After a distasteful 2022 in terms of Indian startups embarking on the stock market route, the ongoing year has done a slightly better job. Well, against the three startups that went public in the year infamous for breeding the funding winter, 2023 has seen five startups floating their IPOs so far.

However, had it not been for the sharp correction in the stock prices of the listed tech giants like Paytm, Zomato, and PB Fintech last year, 2023 could have mirrored 2021 when as many as 11 new-age tech startups got listed on the Indian bourses.

Not to mention, these sharp corrections, triggered by the subdued sentiments of investors, forced the likes of OYO, Navi, GoDigit, PayMate and many others to reassess their decisions to commence their journey on the D-Street. The list excludes startups like ixigo, Droom, Snapdeal, PharmEasy, Capillary and MobiKwik who have either delayed or withdrawn their IPO plans since 2022.

The current dilapidated state of Indian startup IPOs is independent of the revival witnessed in the broader IPO market in 2023, particularly around June-July, after Mankind Pharma’s stellar debut.

The Indian IPO Oxymoron?

While, on the one hand, many Indian tech startups were seen fighting shy of getting listed due to multiple reasons, including witnessing the bloodbath of their peers, an EY report suggests that India has emerged as the global leader in terms of the number of IPOs year-to-date in 2023. Quite an oxymoron, if you will.

As per BSE data, the year so far has seen a total of 92 IPOs, including 40 mainboard listings, compared to 90 IPOs in 2022 with 38 mainboards.

Moving on, in Q3 2023 there were a total of 21 IPOs in the Indian main market, a sharp jump from just four in the same period of last year. Even the proceeds raised during the quarter amounted to $1,770 Mn, a 376% rise from $372 Mn in Q3 2022, the EY report notes.

Meanwhile, no one sector is dominating the Indian IPO space, as a diverse mix of companies are going for public listings. 

As Sunil Nyati, MD of Swastika Investmart pointed out, the Indian IPO market has started witnessing a significant diversification in the IPO landscape in contrast to earlier times when a single sector typically dominated the mainboard IPOs.

“Various sectors, including small finance banks, biotechnology, supply chain management, apparel, jewellery, infrastructure, and cable manufacturing, have been active participants in this IPO surge,” Nyati said, adding that companies are racing to file for IPOs ahead of 2024 general elections, as there is a remarkable demand for these offerings.

So, what continues to pull back some of the top tech startups from taking the public route?

The Tale Of Startup IPOs In 2023

Some of the market experts Inc42 spoke with opined that though the IPO market and the sentiment towards tech startups have revived, there continues to be a sharp focus on profitability. Hence, loss-making entities might find themselves in trouble even if they decide to go public now. This is probably why we are witnessing many Indian startups deferring their IPO plans.  

Besides, after the examples set by Paytm and Life Insurance Corporation (LIC) last year, retail investors would hardly subscribe to any public issues with very high valuations.

Given the market is cautious about these two factors (vanity valuations and profitability), it was rather wise for several of these tech startups to go slow on their public listing plans this year, analysts believe.

Speaking on the matter, Prashanth Tapse, research analyst, senior VP (research) at Mehta Equities said that several tech startups have delayed their IPOs looking at the market sentiment, and till the end of this year, there is no chance of more new-age, loss-making businesses entering the Indian market. 

These tech startups will not take any risk of going public right now, he said, pointing at the low subscriptions of Mamaearth’s IPO.

We must note that while many held back, two prominent names – Mamaearth and Yatra – made their debut on the Indian bourses this year, but their entries were rather cold.

Traveltech major Yatra listed on the BSE and the NSE at sharp discounts of 8.5% and 10.2%, respectively. Meanwhile, the recent debut of D2C unicorn Mamaearth was flat on the BSE and at a mere 2% premium on the NSE.

However, it is worth noting that in July, drone startup ideaForge listed at a 94% premium on the bourses. 

