The Securities and Exchange Board of India (SEBI) has given the payment platform MobiKwik permission to earn INR 700 crore through an initial public offering (IPO). There is no offer-for-sale component to the IPO, which is purely a new issue of equity shares with a face value of INR 2 per share.
Using INR 250 crore, MobiKwik intends to build its financial services division, accelerate growth in its payment services with INR 135 crore investment, and devote another INR 135 crore to data, machine learning, and artificial intelligence breakthroughs.
Together with general corporate factors, the remaining INR 70.28 crore will be earmarked for capital expenditures in its payment devices division.
Link Intime India Private Limited is the registrant of the offer, and SBI Capital Markets Limited and DAM Capital Advisors Limited are the book-running lead managers for the initial public offering (IPO). It has been suggested that the equity shares be exchanged on both the BSE and the NSE.
Exploring Options for Raising an Additional INR 140 Crore
As part of a “Pre-IPO placement,” the company may consider raising an additional INR 140 crore through options such as a rights issue, preferential allotment, or private placement. The fresh issue size will be adjusted proportionately if this is finalized.
In January 2024, the company founded by Bipin Preet Singh and Upasana Taku refiled its draft papers with Sebi, resulting in a substantial reduction in the size of the IPO from INR 1,900 crore to INR 700 crore.
The company achieved profitability in FY24, generating a net profit of INR 14.1 crore, a significant improvement from the INR 83.8 crore loss it experienced in FY23. The revenue from operations also experienced a significant increase, rising from INR 540 crore in FY23 to INR 875 crore in FY24.
The Company Focuses on Providing Financial Solutions
MobiKwik provides businesses and merchants with a wide range of financial and payment services. Currently, the company offers services such as online transactions, Kwik QR scan and pay, MobiKwik Vibe (Soundbox), MobiKwik EDC Machine, and Merchant Cash Advance.
The company also operates a B2B payment gateway specifically designed for e-commerce enterprises through its subsidiary, Zaakpay. Additionally, RBI approval has been granted to Zaakpay for Payment Aggregator (PA) operations.
Mobikwik has registered 146.94 million users and enabled 3.81 million merchants to process online and offline payments as of September 30, 2023. MobiKwik ZIP GMV (Disbursements) experienced a remarkable 354.86% increase from Fiscal 2021 to Fiscal 2023, while the Payment GMV has experienced an annual growth rate of 32.33%.
Foreign Venture Capital Investors (FVCIs) can now be more easily registered thanks to new regulations announced by the capital markets regulator Sebi. Designated depository participants (DDPs) are now responsible for evaluating post-registration references and granting registration to foreign variable capital investment (FVCI) companies, in accordance with the rules established for foreign portfolio investors (FPIs).
The process of acquiring a registration certificate as an FVCI begins with an application engaging a DDP, and the DDP and custodian of the FVCI must always remain a single entity.
Currently, the Securities and Exchange Board of India (Sebi) handles the processing of applications for registering FVCIs and any associated due diligence.
In a notice published on September 6, the regulator, Sebi, stated that to engage in securities transactions as a foreign venture capital investor, one must first obtain a certificate issued by a certified depository participant on behalf of the Board (Sebi).
What Steps Do FCVIs Need to Follow?
A domestic custodian must be appointed by FVCIs under the current regulations to oversee FVCI investments in India and provide Sebi with reports and other information regularly.
If the notice is to be believed, before making any investments subject to these restrictions, a foreign VC or global custodian representing the VC must engage in an arrangement with a designated depository participant and a custodian.
Eligibility Criteria for FVCI
The eligibility criteria for FVCI have also been expanded by the regulator to include Overseas Citizens of India (OCIs), Non Resident Indians (NRIs), and Resident Indians (RIs). The following requirements must be met: the total contribution from all NRIs, OCIs, and RIs must not exceed 25% of the applicant’s corpus; the combined contribution from all of them must not exceed 50% of the applicant’s corpus; and they must not be under the applicant’s control.
Investment trusts, mutual funds, endowment funds, pension funds, investment partnerships, asset management companies, investment managers, and university endowment funds, as well as any other investment vehicle incorporated outside of India, are currently eligible to apply for registration as an FVCI.
Additionally, FVCIs must save their assets in a demat format. This will be put into action on January 1, 2025, thanks to Sebi’s revised regulations for foreign venture capital investors.
Founded and based outside of India, FVCI is a major investor in the unlisted stocks of VC funds and venture capital undertakings. So far in March of 2023, 269 FVCIs have been recorded with Sebi. Additionally, within the same period, FVCIs invested a total of INR 48,286 crore directly into investee companies.
Due to rising worries about the risks connected with unregistered financial influencers (finfluencers), markets regulator Sebi has revised standards to regulate them. Through three distinct announcements, the authority has limited the ability of its regulated businesses to do business with unregistered persons.
This followed last month’s approval of a similar plan by the Sebi board. According to the notices, individuals who are regulated by Sebi and their agents are not allowed to be associated with anyone who offers advice, recommendations, or makes explicit claims of return in any way, whether through financial transactions, client referrals, or interactions with information technology systems.
According to the regulator, no individual or agent regulated by the Board (Sebi) may be directly or indirectly associated with someone who gives advice or recommendations about securities (either directly or indirectly), unless that person is registered with or otherwise allowed by the Board to do so. Similarly, no one can make any claim—expressly or impliedly—about returns or performance related to securities (either directly or indirectly) unless they have been authorized to do so by the Board.
Sebi Setting Standards for Accountability
According to industry insiders, Sebi is establishing a benchmark for competence and transparency in the industry by mandating that finfluencers register with the regulator and follow certain rules.
This change would make it such that stock brokers, research analysts, mutual fund firms, and registered investment advisors can’t work together with finfluencers.
However, such cooperation has opened a modest opportunity for investor education. This is predicated on the premise that these finfluencers will not make any suggestions or assert any kind of profit or success.
