Covid-19 pandemic spurs matured-stage start-ups to advance their IPO plans

Topics Startups | IPOs | Nykaa

Illustration by Binay Sinha
Several matured-stage start-ups, including digital commerce and payments firms, are now looking at taking the initial public offering (IPO) route for raising funds and offering exits to early investors.

While most were expected to tap the public market and few had openly stated their intent, their plans seem to have been advanced owing to the Covid-19 pandemic. 

In the past few days, many companies, including fashion e-tailer Nykaa, food delivery platform Zomato, logistics and delivery firm Delhivery, insurance discovery platform PolicyBazaar, eyewear retail chain Lenskart, and edtech and online tutoring firm Byju’s, have openly spoken about their IPO plans. The others, believed to be considering a public listing, include Walmart-owned Flipkart and PhonePe, and online bill payments platform MobiKwik. 

Experts believe while the IPO plans have been accelerated partly due to the pandemic, this had to happen soon, given the maturity of the ecosystem. “Covid-19 has helped establish the business models of e-commerce companies. It has led them see better demand on their platforms. Hence, an IPO is the next available strategy,” said Pinakiranjan Mishra, consumer leader at EY India. 

Speaking at a recent event, Falguni Nayar, founder of Nykaa, said her company was seeing acceleration in both sales and profitability. As a result, the online fashion retailer’s IPO plans may be advanced.

MobiKwik recently kick-started its IPO 2020 campaign by elevating its Senior Vice-President Chandan Joshi to the role of the company’s co-founder and chief executive officer (CEO).

Byju’s founder and CEO Byju Raveendran recently told Business Standard that his company was quite clear about going for a public offer, but was yet to decide on the time frame. 

“We strongly felt the Indian ecosystem has reached a juncture where IPOs should be the direction larger unicorns should take. Over the next five years, there should be a start-up index too,” said Ashish Fafadia, partner at early-stage venture capital (VC) firm Blume Ventures.

Recent media reports suggest that e-commerce major Flipkart is preparing for an overseas listing as early as 2021. This could potentially value the firm up to $50 billion. Flipkart’s IPO, in fact, has been pending for quite some time.

“Walmart’s only loss has come from Flipkart, which did gain traction during the pandemic, but has not been able to resurface on the books. Flipkart’s marketplace and wholesale business saw their losses rising more than 69 per cent in 2019 to Rs 5,459 crore. The only way Flipkart can stand against the likes of Amazon is with an IPO,” said Somdutta Singh, founder and CEO of e-commerce management firm Assiduus Global.

However, going public may prevent valuations from growing as fast as they did before the listing. “The upside is that companies will be focused on fine-tuning their business models and ensure profitability,” said Fafadia.

Some of these companies are also expecting to raise capital from the public markets, given the VC and private equity investment in the start-up space have taken a hit during the pandemic, especially in sectors outside online education and commerce. Moreover, an end to funding from Chinese investors, such as Alibaba and Tencent, is also expected to be another reason. 

“Larger companies, such as unicorns, are interested in expanding their funnel for sources of large amounts of capital they need for their journey. By accessing the public markets, they are looking to open up another pool of capital. This is also crucial in light of the recent norms restricting investments from Chinese players,” said Anup Jain, managing partner at Orios Venture Partners.

Some start-up players, including Flipkart and PolicyBazaar, have evinced an interest to list overseas. While online insurance company PolicyBazaar is eyeing a Nasdaq listing by September next year at a valuation of $3.5 billion, Flipkart is likely to choose between Singapore or the US for an IPO.

The current legal framework doesn’t allow Indian companies to directly list overseas, before getting themselves listed on the Indian stock exchanges. Hence, many companies, such as MakeMyTrip, have set up parent entities in other countries to be eligible for a foreign listing. Further, companies like Reliance Industries and Infosys have used the American Depository Receipt/Global Depository Receipt route for accessing foreign capital.

With the Lok Sabha passing the Companies (Amendment) Bill, 2020, on Saturday, public companies will now be allowed to list certain class of securities in foreign jurisdictions.

“Companies with international branding and market value can initiate listing on foreign stock exchanges under this norm. In the long term, this will be a positive step. It will help Indian companies to be more self-reliant in terms of capital,” said Salman Waris, managing partner at specialist technology law firm TechLegis Advocates & Solicitors.


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