Though this emerging tech startup IPO can only be deemed as “stellar” this year, compared to its startup peers, shares of ideaForge have already witnessed a sharp correction of over 30% since its listing.

At a time when the focus remained on the public market debuts of the high-valuation startups, blockchain and IT development firm Yudiz Solutions made its entry at an over 12% premium on the NSE SME platform.

Meanwhile, another mainboard IPO of fintech SaaS startup Zaggle saw a muted response as its shares were listed at a 1.2% discount on the BSE and made a muted entry on the NSE. However, it is pertinent to note here that while Zaggle’s IPO wasn’t hyped as much as some of the others, its shares are trading 40% higher than their listing price.

Amid concerns over valuation and profitability, OYO reduced its IPO size earlier this year to $400 Mn-$600 Mn from $1.2 Bn earlier. 

Additionally, in pursuit of turning profitable, OYO has carried out several restructuring measures in the last one year. Interestingly, OYO claimed to have achieved its first-ever profitable quarter in Q2 FY24, with a projected profit of INR 16 Cr. However, there is still no clarity on the IPO, which was expected to happen around Diwali this year.

On the other hand, in March this year, insurtech unicorn GoDigit refiled its DRHP with SEBI but is yet to receive the green light from the regulator. 

Navi and PayMate’s IPO timelines also remain unclear.

While startup IPOs have been few and far in 2023 when compared to the overall momentum in the Indian IPO market, the situation is, of course, much better than in 2022. 

A major reason behind this shift is the change in investor sentiment towards new-age tech companies in 2023, as several listed loss-making companies turned profitable or are aggressively marching towards their profitability targets.

Will 2024 Be Any Better?

Next year is expected to be even more interesting for the startup IPOs.

This is because several prominent startups from diverse sectors, including electric mobility major Ola Electric, Zomato’s rival Swiggy, Prosus-backed digital payments giant PayU, and Peak XV Partners-backed co-working space Awfis are eyeing public listings in 2024. And this is besides the pending IPOs mentioned above.

In fact, Ola Electric is reportedly eyeing a market capitalisation of $10 Bn following the IPO, raising somewhere between $800 Mn-$1 Bn. However, its filing with the market regulator was expected by October end, which is yet to take shape.

Meanwhile, foodtech decacorn Swiggy has also started preparing for its debut on the public market with an IPO size expected at around $1 Bn.

As per a recent report, Awfis is also likely to file its DRHP soon for an IPO worth $100 Mn-$125 Mn. PayU, too, is expected to file DRHP with SEBI in February next year for a $500 Mn IPO.

Amid the IPOs of unicorns and decacorns, there is a possibility that some smaller tech startups make humble public market debuts next year.

Recently, agri-drone company AITMC Ventures also filed its DRHP with the market regulator to list on the NSE’s SME platform.

Mehta Equities’ Tapse opines that valuation is the most sensitive metric that will decide the fate of IPOs in the current market scenario. He added that the companies that have listed at valuations lower than INR 10,000 Cr are doing much better.

“This is a market where companies should create shareholders’ value and not value for themselves. Tech startups have burnt cash significantly and now they want to get listed to get brand coverage and other advantages but valuations for these loss-making entities should be decided extremely carefully,” he added.

Echoing similar sentiments, Swastika Investmart’s Nyati also said, “Investors, understandably cautious after some recent disappointments, appear reluctant to commit to these high valuations, especially in the backdrop of an environment marked by elevated interest rates.”

Meanwhile, on the back of achieving profitability, Zomato’s valuation has almost doubled. Also helped by lowered losses, Paytm’s market cap has surged over 40% since May this year. The rally is also seen in shares of Nykaa, PB Fintech, MapmyIndia, and others.

Considering the substantial increase in the share prices of listed tech startups, could a more thoughtful valuation approach simplify the path for upcoming new-age tech IPOs? 

[Edited by Shishir Parasher and Vinaykumar Rai]