Technology platforms are being encouraged by Sebi to build systems that can detect and track unregulated content to enhance its supervision. A larger strategy to improve its regulatory structure includes this proactive approach, which is part of Sebi’s overall plan. For their part, Kamlesh Varshney, a whole-time member of Sebi said that Sebi is thinking about easing several regulations about research analysts and registered investment advisers. At the next Sebi board meeting in September 2024, the idea—which garnered more than a thousand replies—is likely to be considered.
Why Sebi Has Taken This Step?
The new Sebi standards prohibit any association, whether direct or indirect, between unregistered finfluencers and businesses that are regulated by Sebi. These entities include mutual fund houses, stockbrokers, and research analysts. With the help of new restrictions, ordinary investors will be protected from the biased or deceptive advice that is frequently provided by these influencers, who typically operate on a commission-based compensation model.
As long as there are no promises for financial advice or returns, there is still a limited window of opportunity for investor education, even though Sebi’s crackdown is intended to protect investors. By establishing these severe requirements, the Securities and Exchange Board of India (SEBI) hopes to encourage accountability and guarantee that only those who are certified and regulated will provide financial guidance in the market.
As a result of unapproved related party transactions of INR 324 crore and INR 36 crore with Paytm Payments Bank (PPBL) in FY 2021-22, One 97 Communications (OCL), the parent company of Paytm, was warned by SEBI. Noncompliance was highlighted in the letter dated July 15, 2024. When responding to SEBI’s concerns, Paytm emphasised that it follows SEBI Listing Regulations, maintains high standards, is transparent, and confirms that there would be no financial impact.
In the letter, it was said that the company would also provide a response to SEBI and that it would adhere to the highest compliance standards.
There were certain non-compliances found during the examination, according to SEBI. The company and its subsidiaries engaged in excessive related party transactions (RPTs) with PPBL in FY 2021-22 without obtaining the necessary clearance from the audit committee or the shareholders.
Transactions between OCL subsidiaries and PPBL did not qualify as RPTs during FY 2021-22, and the company claimed that it had provided a cumulative numerical value of the transactions with PPBL for shareholders to reference.
Nevertheless, these transactions were deemed material RPTs by the company’s Board and Audit Committee, which resolved that RPTs involving PPBL would remain within the specified limitations.
Paytm Going Through Trouble Waters
Just days ago, news broke that Japanese internet investor SoftBank lost $150 million in the first quarter of the current fiscal year when it allegedly pulled out of ailing financial firm Paytm.
Since February, when the Reserve Bank of India (RBI) announced restrictions on Paytm Payments Bank, the stock price of Paytm has been under pressure. As a result, Paytm’s net loss in Q4 FY24 increased to INR 550.5 crore, from INR 167.5 crore in the corresponding period of the previous year, which was a threefold rise. The company also had a 2.9% year-on-year decline in revenue to INR 2,267.10 crore during the quarter.
Paytm affirmed its dedication to the highest compliance standards in a filing with the stock exchange and promised to respond in detail to SEBI’s concerns about the issue.
Paytm has reassured its stakeholders that the monetary, operational, or any other aspect of its business will be unaffected by this administrative warning. In response to SEBI’s concerns, the company is enhancing compliance standards and taking other measures to ensure this doesn’t happen again.
From Highs to Lows: Paytm’s Compliance Problems and RBI Scrutiny
In India, the digital revolution began with Paytm. It eventually became the most popular payment app in India. Paytm has enabled digital payment acceptance for over 20 million merchants and companies worldwide.
However, with the implementation of strict regulations issued by the Reserve Bank of India (RBI), Paytm Payments Bank (PPBL), the brainchild and much-loved unicorn success story of India, has recently put founder and CEO Vijay Shekhar Sharma through a serious crisis.
Due to compliance problems, related party transactions, and violations of KYC (Know Your Customer) standards, the RBI slapped Paytm with a heavy fine. Worries about illicit financial dealings involving large sums of money (in the crores of rupees) prompted the intervention. Red flags were raised due to accounts that did not comply with KYC regulations and cases where the same PAN was used for many accounts.
After hundreds of thousands of accounts were discovered to have been created without sufficient identity, PPBL came under examination from the RBI, according to various media reports. Because of the suspicious activity in the PPBL accounts, the Reserve Bank of India (RBI) notified the Enforcement Directorate (ED) and other relevant government bodies.
Hey everyone! Do you know those cool finance folks on Instagram and YouTube who give investment tips and talk about making big money? Well, they may be getting regulated by the market regulator Securities and Exchange Board of India soon!
The Securities and Exchange Board of India (SEBI), the big boss of stock markets in India, is thinking about setting up some rules to follow and guidelines for these finance influencers, or “finfluencers” as they’re called.
“The Securities and Exchange Board of India (SEBI) is contemplating guidelines to rein in finfluencers’ activities,” SEBI chairperson Madhabi Puri Buch said on March 11 at an event in Mumbai.
Industry experts are of the view that this move will bring transparency and accountability in the financial services space, but it would be tough for the regulatory body to define the term ‘finfluencers’ as per guidelines.
“SEBI might face several problems in defining the scope of a ‘finfluencer’ and the nature of financial advice. Additionally, proving intent to mislead can be complex,” Rest The Case Founder Shreya Sharma told StartupTalky.
Sharma heads an online platform, Rest The Case, that acts as a legal aggregator, providing seamless connections between lawyers and clients. The platform makes legal services accessible to all with just a click.
“Potential challenges that may arise are jurisdictional issues in cases of international influencers, maintaining privacy and freedom of speech while ensuring compliance, and interpretation of content standards prescribed by SEBI,”Sharma, a lawyer by profession, said on the query the legal challenges that SEBI may encounter in enforcing regulations on finfluencers.
With a growing number of internet users and investors, financial influencers are becoming super popular and influencing a lot of people’s money decisions. But sometimes, they might not give the best advice, and that could be risky for your savings!
“The real problem is in defining the ‘fininfluencers’ and monitoring them. Today, any citizen has the fundamental right to speech and expression and to share their views publicly on any social media platform subject to just restrictions.
