The Indian IPO Boom

The Indian IPO Boom

The IPO boom is a win-win for everyone

The primary market is blooming. Founders, entrepreneurs, and businessmen are showing an immense zeal in getting their companies listed and publicly traded. More money is pouring into equity IPOs with this year seeing record subscriptions in several IPOs. Entrepreneurs on their side are not shying away from the public scrutiny that comes with the listing, but many are even confident that their companies will do better post the initial offers.

Over the last year, particularly the fourth quarter, large marquee IPOs have tapped the primary market in 2021 many of them led by first-time entrepreneurs. In the sizable number of companies that have recently listed, many are backed by private-equity investors, while even more private-equity-backed firms are queuing up to launch IPOs.

No doubt, the abundant liquidity has meant that the appetite for equity is good, and valuations are high, but with the many IPOs particularly in the internet space meeting with immense success, it shows that the Indian markets have also matured enough.

What is noteworthy of this IPO boom is the coming of age of internet-based companies in sectors like e-commerce. A few years it was perceived that the market was not conducive for participation in internet-based platforms because their business models were either complex or not fully understood by retail investors. Some of these companies needed to make greater investments in technology and visibility to gain scale, while many of them were not showing sizeable profits in their bottom lines.

However, investors surprisingly lapped up these companies with amazing appetites. Internet companies, namely Nykaa (with TVS Capital Fund an early investor), Zomato and Policy Bazaar, have smoothly transitioned from privately held to listed players. PayTM has had a wobbly start on the bourses, but still garnered enough subscriptions for its IPO.

Besides, several more internet-based platforms are lining up plans to list. In the next few months, Oyo, Mobikwik, Delhivery and Ola have signalled IPOs. Further, in the coming year, Indian companies are expected to see IPOs of several tech companies backed by private equity. The shift toward digitization has meant that the internet-based model has become hyper-scalable within a shorter time.

The one good thing of all of this is that it shows venture capital is funding start-ups not just to find the next hyper-scalable model but also to showcase it in the primary market. While there have been secondary exits, companies benefit immensely from private-equity partners. Venture-capital firms are more active in many cases in helping businesses scale up and turn market ready.

Even on listing, several private-equity players continue to hold stakes because the Indian market still offers tremendous scope for growth. In many cases, the handholding and contribution in nurturing the firm with the insights of private-equity players in scaling up their businesses prove invaluable for new companies eager to grow.

Nykaa is a recent good example of a successful listing of an internet company even as it is still investing in growth. FSN E-Commerce Ventures Limited (Nykaa), the consumer-technology firm, delivering a content-led lifestyle retail experience to consumers, and where TVS Capital Funds had been one of the early investors, took the untrodden path of brand discovery for customers partnering with content creators.

Since then, there has been no looking back. Nykaa’s diverse range of beauty, personal-care and fashion products, and its own brands are huge draws for customers, along with an omni-channel experience. Interestingly, Ms Falguni Nayar, founder, turned entrepreneur in 2012, scaled up her business rapidly in the past decade.

Another noteworthy feature of the IPO market is that while it continues to be dominated by financial-services companies, new sectors are also listing. A case in the point is the recent offering of Medplus Health Services Ltd, where TVS Capital had been an early investor. The company, founded by Mr Gangadi Madhukar Reddy, focusses on offering genuine medicines and delivers value to customers by reducing supply-chain inefficiencies.

In fact, Medplus has already scaled up considerably and is the second-largest pharmaceuticals retailer in the country in revenues and number of stores, a commendable achievement. The firm further plans to increase its store count substantially in the second half, and enjoy the benefits of scale.

A non-banking finance firm slated to tap the markets is Five-Star Business Finance Ltd, where TVS Capital Funds Ltd is an investor. Providing secured business loans to self-employed individuals, Five-Star Business has seen the fastest AUM growth within a subset of large peers with more than Rs 3000 crore in AUM, with a CAGR growth of 65% from FY17-FY21.

Five Star’s investors include TPG Capital, Sequoia Capital, Matrix Partners, Norwest Venture Partners, KKR, and TVS Capital Funds. The investors along with the senior management have been instrumental in formulating and executing core strategies.

The good thing is that the tide of money flowing from investors is also giving opportunities for new ventures to tap funds for growth. But while there is no dearth of funds, there is overvaluation in this market and one has to make sure that private equity or venture capital does not over allocate in this vintage asset class. Allocating private equity money is all about being judicious, even while exits through primary equity market sales are increasingly the option.

Nevertheless, one thing is quite clear: the market is rewarding the good entrepreneurs with several firms commanding a good market cap. The internet IPOs are not only gaining critical mass, but Indian entrepreneurship is also getting rewarded. While valuations may appear stretched for now, in the long run, it seems likely that the boom in the IPO market will be win-win for everyone.

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