Those in the queue include homegrown startups Zomato, Paytm, Nykaa, PolicyBazaar and Cartrade Tech, to name a few. Zomato hits the market next week to raise some Rs 9,300 crore; Paytm is expected to mop up about Rs 16,000 crore. Others, too, have similar high ambitions.
So, will these astronomical size IPOs of new-age companies soak up much of the liquidity available in the market?
Amishi Kapadia, Executive Director & Global Head Merchant Banking at YES Securities, is not that fearful. She said there is enough liquidity in the markets currently and investors have good appetite for quality issues.
“There is no challenge to the IPOs of traditional businesses,” Kapadia said. “Companies with strong track records, scalable business models, sound fundamentals, experienced managements and reasonable valuations will attract investment from all segments, irrespective of the issue size,” she felt.
Some two dozen companies raised over 26,000 crore via initial public offerings in the first six months of 2021. Most of these issues rewarded investors handsomely with solid listing gains, which have averaged at close to 38 per cent this year.
“Investors have made solid gains from IPOs in the last one year. There is a lot of enthusiasm. We expect all these IPOs to see decent subscriptions,” said Vinit Bolinjkar, Head Of Research at Ventura Securities. “Some disparity, if at all, may occur based on how investors fancy a company.”
Most analysts feel the Covid-19 pandemic has come as a blessing in disguise for the new-age businesses. Many of these startups are now household names, and they have high acceptability among the new equity investors, who have entered the market in hordes over the past year or so.
Majority of these IPO-bound startups raised funds aggressively from global and domestic funds. Recent spurt in their business activities has lifted their valuations much higher.
For example, Zomato is seeking a valuation close to $10 billion, while Paytm is valuing itself at close to $30 billion. Nykaa and PolicyBazaar are sad to be getting valued at $2.5-$4.5 billion.
“Private equity investors see this as a very good time to cash out. So there is going to be a healthy supply of IPOs in the market,” Sunil Subramaniam, MD & CEO, Sundaram Mutual Fund, said in a recent interview with ETNow.
There is enough investor interest in these IPOs, though market veterans have raised valuation concerns over some of them.
“Companies like Zomato are futuristic ventures, and so they can’t be judged using traditional valuation models. They are the Amazons of India. Look at the way Amazon has traded in the US. It has nothing to do with its P&L, EPS etc, parameters we traditionally use to look at a business,” Subramaniam said.
It is all about the growth potential that these new-age enterprises can achieve and the market opportunity available to them. So, it would be wrong to use traditional valuation models for them, he added.
Successful listings of Zomato and Paytm would show the level of acceptance of digital ventures and new-age startups in this market. These companies have been sacrificing profitability over growth, as it reflected in the losses on their balance sheets.
Kapadia of YES Securities says valuation will always be an important aspect to consider while investing in a company. “But there are no set benchmarks for these new-age businesses. The price discovery has to be done in such a manner that is acceptable to all sections of investors.”