“There are leading individuals who give interviews and explain their logic on markets/budget/finance and market-related issues which touch the lives and hearts of many individual investors. There are many organized and random players who regularly share updates through videos, chats, and blogs,” SNG & Partners Managing Partner Rajesh Narain Gupta told StartupTalky.
What These Guidelines May Include?
Be Honest: Finfluencers might have to tell the masses if they’re getting paid to promote something or if they have any connections to the products they’re talking about. That way, the public knows if they’re just trying to sell stuff or if they’re giving genuine advice.
Follow the Rules: Just like professionals in finance have to follow certain rules, finfluencers might have to too! This means they need to play fair and not mislead people with fake promises or shady deals.
Keep it Real: SEBI might want finfluencers to be more careful with what they say. No more wild claims or hyping up things that aren’t true. They need to be straight about the risks and rewards of investing.
Teach People: Instead of just showing off their success stories, finfluencers might have to focus more on educating people about money matters. That means helping everyone understand how investments work and how to make smart choices with cash.
As per experts, SEBI can consider different approaches to ensure the effective enforcement of the guidelines.
Technology-driven monitoring: Utilize data analytics to track online activity and identify potential violations.
Surprise audits: Conduct regular audits of SEBI-registered entities to ensure adherence to the regulations regarding influencer partnerships.
Investor grievance redressal: Establish a strong system for investors to report misleading information from finfluencers.
“There are still many who are not associated with any regulated entity but still in their own rights are heavy lifters and a word from them influences millions. The regulator (SEBI) has to intelligently qualify who the impacted ‘Fininfluencers’ will be and how the restrictions will not fall in the mischief of the right to speech and expression in a democratic country. Whether there is enough existing infrastructure to adjudicate and punish the wrong doer is another big issue,” SNG & Partners’ Gupta said.
Gupta is an independent director on the boards of HDFC Capital Advisors Limited, HDFC Credila Financial Services Limited, and J.C. Flowers Asset Reconstruction Private Limited.
Advocating on similar lines, Sharma said that SEBI must collaborate closely with legal experts to address these challenges proactively and develop comprehensive strategies that uphold regulatory objectives while respecting constitutional rights.
Public Comments
In August last year, SEBI floated a consultation paper for stakeholders’ discussion in this regard to protect investors from potential risks posed by unregistered financial influencers.
SEBI had opened the floor for public comments on its proposal to limit the association of SEBI-registered intermediaries with unregistered finfluencers.
The objective is to gather feedback on proposed restrictions, aiming to maintain market integrity and minimize risk.
In the consultation paper, SEBI proposed stringent measures aimed at curbing ‘finfluencers’ association with registered intermediaries and regulated entities.
Background: The Rise of Finfluencers
The proliferation of financial influencers, or ‘finfluencers’, has garnered significant attention in recent times. While some provide genuine education, many operate without proper registration or authorization as investment advisers or research analysts.
As per the market regulator, only the registered ones would be eligible to post advice on the stock market on social media. This move could benefit traders and investors to identify eligible advisors and analysts.
Finfluencers often attract investors/prospective investors through their engaging stories, messages, reels, and videos on various social media platforms such as Instagram, Facebook, YouTube, LinkedIn, Twitter now X, the consultation paper said.
“Finfluencers registered with SEBI or stock exchanges or (Association of Mutual Funds in India) AMFI in any capacity shall display their appropriate registration number, contact details, investor grievance redressal helpline, and make appropriate disclosure and disclaimer on any posts,” SEBI said.
SEBI’s proposal included strict limitations on the association between registered intermediaries and unregistered finfluencers. It proposed to prohibit any form of association, monetary or non-monetary, for the promotion of services/products.
Additionally, entities must refrain from sharing confidential client information with unregistered parties and ensure compliance with advertisement guidelines.
As per the ‘Guidelines for Influencer Advertising in Digital Media’ released by the Advertising Standards Council of India, ‘influencer’ means “someone having access to an audience and power to affect such audiences’ purchasing decisions or opinions about a product, service, brand or experience, because of the influencer’s authority, knowledge, position, or relationship with their audience.”
Challenges
There are tons of finfluencers out there, and making sure they all play by the same rules could be a challenge. But if it means people can trust the advice they’re getting online, it’s worth a shot!
Of course, getting everyone to follow these rules won’t be easy. Despite having registered numbers it would be tough to identify the authenticity of the number being shown on the post.
SEBI needs to enlighten people and make them aware of the risks associated with the financial markets.
As per the legal expert, Sharma, the market watchdog, must include auditors and legal experts, who can play a crucial role in supporting SEBI-registered entities:
Auditors and Lawyers can conduct compliance workshops to educate entities on the regulations and best practices for responsible influencer partnerships.
They can help develop internal compliance frameworks. These frameworks will help entities establish internal processes to monitor influencer activity and manage associated risks.
Rajesh Gupta, who is an advisor to many leading Indian and foreign banks, financial institutions, real estate players, and industrial houses believes that “reasonable restrictions can be put on regulated entities to engage with fininfluencers, but, would it solve the problem is a million-dollar question. Investors’ education and training are more critical aspects as we have countless existing regulations.”
Conclusion: A Step Towards Investor Protection
Well, without rules, anyone can call themselves an online finance expert, and that can be dangerous. If people follow bad advice, they could end up losing a lot of money.
By disrupting the revenue model of unregistered finfluencers and promoting transparency, the proposed measures aim to foster a more secure investment environment.
So, let’s keep an eye out for what SEBI decides. Who knows, it might change the viewpoint about finance influencers forever!
FAQs
What are finfluencers?
Finfluencers are a distinct subset of influencers who specialize in creating content centered around financial topics, such as investing, saving, budgeting, and personal finance. They leverage their expertise and experience to provide advice, tips, and insights to their audience through various social media platforms.
What could the guidelines from SEBI include for the finfluencers?
The guidelines may include finfluencers to be honest, to follow the rules, to be real, and to teach people correctly.
What is the impact of finfluencers?
Although finfluencers have been instrumental in promoting financial literacy and encouraging investor engagement in the finance market, their operations lack regulation, thereby potentially exposing investors to risks.
