BENGALURU -- About a dozen Indian startups are planning to list in the first half of 2022, undeterred by the shaky debut of SoftBank-backed financial services company Paytm, as they hope to benefit from the frenzy surrounding Indian tech stocks as investors shy away from China.
Paytm floated earlier this month after raising 183 billion rupees ($2.44 billion) in India's biggest initial public offering yet. The company's shares tanked to 1,580 rupees apiece on their first day of trade, from their offer price of 2,150 rupees each.
Startups are pinning their hopes on a buoyant market and enthusiasm around tech stocks, particularly after strong performances from the likes of Zomato and Nykaa. The pipeline is dominated by companies in the consumer sector, some of which have been valued at over a billion dollars each.
Among the companies exploring the possibility of a listing is Sequoia Capital and Fairfax-backed insurance provider Digit, which saw its valuation jumping from $1.9 billion in January to $3.5 billion in July. Digit predominantly sells motor insurance.
Accel Partners-backed home health care startup Portea Medical, which offers a range of services from caregiving to dialysis and chemotherapy, and Sequoia Capital-backed home interior startup HomeLane are also considering IPOs.
Two market sources said Partners Group-backed logistics company Ecom Express, and Prosus Ventures and Tiger Global-backed home services startup Urban Company, valued at $2.1 billion during its last fundraising exercise in June, are seeking listings.
Xiaomi-backed Hungama Digital, one of India's earliest digital entertainment companies set up in 1999; audio and wearables startup boAt, which raised $100 million from Warburg Pincus at a valuation of about $300 million in January; and SoftBank-backed online marketplace Snapdeal are also working on IPOs. Ride-hailing services Ola is in the middle of raising about $250 million in a pre-IPO round, at a valuation of between $7 billion and $8 billion.
Startups such as SoftBank-backed hospitality company Oyo and logistics company Delhivery, and online pharmacy PharmEasy have already filed offer documents with market regulator Security and Exchange Board of India. So have used car marketplace Droom, travel aggregator Ixigo and data provider Tracxn.
Oyo is likely to seek a valuation of $10 billion to $12 billion, while Delhivery, which competes with DHL and DTDC India among others, is aiming for a $6 billion valuation.
PharmEasy, which competes with Tata Group's 1mg and Reliance Industries' Netmeds, became a unicorn earlier this year and has since seen its valuation soar to $5.6 billion. The company has acquired Thyrocare Technologies, a diagnostic laboratory chain and Aknamed, a medical supply procurement startup since June this year, in cash and stock deals cumulatively worth about $800 million.
The Paytm fiasco may nudge investors to pull the plug on frothy valuations, particularly for middling startups or those that significantly lag market leaders. For instance, MobiKwik, which had not been able to match the rapid ascents of Paytm, Walmart's PhonePe and GooglePay, has deferred its listing after gauging a lack of interest for its stock at a valuation of $1 billion.
MobiKwik posted revenues of 3.2 billion rupees for the year ended March 2021. In comparison, Paytm, which went public in November, posted revenues of 10.8 billion in the July-September quarter.
Valuations of Indian startups have shot through the roof, as investors, spooked by Beijing's regulatory curbs on technology companies, started diverting a part of their China allocation to India. Hedge funds have also started buying into Indian startups at a frantic pace, investing about $4.3 billion across 104 deals, three times the $1.4 billion invested in 2020, according to Venture Intelligence, a data provider. Since January, 38 Indian startups have been valued at over $1 billion.
"There is a broad consensus that Paytm, with its losses and stagnant revenues, was overpriced," said an executive at an advisory firm, on condition of anonymity. "The success of an IPO depends on the size [of the offer], price and [financial] performance, and Paytm was weak on all three fronts. Companies with similar stories will continue to feel the heat in public markets, despite the hype around them in private markets."
The Sensex, India's benchmark index for public equities, has surged 19% since the beginning of the year, as against 15% in 2020. The index has outperformed the Asia Dow Index and the Shanghai Composite Index, both of which remained flat. Nikkei 225 rose only 4% while Hong Kong's Hang Seng Exchange fell 13%.
This rally in Indian equities is expected to continue through 2022, with Morgan Stanley predicting that it would soar past the 70,000-mark by the end of 2022, from the 57,500 level now.
The broader public market boom has rubbed off on startup stocks such as Zomato and Nykaa, which are trading at double their issue price despite a weak financial performance in the July-September quarter. Zomato's losses almost doubled, while Nykaa's profits shrank by a third during this period, compared with the April-June quarter.
The ebullience around technology stocks has opened an additional exit route for venture capital and private equity firms, which, until recently, depended on buyouts or secondary share sales for liquidity. Stocks offered by existing shareholders account for about 38% of the total shares put up for sale by Paytm, Policybazaar, Nykaa, Zomato, Oyo, Delhivery, Droom, Ixigo and PharmEasy.
"It's all about making hay while the sun shines," said the executive at the advisory firm. "Some of the companies, especially the middling ones, that are opting for an IPO also view it as the right opportunity to get an exit for their investors, which would have otherwise been difficult."