A Zomato delivery person waits at traffic signal in New Delhi India on September 21, 2019
Food delivery giant Zomato, which became a household brand during the pandemic-induced lockdown, delivered a stellar performance when it debuted on the stock exchange Friday. Zomato’s shares soared as much as 82% to 138 rupees a share in early trading. They finished the day at 126 rupees, a gain of almost 66%.
The Delhi-based startup, now valued at $13.3 billion, is the first among a herd of startups planning to cash in on the momentum in India’s IPO market. At least nine of the 11 ventures that are planning initial public offerings are unicorns–private companies valued at $1 billion or more–that have raised several rounds of capital from both homegrown and global venture capital firms, private equity players and wealthy individuals.
Zomato’s IPO, which closed last week, was a much bigger success than anticipated. The offering was oversubscribed more than 38 times, with the retail category alone being oversubscribed 7.45 times. The company raised 93.75 billion rupees ($1.25 billion) through a fresh issue of shares and an offer for sale from its parent.
Close on the heels of Zomato’s debut will be mobile payments and commerce platform Paytm, whose board just last week approved the public listing of its shares to raise 166 billion rupees. Paytm has also sought the approval of the capital markets regulator Securities and Exchange Board of India (SEBI). Paytm founder Vijay Shekhar Sharma, who became a billionaire in 2017 at age 38 and is currently worth $2.3 billion, is expected to reap IPO riches.
The spate of offers in the pipeline also includes digital payments company MobiKwik, which has already filed its draft red herring prospectus to raise about 19 billion rupees. Next in line is online insurance aggregator Policy Bazaar, whose board has approved a restructuring and renaming of the parent company to PB Fintech prior to the float. It’s proposing to raise up to 65 billion rupees through a fresh issue of shares and an offer for sale.
Online e-commerce marketplace Flipkart, which was acquired by U.S. retailer Walmart in 2018, is also expected to file for an IPO. Last week, Flipkart raised $3.6 billion at a valuation of $37.6 billion from a host of investors, including GIC, Canada Pension Plan Investment Board and SoftBank. This is believed to be Flipkart’s pre-IPO round. The listing is expected to boost the net worths of its two billionaire founders, Sachin Bansal and Binny Bansal, who continue to hold minority stakes though they no longer run the company.
Other companies that are likely to seek public listings are: ride-hailing firm Ola Cabs, hotel room aggregator Oyo Rooms, online pharmacy PharmEasy, Pine Labs, logistics firm Delhivery, Freshworks, beauty products retailer Nykaa–all of which are already unicorns–and furniture seller Pepperfry.
For all their lofty valuations, the majority of these companies are not yet profitable. What makes these IPOs attractive, especially for retail investors is “growth,” says T.V. Mohandas Pai, former CFO of IT company Infosys and an active investor in the startup ecosystem.
“These are high-growth companies that spend more for growth and hence make losses. What normal companies grow in, say, 10 years, they do in 2-3 years,” he says. Further, he adds, they are disruptive and hence attract more capital and more interest from all investors.
According to K. Ganesh, a serial entrepreneur and founder of startup incubator GrowthStory, companies were traditionally assessed on metrics, such as P/E ratio, earnings per share and price-to-book value. But that changed when these startups began to raise huge sums of money from private investors. They will now have to be assessed and analyzed on a different set of metrics, such as lifetime value, customer acquisition cost, online followers and growth rate.
Pai says India has about 55 unicorns and over 55,000 startups that are valued at about $350 billion now. Retail investors are likely to be attracted to the unicorns as means for a momentum play or they may be betting on the scarcity premium that the stocks attract when they list. India, adds Pai, is witnessing a digital revolution and disruption that has already been seen in the U.S. and China, which will fundamentally transform the economy.
Ganesh points out that the ventures that have already raised large sums of private capital have also been disruptive in each of their respective industries. Over the last few years, technology has changed the way people buy or consume in India–be it shopping, paying for goods, ordering food, booking a train or a flight ticket, entertainment or even consulting a doctor. Technology and disruption will be the key factors that will determine how valuable a company is, he adds.