Mamaearth is an Indian company engaged in selling Health, Wellness and Fitness products. The company was founded by Varun and Ghazal Alagh in the year 2016 and is headquartered in Gurgaon. It grew exponentially and reached a net worth of INR 115 crore in just four years.
Mamaearth is the flagship brand of Honasa Consumer Limited, which started as a digital-first consumer brand. Its other brand portfolio includes brands such as BBlunt and Aqualogica. The brand is planning to launch an IPO and has filed the Draft Red Herring Prospectus (DHRP) with the Securities and Exchange Board of India (SEBI) on December 20, 2022.
The company has proposed an IPO worth INR 2900 crores. The IPO will consist of a fresh issue of shares worth INR 400 crores and an Offer For Shares (OFS) of approximately 46.8 million shares. The funds raised through the IPO will primarily be used for improving brand visibility and advertising as well as opening exclusive brand outlets.
The company’s founders Varun and Ghazal Alagh along with other investors like Sofina, Fireside Ventures, Evolvence India, Stellaris and angel investors like Kunal Bahl, Rohit Bansal, Rishabh Mariwala and actor Shilpa Shetty will sell a part of their stakes in the company through the OFS.
Mamaearth’s Shareholding Pattern and the Angel Investments in the Startup
The list below gives a detailed view of the angel investments in Mamaearth.
Angels
Invested
YOI
Valuation
Suhail Sameer
₹15 lakh
2016
$2 million
Vijay Nehra
₹15 lakh
2016
$2 million
Shashank Shekhar
₹15 lakh
2016
$2 million
Kunal Bahl
₹69.6 lakh
2017
$5.16 million
Rohit Bansal
₹69.6 lakh
2017
$5.16 million
Shilpa Shetty
₹75.1 lakh
2018
$4.85 million
The Grey Area
There are several concerns floating on social media regarding the high valuation of Mamaearth. The company which was valued at INR 120 crore in January 2022, is seeking a higher valuation of INR 300 crore through its IPO. This target valuation is almost a thousand times higher than its registered profits.
Mamaearth’s Financials in FY22
The company does not have a consistent record of profitability. While it posted a revenue of INR 932 crores with a net profit of INR 14 crores at the end of FY22, it registered a loss of INR 1332 crores in FY21 and INR 428 crore in FY20. In the six months ending September 2022, Honasa Consumer posted a revenue of INR 722 crore with a net profit of INR 3.6 crore. Apart from this, Honasa has also recorded a high advertising spend. In FY22, the company spend approximately INR 391 crore on advertising, which is 40% of its revenue. It has spent a similar percentage of its revenue on advertising in FY21, FY20 and the six-month period that ended in September 2022.
All this information has led to a lot of speculation about the price MamaEarth will set for its IPO.
Sunil Damania, Chief Investment Officer of MarketsMojo says – “We doubt that management will go ahead with the higher price because there has been a lot of backlash on social media, especially given the amount of money Mamaearth is asking; whether you look at the market cap to sales ratio or the price to earnings ratio, which appears to be a little high.”
Tech stocks globally are witnessing a downturn and many IPOs in the recent past have failed to maintain their initial high valuations, falling significantly since their listing. Some prime examples include Zomato, Paytm and Nykaa.
Sunil Damania continues – “Something similar could occur if Mamaearth opts for such a high valuation. However, these are all speculative at the moment because neither the merchant banker nor the company has confirmed that they will proceed with this pricing.”
Anirudh Damani, Founder of Artha Group has a different take. He says – “I am jittery about all IPOs where more than 25% of the money getting raised does not go to the business i.e., it is an OFS from early investors and celebrity backers of the platform. I have understood that almost 80% of this IPO will go towards OFS which does not bode well for public market investors. It will be challenging to see any upside in the stock price with so many questions on super-premium valuation that will primarily provide exits to current shareholders.”
How an IPO Is Valued or Priced?
An Initial Public Offering or IPO listing is when a private company issue shares publicly in the stock market for the first time. This is done either to raise more funds for expansion or to recover from losses or debts. An audit is conducted for the company where all data regarding the company’s financials is carefully scrutinized. This data includes the company’s assets, liabilities, revenue generation, market performance, etc.
There are several methods in the IPO valuation process to define share value. These methods are
Relative Valuation through which the company’s share value is measured by considering the value of similar companies
Absolute Valuation that measures the strength and financial status of the company
Discounted Cash – Based Valuation that analyses expected cash flows, future performance, investment, potential revenue sources and more
Economic Valuation considers various parameters like the business’s residual income, debts to be paid, assets value owned and liabilities, risk-bearing potential, etc.
Price-to-Earning Multiple Valuation that compares the company’s market capitalization to its annual income.
There are various factors that affect the price of shares offered in an IPO. In relation to Mamaearth, these factors are:
Financial Performance Over the Past Few Years
Mamaearth’s financial performance has been erratic and it has not been in sustainable stable growth.
Share Market Trends
Most of the tech stocks have failed to maintain their high valuations and have seen sharp declines in the recent past.
Number of Stocks Issued by an IPO by a Particular Company
The biggest concern is the OFS offer which is being seen as an exit strategy by many of the promoters of the company.
Company’s Potential Growth Rate
The amount raised from the IPO will be used to increase brand awareness and advertising but there is no clear direction.
Company’s Business Model
Mamaearth is primarily a digital-first company. Its Return on Ad Spends (ROAS) has not improved in the last three years suggesting it has very few returning consumers.
Recent Market Price of Companies Listed on the Stock Exchange
Tech companies like Paytm, Zomato and Nykaa have all failed to sustain their stock prices.
Conclusion
MamaEarth is showing great courage by announcing an IPO at a time when tech stocks are witnessing a global slump. However, rising digital penetration, high disposable income, as well as growing awareness in the beauty and personal care segment give the company room for growth and expansion in the future.
FAQ
What is an IPO?
IPO [Initial Public Offering] takes place when a private company issues share publicly for the first time in the stock market. Once the company declares an IPO, the stocks no longer remain private and are collectively owned by all shareholders.
