Analyzing the Sentiment of Startup IPOs on D-Street

Three points you will get to know in this article:

1. 2023 Indian startup IPOs improved slightly from 2022, but tech giants’ valuation drops made them rethink IPO plans.
2. Tech startups still face high valuations and profitability issues, despite better IPO market.
3. 2024 may see more startups go public and more sectors list.

In contrast to the challenging ride for Indian startups venturing into the stock market in 2022, this year has shown a marked improvement. Despite the gloomy backdrop of the funding winter, three startups went public last year, while 2023 has witnessed the IPO debut of five startups so far.

Yet, the progress would have been even more noteworthy if not for the significant drop in the stock prices of tech giants such as Paytm, Zomato, and PB Fintech in the preceding year. Without this setback, 2023 might have resembled the vibrant market of 2021, when a total of 11 cutting-edge tech startups successfully joined the ranks of listed companies on the Indian stock exchanges.

Let’s talk about a rollercoaster ride for Indian startups in the stock market. Last year was a bit of a bummer, with only three brave startups going public. But hey, 2023 is trying to make amends – we’ve already got five startups flaunting their IPOs.

Now, picture this: if it weren’t for the stock prices of big players like Paytm, Zomato, and PB Fintech taking a nosedive last year, we could’ve been reliving the glory days of 2021 when a whopping 11 tech startups made it to the Indian stock exchange. But wait, there’s more drama. Thanks to some market blues and nervous investors, names like OYO, Navi, GoDigit, PayMate, and others had to press pause on their stock market dreams. And here’s the scoop – startups like ixigo, Droom, Snapdeal, PharmEasy, Capillary, and MobiKwik either hit snooze or totally backed out from their IPO plans since 2022.

Now, the current state of Indian startup IPOs might seem a bit gloomy, but let’s not forget the IPO party in the broader market. Things started picking up around June-July, especially after Mankind Pharma wowed everyone with its stock market debut. So, buckle up, because it’s been a wild ride!

The Indian IPO Oxymoron?

In a peculiar twist of fate, numerous Indian tech startups hesitated to take the plunge into the stock market realm, given the tumultuous experiences of their counterparts. However, according to an insightful report by EY, India has remarkably positioned itself as the worldwide frontrunner in terms of the number of IPOs in 2023, presenting a somewhat paradoxical scenario.

Delving into the BSE records, the current year has witnessed a grand total of 92 IPOs, encompassing 40 mainboard listings. This marks a notable uptick from the 90 IPOs, including 38 mainboards, recorded in the preceding year of 2022. The data paints a dynamic picture of India’s evolving landscape in the global IPO arena.

In the ever-evolving realm of Indian IPOs, no particular sector reigns supreme; instead, a delightful medley of companies is stepping into the public limelight.

According to insights shared by Sunil Nyati, the Managing Director of Swastika Investmart, there’s a noticeable shift in the IPO landscape. Gone are the days when a solitary sector monopolized the mainboard IPOs. The current scene is a vibrant tapestry, woven with diversity.

Nyati pointed out that a multitude of sectors, ranging from small finance banks and biotechnology to supply chain management, apparel, jewellery, infrastructure, and cable manufacturing, are actively participating in the IPO surge. It seems like every corner of the business world is eager to take center stage and make their mark.

Moreover, Nyati highlighted an intriguing trend—companies are in a frenzied race to file for IPOs before the 2024 general elections. The reason? There’s an unmistakable demand for these offerings, and businesses are keen to capitalize on the fervor before the political landscape potentially shifts. It’s a dynamic dance of sectors vying for attention and investors looking for the next big opportunity in this lively IPO spectacle.

The Tale of Startup IPOs In 2023

In discussions with several market experts, Inc42 found a prevailing sentiment that while the IPO market and enthusiasm for tech startups are making a comeback, there’s a keen emphasis on turning a profit. Consequently, companies operating in the red might face challenges if they opt for a public debut at this juncture. It seems many Indian startups are holding off on their IPO aspirations, possibly due to this cautious climate.

Furthermore, after the cautionary tales of Paytm and Life Insurance Corporation (LIC) last year, regular investors are showing reluctance to back public offerings with sky-high valuations. In light of the market’s wariness regarding both lofty valuations and profitability concerns, analysts view the decision of several tech startups to take a measured approach to their public listing plans this year as a prudent move.

According to insider insights, these tech trailblazers are steering clear of the IPO bandwagon for now, citing Mamaearth’s lukewarm market response as a cautionary tale. It’s interesting to observe that, despite this hesitancy, two noteworthy players, Mamaearth and Yatra, took the plunge into the Indian stock market this year. However, their debut was less of a sizzling spectacle and more of a cool breeze.

