Around 40 new-age firms could go public or be ready for an initial public offering (IPO) by fiscal year 2025 as the ecosystem has turned its focus on profitability, according to a report by consulting firm Redseer.
SaaS, B2C Product Companies, and FinTech are amongst the most promising categories to produce IPO-ready companies, said the report as these companies have sizable revenues, sustainable growth, a strong EBITDA, and operate on defensible business models, making them strong candidates for IPO.
Their focus on profitability has come amidst a prolonged funding winter for Indian startups.
Offering an insight into the IPO landscape, the report said that after a period of a sharp correction in stock prices until Q4 FY22, the listed new-age tech players bounced back in FY24, indicating a trend of gradual recovery.
The report estimated that by FY28, 90 new-age companies will get listed by FY28.
“In contrast to FY21, nearly twice the number of Indian unicorns are on their way to profitability in FY23. Startups have substantially improved their profitability in FY24, and going forward, about 50% of unicorns in India will be profitable by FY27. However, the story is bleak for 20% of unicorns, who will likely struggle due to regulatory challenges, plummeting demands, and unclear business models,” said Rohan Agarwal, partner at Redseer.
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These could pivot to new models, get acquired by other companies or close for good.
Agarwal believes Indian tech IPOs are just commencing, and the future holds massive potential. This optimistic outlook is driven by factors like a booming tech ecosystem, strong investor interest, rapid digitization, supportive policies, and global market opportunities.
First, the Tech contribution to public market capitalisation in India is only about 1%, whereas the same is roughly 25% in the USA, implying a large headroom for value creation in the tech space.
Second, India has 100 unicorns and more than 150 ‘soonicorns’ with a robust number of tech companies that will create a strong pipeline of startups with IPO potential.
Third, the scenario looks similar to what was seen during the US tech bubble as tech IPOs grew 3X in the years post the dot-com bubble.
In preparation for a successful initial public offering (IPO), Agarwal stressed three key areas that IPO-bound companies need to focus on.
Firstly, they should prioritize building strong investor relationships and trust, emphasizing reputation and transparency.
Secondly, companies must proactively engage with potential investors well in advance of the IPO to establish rapport.
Lastly, providing clarity on business models and key metrics is crucial to enable investors to make informed decisions about their investment. By addressing these areas, companies can increase their chances of a successful IPO.