What are the Factors Affecting IPO Valuation?
Here are several major factors that affect the price of the shares offered in an IPO
Company’s financial performance over the past few years
Share market trends
Number of stocks issued in an IPO by a particular company
Company’s Potential Growth Rate
The Recent Market Price of Companies Listed on the Stock Exchange
How can you tell if an IPO is good or not?
Thoroughly review the company’s business model, management credentials, and historical performance. A good starting point when evaluating the best IPO to buy is the red herring prospectus. It contains most of the information you need to evaluate the company.
Is Mamaearth a private company?
Yes, it is a Gurugram-based D2C babycare and skincare unicorn. Mamaearth could be converted into a public company as it readies for an IPO.
Most companies focus on IPO (Initial Public Offering) only after they have attained unicorn status. But, is it actually the criteria for it? After all, this is one of the best measures to generate funds for your company.
In this blog, we will discuss the various aspects of IPO and how you can determine whether your company is ready for IPO status.
Initial Public Offering or IPO is the process through which a private corporation offers its shares to the public for the first time, in new stock issuance. It is also a measure for the company to raise capital from public investors.
It is one of the ways for private investors to fully realize their investments. Sometimes it also works as an exit strategy for the earlier investors or founders by fully realizing their gains. It provides the opportunity for the company to obtain capital through their primary market by offering its shares.
Usually, the companies hire investment banks to help with the market demand and set the price for IPO.
How IPO works?
Total Value of IPOs in Public Markets of India from 2015 to 2021
A company before IPO is considered a private firm. It only comprises of a few shareholders including the founders, cofounders, or professional investors like angel investors or venture capitalists.
IPO does not just allow the company to gather capital but, it also provides an opportunity to expand and grow faster. As stated earlier, typically the companies that have acquired unicorn status i.e., have reached the valuation of 1 billion, advertise their interest in going public.
However, private companies that have proven their calibre for profitability and have well-built fundamentals can also qualify for an IPO. A company should reach the maturity stage where it is able to stand up to the rules and regulations of the Securities and Exchange Commission (SEC).
Also, it should be able to take care of the benefits of the shareholders and its responsibility towards them. Overall the market competition and the company’s ability to deal with the list of requirements make it eligible for starting the IPO process.
When a company decides to go public, its previously private shares are converted into public shares. The worth of the shares already existing with the previous private shareholders becomes equal to the public trading price.
Now, every individual who is interested in investing in the company has the opportunity to contribute towards the company’s shareholders’ equity. Therefore, the new value of the company’s shareholders’ equity depends upon the number and price of shares it sells.
The IPO process is divided into two parts, the premarketing phase and the actual initial public offering. A company first advertises to underwriters, these are the individuals responsible for evaluating and assuming the company’s risk for payment.
These underwriters are requested for private bids after which the company chooses one or more of them to lead their IPO process. There can be several underwriters responsible for managing different parts of the process viz. filing, marketing, document preparation, etc.
The various steps included in the IPO process are as follows:
Proposals
After the company’s advertisement, underwriters submit their proposals describing their services, offering prices, share amount, as well as the time duration for the market offering.
Underwriter selection
The Company goes through the proposals and then chooses the underwriter and an underwriting agreement with terms is prepared.
Team formation
A team comprising of underwriters, lawyers, SEC experts, and Certified Public Accountants (CPA) is formed to lead the process.
Documentation
The primary document for IPO filing is the S-1 Registration Statement which is divided into two parts viz. the prospectus and the privately held filing information. This document also includes information regarding the expected filing date. It undergoes multiple revisions throughout the pre-IPO process.
Marketing & Updates
New stock of issuance is pre-marketed by the underwriters and executives to estimate the market demand for deciding the final offering price of the shares. Throughout the marketing process, underwriters revise the financial analysis based on market response. This might also include changing the issuance date or even the price of the IPO. The SEC as well as exchange listing requirements are well taken care of by the companies.
Board & Processes
A Board of Directors is formed to look after the financial and accounting information as per the audit requirements for quarterly reporting.
Issuance of Shares
The Company issues the shares on the pre-decided date. The primary shareholder issuance is received as cash and is recorded in the balance sheet as stakeholder’s equity.
Post-IPO
There are certain post-IPO provisions. The underwriters also have the opportunity to buy additional shares within a specified time duration.
The key objective of an IPO is to raise additional capital for a company. It also benefits the company through increased prestige and exposure amongst the public which may boost sales and profits. Moreover, IPO can help a company lower the cost of capital for both equity and debt.
Every year several companies start their journey as an IPO. India saw an IPO boom in 2021 with around 125 companies making their debut in the market.
Although the highest number of IPOs were registered in 2017 reaching a mark of 172, the capital raised was highest in 2021. These 125 companies raised around 18 billion USD in comparison to 10 billion USD by 170 companies in 2017.
Other than earning handsome returns, the companies listed in the IPO have also experienced strong gains in listings as well as an increased number of subscribers. Zomato and Tatva Chintan Pharma are an example of this.
But, what does it take for a company to be IPO-ready? In this section, we will discuss the factors that differentiate an IPO company from others.
The process to become IPO-ready is long and tedious. It isn’t so that a company thinks of it and makes an announcement the next day. A number of things have to be managed.
The process of getting IPO ready begins at least 12˗18 months before the actual announcement. Some of the major factors looked after during this time frame include:
Influential Board of Directors
When you are thinking of bringing your company to the public for funding, having a board comprised of members well recognized for their potential and decisions is always a good idea.
This plays a significant role in establishing your firm as a reputed and confident organization. This is why most companies focusing on getting IPO-ready look for admired experts from different sectors.
There are a number of examples in the market to prove this fact. For example, ixigo is an AI-based travel portal. Just sometime before the company filed for IPO they hired former IRCTC Chairman, Mahendra Pratap Mall as one of the board members.
Similarly, former HDFC MD, Aditya Puri joined API holdings, PharmEasy’s parent company, before their announcement of being an IPO contender.
