Another one flew over the cuckoo’s nest

27 July, 2016

This week, five years ago, the chief executive of an Indian mobile value-added services firm told me he had decided not to go ahead with a previously announced initial public offering (IPO) in India. It was a surprising decision.

The company could have become one of the handful of new generation of ‘mobile-Internet’ firms to have listed in India back then. The stock market had bounced back (the Sensex had doubled in the two previous years after bottoming out from the financial crisis of 2008-09). Mobile Internet was catching like a wildfire and the firm itself was growing at a fast clip.

In India, people understand sectors and not companies, and firms are often clubbed with others which are not in the same business due to lack of relevant peer group in terms of analyst coverage. These were the words of Vijay Shekhar Sharma, co-founder of One97 Communications Ltd, now better known for its mobile wallet-cum-recharge-cum-e-commerce brand Paytm, speaking on the sidelines of a VCCircle event.

We broke that news five years ago and surprisingly very few publications followed us to even report it. After all, Paytm was not a big enough firm back then.

In hindsight, the firm may thank its stars. Now counted as one of the eight-odd so-called Unicorns, or startups with $1 billion valuation or more, it would have been tough for the company to virtually pivot its core business or raise so much cash to bankroll a fast-growing mobile wallet business had it become a public company.

What the CEO of Paytm told us was repeated by the head of another Indian Internet firm early this month. As Yatra, decided to go for a back-door listing on NASDAQ through a reverse merger with a blank cheque firm, its co-founder and CEO told us that direct peers on the NASDAQ would make sure there is enough analyst coverage for the stock.

Most Indian companies haven’t gained much by listing overseas

Yatra is not alone. A bunch of other Indian companies have skipped the domestic market or are planning to go public overseas. Videocon d2H scripted a reverse merger with another American blank cheque firm last year, basmati rice supplier Amira Nature Foods went public on NYSE and brokerage firm SMC is looking at a US listing after skipping its date for an IPO in India.

What’s intriguing is that the lure of being on NYSE or NASDAQ has not waned despite the not-so-great experience of those that went public in the US (and we are not talking about ADRs of Indian listed firms). Barring BPO firms Genpact and ExlService, the performance of other Indian firms has been less than flattering.

Be it Yatra’s own peer firm MakeMyTrip, Videocon d2H and Amira Nature Foods, all are trading below or just above what their shares cost when they listed. All these firms went public in the past five to six years. To be sure, some of these companies are valued much more as they issued fresh shares later and most of them have seen better days in the past.

But all of them have spectacularly underperformed broader benchmark indices in the US since they went public. Needless to say, given that Indian indices are close to their all-time peaks, they also underperformed the Indian market.

MakeMyTrip massively underperformed its international peers on NASDAQ like China’s Ctrip (Ctrip is now a strategic shareholder of MakeMyTrip), Expedia and Priceline since it listed.

If the idea was to get a higher upfront valuation from an international investor audience, they probably got what they aimed at. But if the ambition was to ensure the momentum going, backed with analyst coverage and a direct peer group, they didn’t gain much. It’s certainly debatable but the interest and appetite for Internet industry stocks on Indian bourses itself remains high.

This has some lessons for CEOs of Indian firm looking to get a selfie with NASDAQ’s video tower overlooking Times Square.

(Vivek Sinha is Executive Editor at VCCircle.)

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Another one flew over the cuckoo’s nest

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