Initial Public Offerings (IPO) paved the way for several private equity firms to exit their investments in 2017 but the number of new-age companies going public has fallen short of expectations, said panellists at NSE Tech Conclave 2018, powered by VCCircle, which took place in New Delhi on Tuesday.
The day-long event, aimed at helping startups evaluate public market platforms, saw participation from prominent entrepreneurs, PE and VC fund managers, and law firms.
The first topic of discussion was ‘Valuation Unlocking: Evaluating Exit Options’.
Shardul Shroff, executive chairman of law firm Shardul Amarchand Mangaldas & Co., pointed out that a large chunk of PE exits in 2017 had taken place through the IPO route.
“18 out of 36 IPOs [in 2017] were driven by private equity exits,” he said.
Ramakrishnan Kalyanaraman, senior managing director-strategic relationships at equity research firm Spark Capital Advisors (India), said that India still cannot be called an “easy market” despite the IPO boom last year and a large numbers of mergers & acquisitions and secondary deals.
The panellists that included MakeMyTrip chief executive officer Deep Kalra, said the lack of a solid track record in terms of profitability was a hurdle for companies – particularly new-age startups – looking to go public.
“Scale and profitability is very important for listing,” they said.
Aloke Bajpai, chief executive officer of travel search engine Ixigo.com, said that such companies, however, are not chasing profitability. He said that tech-driven firms are happier staying private but could change their minds if the norms are changed to make life easier for startups.
“There is no hurry to get profitability. However, if there is a change in norms, one would certainly think about it,” he said.
The panellists said that the prospects for early investors exiting through the secondary route had also brightened, adding that large-cheque investors are keen to provide exits to early-stage investors.
“That phenomenon has been very strong. The trend was there in 2016, 2017 and will continue this year as well,” said Pankaj Naik, co-head- digital and technology investment banking practice at Avendus Capital.
Kalyanaraman, however, said that traditional businesses are suffering owing to this frenzy among institutional investors for new-age companies.
“Traditional companies didn’t get the same level of appreciation from fund managers and even analysts when it comes to fundraising,” he said.
Alok Bansal, co-founder of Policybazaar, shared the same view and said that some startups have been overvalued.
Another factor which affects new-age companies wanting to list is the lack of recognition among the masses.
“Identification of promoters has become an issue. There have been some instances where the legal advisors have had to argue with SEBI that these are professionally-managed companies,” said Shroff.
Startups are also wary of getting listed as they are unsure if they can maintain higher multiples – witnessed while fundraising – once they list.
“Defending that higher multiple is also stopping startups from floating their issue,” said Bajpai.
There is also pressure from control-oriented PE firms which have advised their portfolio firms to stay private.
“If a large shareholder comes, they will ask to go for listing in another two years so that they get enough scalability,” said Bansal.
The long road to clearing regulatory hurdles before a stock market debut has long been a pain point for companies in India. But the panellists said things have changed of late.
“It’s taking not more than nine months [for clearances],” said Shroff. “This is also in a way beneficial for the said companies as the time is giving them an opportunity for people to know them. People also get to know that transparency and governance exists in the company.”
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