Restructuring the Business
Internalrestructuring mightbe required by some businessesto put theirbest arm to work. However, just like the board, these decisions must also be taken well in advance before the IPO process begins.
For example, in Nuvoco Vistas, the cement arm of Nirma group, internal restructuring was undertaken before IPO. As a part of it, the Rajasthan cement unit was brought under the hold of the firm. The company had a 5000 crore IPO.
Physical or Digital
The experts claim that the coming time would make it mandatory for Indian businesses to work in both physical and digital ways. Taking this into caution, many deals are being made, where a digital business acquired a physical one and vice versa.
These deals are majorly done for scaling up, by filling in the gaps in the portfolio and strengthening different verticals of the company.
For example, Pharmeasy, an online pharmacy startup acquired a 66.1% stake in diagnostics chain thyrocare technologies, for Rs 4,546 crore, to diversify its business.
Experts believe that more such omnichannel transactions will follow in the coming time and such deals will soon become a part of pre-IPO requirements.
Executive Support
Another important but often ignored aspect of IPO is finance function. While most businesses focus on a board full of influential directors there is the least attention paid to the finance division.
The fact is that during the entire IPO process the company face a number of stumbling blocks. That is why they need a team who can back them up during their stresses.
Considering an experienced Chief Finance Officer (CFO) for the company is a great step to include in the IPO process. After going public, the CFO has to face challenges such as greater reporting, governance, regulatory, and audit standards.
Although not seen everywhere but the food delivery company Zomato, opted for a new CFO well before its IPO process. They promoted their Corporate Development Head, Akshant Goyal, to the position of CFO.
Businesses should also look for experienced individuals for the posts such as executives, company secretaries, etc.
Financial Transparency
Irrespective of business size or model, financial transparency forms an essential aspect of the IPO process. This is also a part of the equity strategy of the IPO-bound company.
Generally, financial statements for the past 3 years before the IPO announcement are considered optimum. Yet, experts believe that preparing financial statements and subjecting them to review by the board must begin well in advance.
In many cases, the lack of quality financial statements becomes the reason for missing the IPO timelines while other such reasons maybe not be SEBI ready.
For a startup or any business going public means more responsibility, financial discipline, planning as well as its execution.
There is a tough road ahead so before you finally decide to have IPO, the following checklist must be marked:
Growth
Investors will only be interested in spending their money on a healthy and thriving business. With growth, here we mean revenues. Growing revenue is an indicator that the company has more new customers, or old customers buying more products and that the customer churn rate is low.
Experts believe that revenue growth of 30% for the last two years will ensure that the company will be able to stand against its competitors in the market.
Capital
Although gathering resilient capital is the main reason for any business to opt for IPO but going public at a time when the business really needs capital can be the worst decision.
There should be enough cash in your balance sheet not just to attract investors but also to make you appear trustworthy. Just like you, investors are also here for the money. They want to see that soon their investment will be able to provide them with good returns.
Market Size
Large market size is an indicator of opportunity and potential. This means the company is able to expand without much hassle.
Although calculating the exact market size can be tricky, it is traditionally done by gauging the revenues of the legacy players. Also, factors like high growth, scaling up, etc., are indicators of good market size.
Competitors
Direct or indirect, having a track of competitors is important. The investors would only want to spend their money on a winning bet. The overall IPO opportunity as well as the total addressable market depends upon the competitors.
A more crowded market tends to receive a lower valuation. Unless there is a clear differentiation between the company under question and other competitors in the market, it is difficult to bag the deal.
A systematic, dominant company with an already large market is preferred by public investors.
This refers to the analysis per product revenue and cost. This helps in isolating the core cost of the business and helps gauge how the business would perform at maturity. It also analyses the long-term margins.
Leadership
Good leadership inspires the trust of investors. The CEO and CFO are the faces of the company. The reputed and recognized faces help attract public attention as well as investment.
So before thinking about IPO, think about the board of directors, executives, and finance in charge of your company.
Legal Compliance
The company should be a law-abiding entity and must have all the required licenses and other necessary formalities completed as per law. Not having any legal issues pending strengthens the trust of the investors.
Therefore, it is also essential to get rid of any vetting issues. Any vetting issues must be managed with utmost concern before the company is listed for IPO
It is always good to have a legal team to guide you through the process. They may also be helpful in the preparation of documentation submitted during the time of IPO processing, ensuring that they are as per the rules and regulations of the Security and Exchange Commission. Moreover, the company should be apt with the tax payment and other legal responsibilities.
Conclusion
We have shared with you an extensive checklist while trying to cover major aspects of the IPO process and the necessary details that must be taken care of before deciding to go for it. Still, the IPO process is complex and always requires expert advice.
It is essential to go through every detail carefully while making the final decision. The legal, as well as financial issues, must be handled as a priority without ignoring the other related functions.
FAQs
What are the benefits of buying an IPO?
There are several benefits of buying shares in an IPO such as:
High growth potential
High chance of big returns in the long term
More price-related transparency
Shareholder ownership authority
Small investments may provide great profit
How can I buy shares in an IPO?
Buying shares in an IPO is a complicated task. This is the common procedure for buying shares in an IPO:
Choose the right IPO
You must have a Demat account/trading account and PAN card with a broker that offers IPO access
Arrangement of Funds
Bidding of Shares
Get an allotment of shares
How can I find the best IPO?
To find the best IPO you need to do the following things:
What happens when a public company goes private? Why would a publicly-traded company make that decision? What are its options once it does? It’s difficult to know how to answer these questions if you have no background information on the subject. To help you get some insight into what happens due to these transactions, we’ve collected seven pointers about going private and provide some insight into what happens due to these transactions. Hopefully, this guide answers your questions and helps you understand what happens if a publicly-traded company decides to pursue another route.
No. of Companies listed on Stock Exchange in India
Once a company goes private, it’s removed from the stock exchange. Investors will no longer be able to purchase or sell shares in the company through a major stock exchange.
The company’s management team may still hold on to some of their shares, which they may sell in the future for a profit. But for most investors, this is the end of their involvement with the company.
