India's technology start-ups set to continue IPO rush into 2022

Delhivery, Snapdeal, PharmEasy, OYO and Ola are among those slated to list in the bourses in the coming year

Year 2021 belonged to India’s technology startups. And that's not just because they raised more than $36 billion from the private market or that 43 of them became unicorns. 

Some of the biggest tech start-ups in the country – most of them either loss-making or just about in the black – hit the bourses this year. These companies accounted for more than $6 billion of the estimated $24 billion raised by initial public offerings (IPOs) in India in 2021. 

And the IPO rush for startups is set to continue in 2022, according to industry watchers and tech entrepreneurs. While logistics firm Delhivery, online pharmacy PharmEasy, e-commerce company Snapdeal, hotel aggregator OYO and a host of others, have already filed their IPO prospectuses, unicorns like Ola, Capillary and OfBusiness are expected to join the party next year. 

Edtech startup Byju’s is in talks with Churchill Capital to raise $4 billion and go public through the special purpose acquisition company (SPAC) route. The round is expected to more than double the Bengaluru-based firm's valuation to about $48 billion, according to sources. The Byju Raveendran-led startup is currently valued at $21 billion, the first domestic startup to reach the mark.

If the fundraise with Churchill Capital materialises, Byju’s can merge with one of Churchill’s SPACs and list in the US market by mid-2022.

E-commerce major Flipkart, too, is contemplating the SPAC route to list in the US at a valuation of $50 billion in late 2022 or early 2023, although the company has publicly maintained a non-committal stance on the timeline. Meanwhile, Flipkart co-founder and former CEO Sachin Bansal’s financial services company Navi has reportedly shortlisted bankers to raise $500 million in an IPO in the first quarter of CY2022.

“Going for an IPO is not just about raising money. We raised five rounds of funding from the private market this year and can raise more if required. It is more of a rite of passage that every startup wants to achieve,” says Asish Mohapatra, founder and CEO of B2B e-commerce and lending platform OfBusiness, which has raised more than $800 million this year. 

The startup was valued at nearly $5 billion in its most recent funding round earlier this month and aims to go public by October-December of 2022. “The aim was always to be ready for the public market by the seventh year of founding and it feels good to be on track to do that,” adds Mohapatra.

One of the factors that will drive the IPO momentum in 2022 would be several pro-industry policies in the Union Budget, according to Suraj Malik, a senior management consultant who advises family offices. “This would be the last Budget where the government can get creative and the results will have ample time to play out. Also, seeing the reception to tech IPOs this year, many more such companies which were fence sitters are bound to hit the buzzer,” he says.

Taking stock

However, the ride to the stock exchanges is not always smooth, as was seen in several instances this year. If gaming company Nazara and travel tech startup EaseMyTrip were the first ones to enter the fray, even as the second wave of the Covid-19 pandemic was raging, foodtech unicorn Zomato made a dash for the public market although its frontline delivery workers had still not been fully vaccinated. 

But that did not have any impact on its stock market debut, since it listed at a premium of 53 per cent over its issue price, and hit Rs 1 trillion in market capitalisation on the first day of listing.

Since then, two more of its internet peers –  online beauty store Nykaa and fintech major Paytm – have hit the trillion-rupee market capitalisation mark. However, Paytm’s entry into the public market was not without its share of woes. After a relatively slow uptake of its IPO, which is now India’s largest, at $2.46 billion, the company's stock price crashed. 

“The Paytm IPO showed that the only aim of a public issue cannot be giving maximum liquidity to private market investors. The other learning is that retail investors won’t be attracted to a tech company if the path to profitability seems too long,” says Nikhil Kamath, co-founder of online stockbroking platform Zerodha. 

Even so, Kamath feels that the IPO juggernaut will keep rolling in 2022, except for a pause two months before and after the listing of Life Insurance Corporation (LIC), which could mop up as much as $10 billion from the market.

However, the recent changes to IPO rules have made some firms cautious about listing. The new Securities and Exchanges Board of India (Sebi) norms have reduced how much promoters can sell in a public issue and placed a bar on anchor investors looking to cash out early after listing, among other things.

“The intent of the law and its implementation have been fairly robust so far, and extending their reach at this point in reaction to one IPO may prove to be detrimental for market dynamics,” says Utkarsh Sinha, managing director of Bexley Advisors, a boutique investment bank.

“The onus for pricing an IPO and determining the optimum promoter sale, should fall on the advisors, who are the barometers for the market response. Over time, these factors will be priced in by the market. Going beyond that and excessive monitoring or restrictions would only serve to limit market activity and enthusiasm,” adds Sinha.

According to Ambareesh Baliga, an equity market analyst who advises family offices, tech companies are bound to have a decent IPO landing in the forthcoming year. “But there is a caveat. It will only take a couple of bad experiences where retail investors lose money, for the trend to go bust. I would still say that most of us do not know how to value such loss-making tech companies.”