In a significant development last month, several tech startups submitted their initial public offering (IPO) documents to the Securities and Exchange Board of India (SEBI). This move has garnered positive responses from both institutional and retail investors, signaling a robust interest in the public offerings of emerging companies.
The success stories of companies like Nykaa, Zomato, Mamaearth, Ixigo, and TBO Tek have made it evident that strong financial performance and solid business fundamentals are crucial for making a lasting impact in the public markets. These precedents have set the stage for other startups to consider going public as a viable option for growth and expansion.
On August 2 and August 6, electric mobility company Ola Electric and Software as a Service (SaaS) firm Unicommerce, respectively, opened their IPOs for public subscription. Ola Electric’s IPO was set at a substantial issue size of Rs 6,145 crore, while Unicommerce’s offering was more modest at Rs 276 crore. Despite the difference in size, the market’s response to these IPOs was telling. Unicommerce’s IPO was oversubscribed by a staggering 168 times, suggesting a strong likelihood of a significant price increase once the stock lists. In contrast, Ola Electric’s IPO was oversubscribed by a relatively modest 3.86 times.
The oversubscription figures highlight an intriguing dynamic: although Unicommerce’s IPO raise was less than 4.5% of Ola Electric’s, it managed to surpass the EV unicorn by Rs 11,000 crore in total bids. According to data from exchange websites, Unicommerce received bids totaling over Rs 25,600 crore, whereas Ola Electric garnered Rs 15,000 crore in bids.
Financial performance further underscores the contrasting profiles of these companies. In the fiscal year ending March 2024, Unicommerce reported a revenue of Rs 104 crore and a profit of Rs 13 crore. In contrast, Ola Electric generated a much higher revenue of Rs 5,010 crore but incurred a significant loss of Rs 1,584 crore during the same period.
While it may not be entirely fair to directly compare companies from different sectors, the post-listing stock performance of these firms could offer valuable insights. Should market projections hold true, Unicommerce might experience a significant jump in its stock price, while Ola Electric could see a decline in value within the first week of trading. If this scenario plays out, it may further solidify the preference of retail investors for companies with strong profitability and consistent year-on-year growth. Conversely, a strong performance by Ola Electric could renew confidence in loss-making firms that are preparing for their own IPOs.
Companies like Unicommerce, Ixigo, and TBO Tek are sending a clear message to growth-stage startups: achieving unicorn status is not the only path to success. Instead, these companies demonstrate that it is possible to go public successfully with a solid financial foundation or a clearly viable business model, even if the scale is more modest.
The market is beginning to recognize the value of smaller firms that have established their credentials and demonstrated their ability to seize opportunities. These companies are being priced at a premium, reflecting the perception of a longer and steeper growth trajectory ahead. On the other hand, for larger firms, especially those with significant secondary offerings in their IPOs, the market might view these events more as exit opportunities for existing investors rather than as entry points for retail investors.
This shift in market dynamics could pave the way for more small, profitable startups to explore the public markets, setting the stage for a new era of IPOs driven by strong fundamentals rather than sheer scale.