The company’s shares are withdrawn from the stock market
When a publicly-traded company goes private, its shares are withdrawn from the stock market. This is a major shift for investors, who are used to seeing their investments on display on the stock exchange.
Management often decides to go private, but investors can also initiate it. In some cases, an investor may buy out other shareholders and control the company. In other cases, multiple investors pool their resources and buy out existing shareholders.
Existing Shareholders get paid
When companies go private, their shareholders can receive various payout options. These include:
Cash payments to each shareholder are based on the number of shares they own. The payout can either be in one lump sum or spread over time.
Stock in a new company is formed when the parent company goes private. This stock could pay dividends or be sold for cash later.
New shares in the parent company that’s going private. Once those shares become publicly traded again, it’s possible for investors who hold them to make money off their original purchase price or by selling them at some point down the line.
The company no longer releases financial statements to the public
Once a company goes private, it no longer releases financial information to the public. This means that investors who had previously owned shares of the company in question will no longer have access to any information about its finances or performance. However, this does not mean that the company goes completely dark: companies can still be purchased and sold by other companies using private transactions, which means that their financials are still available to their owners.
The only major difference is that these transactions are not recorded on any stock exchange. Instead, they must be reported to regulatory bodies such as the Securities and Exchange Board (SEBI), allowing them to track how many outstanding shares exist within the private sector.
Fewer regulatory requirements and obligations
By going private, a publicly-traded company no longer has to deal with the many regulatory requirements of being a publicly-traded company. These include:
Annual reports: are required for publicly-traded companies and must be submitted to the SEBI.
Audited financial statements: audited financial statements must be submitted to the SEBI for publicly-traded companies. This requirement helps ensure that investors access accurate information about their investments.
Required disclosures: publicly-traded companies must disclose information about their operations and management team to the public via annual reports and other filings with the SEBI.
Corporate governance: corporate governance refers to how businesses are run internally—for example, whether shareholders have voting rights over key decisions made by management, or who sits on boards of directors at large companies.
Less capital available
The reason for this is simple: a public company must disclose its financial statements, which means anyone can access them. This is great for investors who want to get in on the action and make money from their investments. Still, it’s not so great for companies that want to be able to keep their financials secret to protect proprietary information or avoid scrutiny from government regulators.
By going private, companies can keep their financials under wraps and more of their profits for themselves!
A public company that goes private no longer has to contend with quarterly pressures.
Public companies are accountable to their shareholders, who demand that the company generate quarterly revenue and profit. These demands make it difficult for companies to focus on long-term goals, often leading to short-term planning and poor decision-making.
Private companies have more freedom: they can focus on their long-term goals without worrying about those pesky quarterly reports!
More flexibility
When a public company goes private, it gains more flexibility in its operations. This means that the company can make decisions that may be unpopular with investors but which are better for the business’s long-term health.
For example, a public company might cut costs to boost profits and increase shareholder value. This could involve layoffs or outsourcing certain aspects of operations. However, when a public company goes private, they no longer have to worry about shareholder concerns and can focus on what is best for the business as a whole.
There is a lot at stake when a public company goes private.
So there you have it, folks. That’s what happens to a company when it goes private. Of course, this article is only meant to be a general overview of the process. It may be worth learning more about private equity firms and the going-private phenomenon in general; then, you should do further research on those topics.
This post’s subject can be applied to almost any situation involving a significant change in company ownership and structure. While there are many options that can be pursued when taking your company public or private, keep in mind the information above: timing and valuation matter. If you’re ready to make the leap, talk to an investment banker or investment broker/advisor, they can help!
FAQs
What is privatization in public sector?
Privatisation of public sector means the transfer of ownership, management, and control of the public sector enterprises to the private sector.
Which sectors are privatised in India?
The sectors privatised in India are:
Atomic Energy
Space and Defence
Transport
Telecommunications
Power
Petroleum
Coal and other minerals
Banking, insurance, and financial services
What happens if public company goes private?
When a Public Company Goes Private:
The company is removed from the stock exchange
The company’s shares are withdrawn from the stock market
Existing Shareholders get paid
The company no longer releases financial statements to the public
Which are the public companies that went private?
Some of the popular public companies that went private are:
The Initial Public Offering of Zomato is the much awaited IPO of 2021. It is considered to be one of the largest IPO’s of 2021. The company on 28 April 2021 has finally filed the draft papers with the Securities and Exchange Board of India (SEBI). Let’s look at why there is so much excitement in the market for the issue of Zomato’s shares even though they are a loss making company.
Zomato has been one of the biggest successful startups in India in the last decade along with Flipkart, Byju’s and its rival startup Swiggy. The Initial Public Offering of Zomato is expected to increase the value of the company.
The dealers in the unofficial or grey market who trades in unlisted shares said that the valuation of the company could be around INR 53,000 crores. The expected valuation of Zomato will make it larger than one-third of the companies that are listed on the index of Nifty 50.
On July 8, 2021, Zomato is one week away from launching its debut IPO. The company has already filed its red herring prospectus with the Bombay Stock Exchange, and in the same, Zomato has also revealed some much-awaited details of its upcoming IPO.
According to the prospectus, the shares that Zomato would offer would be priced between Rs 72-76 each, which would make the whole issue worth between Rs 9,357 – 11,198 crores. The food delivery giant would issue its shares for a period between July 14 – 16, 2021. Furthermore, as per the reports, there will be a total of 1,30,20,83,333 equity shares of face value Re 1 each on offer for bids.
Zomato had initially disclosed that the total amount of its IPO would be Rs 7,500 crores last month. However, the company eventually had to increase the total size of the issue due to rising demands from the investors. The portion of the IPO, as offered to the retail investors, has been limited to 10% of the total size of the issue. This is because the brand has not achieved profitability yet.
Losses of Zomato
The difference between Zomato and the other companies listed on the Nifty50 index is that they are profit making companies for several years or at least from the last decade. Whereas Zomato is recording losses continuously for the past 4 years.
