and unlearnt along the way and his plans for MoneyTap, a consumer credit, fintech startup

7 mins read
The SmartCEO
January - February 2018

The IPO Story

The journey of three entrepreneurs from the ideation phase to scaling up and, eventually, a listing in the public markets.

10+ mins read
The SmartCEO
October 2016

Insurance for the Digital Age

Accel & SAIF-backed Coverfox is making deft moves at keeping its platform digital-ready for the Millennial generation. It’s success strategies? Simplicity of product and platform which result in speedy navigation & transactions, and a paced foray into commercial car insurance for the Ubers & Olas of India.

5 mins read
The SmartCEO
October 2016

A Peek Into Chaayos' Strategy

Nitin Saluja and Raghav Verma, the founders of Tiger Global-backed Chaayos, give us a glimpse into their strategy and why attention to the finer nuances of operations is at the centre of their efforts

4 mins read
The SmartCEO
October 2016

Differentiating In The Cluttered World Of Fashion E-Commerce

UK-based online fashion brand, Koovs, wants to stand out amidst the ecommerce crowd by offering affordable western fashion sensibilities. The company’s CEO, Mary Turner, is clear that she’d have done well, if she occupies even 10 per cent of the Indian fashion ecommerce market, within a few years.

4 mins read
The SmartCEO
October 2016
RELATED STORIES

PRACTICAL

ENERGY OBSERVER • CROSSING THE NORTH SEA • HANDLE BIG BREEZE UPWIND

6 mins read
Yachting World
June 2021

A Small Part OF A Small Business Can Be A Big Idea

Lisa Tran’s parents (right) escaped a Communist regime and built a small restaurant in America. Now she wants to reinvent it by building a business based solely on their sauces. Her mom thinks she’s crazy—and maybe she is. But some of the greatest brands were built in much the same way.

10+ mins read
Entrepreneur
June 2021

Hospice Industry INFLUENCERS

Attending to a person in their hour of death is one of the most honorable and sacred things we can do for one another. Through state-of-the-art technology, education, and a deep devotion to compassionate care Maxwell Healthcare Associates aims to forever change the way we live our final days.

5 mins read
The BOSS Magazine
April 2021

Think Like a Disruptor

If you want to shake things up, you must have a mindset that’s different from everyone else’s. Here are three ways to reshape your thinking.

5 mins read
Entrepreneur
April - May 2021

Staying Ahead of Change

Yousuf Ali had a successful career in marketing until he failed to embrace new technologies. Now, as a My Eyelab franchisee, embracing forward-thinking capabilities is the key to his success.

2 mins read
Entrepreneur
April - May 2021

Build Lasting Partnerships

Finding trustworthy vendors and partners is key to growing your business—but it’s a challenging relationship to perfect. We asked six entrepreneurs to share their best methods.

2 mins read
Entrepreneur
April - May 2021

Intel's debut Iris Xe graphics cards are headed to prebuilt PCs (but not for gaming)

Intel will sell a discrete desktop GPU aimed at mainstream users and small businesses.

2 mins read
PCWorld
March 2021

The Beauty of Being Rejected

I thought my idea to shake up the book industry was brilliant. Investors didn’t. That ended up being my greatest asset.

3 mins read
Entrepreneur
December 2020

Is Partner Yoga the New Couples Therapy?

No pair is immune to the challenges of coupledom. While counseling may be the typical go-to resource for guidance, some counselors with yoga backgrounds are taking sessions to the mat, encouraging people to bolster their relationships with asana, pranayama, and meditation through partner yoga therapy.

3 mins read
Yoga Journal
September - October 2020

100 Boldest, Most Innovative Female Founders

The 100 pioneers, empire-builders, movement makers, innovators, creatives, serial entrepreneurs, and geeks building the most exciting businesses in America.

10+ mins read
Inc.
October 2018