Yatra, a major player in travel tech, marked its presence on the BSE and NSE with discounts of 8.5% and 10.2%, respectively. On the other hand, the recent entry of Mamaearth, a D2C unicorn, made a modest debut on the BSE and a mere 2% premium on the NSE. But, let’s not forget the plot twist—back in July, the drone startup ideaForge took center stage with a whopping 94% premium on the stock exchanges. In a period dominated by the buzz surrounding the stock market premieres of high-value startups, Yudiz Solutions, a blockchain and IT development firm, marked its entrance on the NSE SME platform with a noteworthy 12% premium.

Meanwhile, the debut of Zaggle, a fintech SaaS startup, on the mainboard IPO didn’t create much fanfare, as its shares were listed at a slight 1.2% discount on the BSE and entered the NSE in a more subdued manner. However, it’s worth noting that despite the lack of hype surrounding Zaggle’s IPO, its shares are now trading a solid 40% higher than their initial listing price.

Addressing concerns related to valuation and profitability, OYO took a strategic step earlier this year by reducing its IPO size from the initial $1.2 billion to a more focused range of $400 million to $600 million. This move reflected the company’s proactive response to market dynamics.

In the quest for profitability, OYO has implemented various strategic changes over the past year. Interestingly, OYO proudly announced its inaugural profitable quarter in Q2 FY24, projecting a profit of INR 16 Cr. However, the anticipated IPO around Diwali this year is still shrouded in uncertainty.

Conversely, GoDigit, the insurtech unicorn, refiled its DRHP with SEBI in March, but the awaited approval from the regulator is still pending. As for Navi and PayMate, the timelines for their IPOs remain elusive.  Although the number of startup IPOs in 2023 is comparatively modest amid the overall Indian IPO market momentum, the scenario is undeniably an improvement from the challenges faced in 2022.

Will 2024 Be Any Better?

The upcoming year promises an exciting lineup of startup IPOs, set to unfold with diverse players making their mark. In 2024, we anticipate a flurry of activity as several noteworthy startups, spanning various sectors, gear up for public listings. Among them are the electric mobility giant Ola Electric, Swiggy, the contender in the ring with Zomato, the digital payments powerhouse PayU backed by Prosus, and the co-working space Awfis supported by Peak XV Partners. These potential listings add to the anticipation stirred by the IPOs already in the pipeline.

Interestingly, Ola Electric is making headlines, eyeing a substantial market capitalization of $10 billion post its IPO. The buzz suggests a fundraising range of $800 million to $1 billion. Despite initial expectations for their filing with the market regulator by the end of October, it appears the formalities are still taking shape. Exciting times lie ahead as these startups chart their course into the public domain.

Meanwhile, Swiggy, the food-tech powerhouse, is gearing up for its grand entrance into the public market, eyeing an IPO with an estimated size of around $1 billion. According to a fresh report, Awfis is poised to join the IPO wave by soon filing its DRHP, targeting a public offering ranging from $100 million to $125 million. PayU is also in the spotlight, gearing up to submit its DRHP to SEBI come February of next year, with plans for a substantial $500 million IPO.

In the midst of unicorns and decacorns taking center stage in the IPO arena, there’s a tantalizing prospect that some smaller tech startups might make their modest debut on the public market next year. Adding to the mix, AITMC Ventures, an agri-drone company, recently took the plunge by filing its DRHP with the market regulator, setting the stage for a listing on the NSE’s SME platform. The IPO landscape seems to be buzzing with activity and anticipation.

According to Tapse from Mehta Equities, the key factor determining the success of IPOs in today’s market is their valuation. He goes on to highlight that companies with valuations below INR 10,000 Cr seem to be faring notably well in the current landscape.

Expressing similar thoughts, Nyati from Swastika Investmart remarked, “Given recent setbacks, investors understandably tread cautiously, showing hesitancy towards embracing these lofty valuations. This caution stems from the backdrop of an environment characterized by heightened interest rates.”

Meanwhile, buoyed by attaining profitability, Zomato has nearly doubled its valuation. With reduced losses playing a role, Paytm’s market capitalization has surged by over 40% since May of this year. This upward trend is also evident in the shares of Nykaa, PB Fintech, MapmyIndia, and other companies.

With the substantial uptick in the stock prices of already-listed tech startups, could adopting a more deliberate valuation approach pave the way for a smoother journey for upcoming new-age tech IPOs?

Despite a slow 2022 for Indian startup IPOs, 2023 has seen an increase, but still falls short of expectations. The sharp correction in stock prices of high-profile tech companies such as Paytm, and Zomato has caused a reassessment among startups considering going public. While the slowdown in the startup’s IPOs does not mirror the total IPO market’s revival in 2023, high valuation and profitability concerns still hold back many tech startups from listing. Looking ahead, it is expected that 2024 may bring a further diversification of sectors and potentially more startup IPOs.