For the last nine month period which ended in December 2020, the company has reported a net loss of INR 682 crores and INR 2,385 crores for the year 2019-2020, INR 1,010 crores for the year 2018-19 and INR 107 crore for the year 2017-18.
In the draft red herring prospectus, which was submitted to the Securities and Exchange Board of India the company has mentioned that they have a history of net losses and are expecting an increase in the expenses in the future.
Prior to the launch of its debut IPO, Zomato is spending Rs 1.3 to earn a single rupee of operating revenue in FY21, which has improved from Rs 1.92 that the company had to spend in FY20.
Furthermore, the company has also witnessed an improvement of around 66% in terms of the total losses. Zomato suffered an annual loss of Rs 2385.6 crore in FY20, which came down to be Rs 816.4 crore in FY21. The company, which is going live with its IPO next week, still has outstanding losses worth Rs 5,600.3 crore at the end of FY21
Zomato has warned the investors that the company expects the expenses to increase in the future and their losses to continue for a period of time. The company said that from the significant investments it would require some time to grow the business.
The company has plans to pump in a lot of money into the marketing, advertising and promotion. They also have plans to expand its services to new markets in India and develop its platform in addition to expanding its delivery partner network.
The company said that these efforts would be costlier than they expect and added on saying that it may not result in the increase in revenue or growth of the business. The company said that the increase in revenue and the investments received will be spent on other expenses. This would prevent the company from increasing or maintaining its profitability at a consistent level or a positive cash flow.
Zomato Revenue Growth
Bad Cash Flows
Zomato has not just struggled in generating profit but has a bad track record of generating cash flows from its operations. The cash outflow of Zomato from operations is INR 269 crore in the year ended in December 2020.
The company has reported negative cash flow in the past 3 financial years. Most of the negative cash flows are due to the high promotion and advertising expenses of the company to attract new customers to scale up their operations on the platform.
The brokerage firm IIFL Securities said in a report that it expects Zomato to earn an operating profit in the current financial year due to the increase in the demand of delivery business because of the coronavirus pandemic.
IIFL securities have an expectation that Zomato will increase its net revenues at a growth of 48 % on a yearly basis for the next 5 years. They expect the fixed costs to grow at a rate of 27 % on a yearly basis which would provide an improvement in the operating margin for the next decade.
Motilal Oswal Financial Services
Raamdeo Agarwal who is the chairman and co-founder of Motilal Oswal Financial Services has said that by giving valuations one wouldn’t look for what the company has earned in the past 5 years but will be looking at what the company will earn in the next 25 years.
Kotak AMC
Anshul Saigal who is the head of portfolio management services at Kotak AMC has said that it is confusing for investors, but he wants the investors to ask themselves a question before investing that is if the company stopped growing today will its business model earn profits. He added that the answer to this question is the heart of valuing a tech company.
Zomato, is one of India’s largest food delivery company.
Conclusion
Zomato’s IPO will be more like a leap of faith for the Indian investors. The traditional way of valuing a business cannot be used by the Indian investors when it comes to valuing a business model like Zomato.
On 26 April 2021, the Securities and Exchange Board of India (SEBI) has approved an appointment of the new Managing Director and CEO of the National Commodity and Derivatives Exchange Ltd (NCDEX). The new Managing Director and CEO of National Commodity and Derivatives Exchange Ltd is Arun Raste. Let’s look at who is Arun Raste, the new MD and CEO of NCDEX.
Arun Raste is currently working as the Executive Director of the National Dairy Development Board (NDDB) of India. He is also serving as the director on the board of Indian Immunological Limited which is based in Hyderabad and also the director on the board of Mother Dairy Fruit Vegetable Pvt Ltd. Which is based in Delhi.
He had earlier worked with companies such as Kotak Mahindra Bank, IDFC Bank, ACC Cement, NABARD and also a non-profit NGO IRFT.
He has done a bachelor’s degree in economics and also a master’s degree in economics. He also holds a post-graduation diploma in marketing management.
He has an interest in the areas such as BoP finance, Business Strategy, CSR, marketing, Corporate Planning and NGO management.
Seminars
He was invited by the United States State Department for ‘The International Visitor Leadership programme’(IVLP). He has also been part of various conferences and seminars which include the ones at UNCTAD, World Social Forum, IFAT Conference, WTO ministerial, Toyo University Tokyo, Kindai University Nara Japan, PSE Group in European Parliament, Murdoch University Perth Australia, and so on.
He has also published various research papers in National and International Journals.
Now he has been appointed as the Managing Director and CEO of National Commodity and Derivatives Exchange (NCDEX) for a period of 5 years.
What is NCDEX
National Commodity and Derivative Exchange is a commodity exchange platform in India. It is an online commodity exchange platform that provides the market participants a platform to trade in commodities and derivatives.
NCDEX was founded in the year 2003 and has its headquarters located in Mumbai, India. NCDEX is a public limited company that is fully owned by the Government of India. NCDEX has offices in other places which include Delhi, Hyderabad, Jaipur, Kolkata, Indore and Ahmedabad.
What is NCDEX
NCDEX is an leading agricultural commodity exchange in India. It offers value chain services for the entire post-harvest agricultural commodities.
Some of the key investors of NCDEX include National Stock Exchange of India Ltd, National Bank for Agriculture and Rural Development, Life Insurance Corporation of India, Oman India Joint Investment Fund, Investcorp Private Equity Fund, Build India Capital Advisors LLP, Indian Farmers Fertilizer, Cooperative Ltd, Punjab National Bank and Canara Bank.
NCDEX is predominantly an exchange with leadership in the agri commodity segments, while MCX has leadership in the area of gold, metals and oil.
Where is Ncdex located?
NCDEX headquarters are located in Mumbai and offers facilities to its members from the centres located throughout India.
What is full form Ncdex?
National Commodity & Derivatives Exchange Limited is full form of NCDEX.
Conclusion
Earlier in this month Vijay Kumar who was the former Managing Director and the CEO of NCDEX had left the position from the exchange after the completion of his extended term. Later, SEBI had appointed Arun Raste as the new CEO and MD of NCDEX.
Shubham Kumar
