India's New-Age IPO Wave: $100 Billion Firms Capitalise On Timing, Profitability

India's capital market is seeing a wave of initial public offerings from new-age companies, and industry experts believe this is due to a perfect combination of timing and track record.

"Most new-age companies are filing for IPOs now because they have proven their track record for profitability," explained Nipun Lodha, director of corporate finance at PL Capital. "If there is a track record of profitability within the company, investment bankers are confident of taking the firm public," he added.

New-age companies are firms that use technology to rapidly grow and disrupt traditional industries, often focusing on digital platforms and online services. Listed new-age companies include the likes of Eternal Ltd., Swiggy Ltd., Paytm owner One 97 Communications Ltd. and Nykaa operator FSN E-Commerce Ventures Ltd.

The incoming cohort of new-age IPOs includes Flipkart, PhonePe, RazorPay, Zepto, Lenskart, Groww and PhysicsWallah.

Over 38 such companies, collectively valued at over $100 billion, are expected to go public soon, according to investment banking firm The Rainmaker Group.

Compared to previous new-age IPOs, this upcoming set of companies have the healthiest pre-listing performance thus far on the growth and profitability fronts, Rainmaker Group said in its Private Pulse report. Unlike earlier, where new-age listings were limited to consumer segments, the current set of IPOs has a diversity of sectors and has attained critical mass in new sectors like business-to-business marketplaces.

"Other than track record, there is also the timing," Aakash Agarwal, head of digital and new-age business at Anand Rathi Investment Banking, said. He was referring to the fact that most new-age companies are backed by venture capital firms, which are invested in the companies through time-bound funds.

"The primary reason for going in for a listing is to unlock value for shareholders, but in the case of venture-backed companies, it is also a matter of delivering returns to their investors. VCs who have been invested in such companies for close to 10 years need liquidity, and the options are either IPOs, M&As or secondary transactions. This is one of the reasons you are now witnessing new-age companies go for a listing," he explained.

Public markets are also better educated on these businesses before their listings, the Rainmaker report explained. Most of the new-age companies coming for their IPOs now are already navigating transparency and investor communication with pre-IPO fundraises, it added.

Echoing the observation, Agarwal said that for new-age businesses, the same set of analysts and investment bankers end up covering them across different firms. "Now these analysts and bankers are at a point where they have formed a thesis, and they understand what it takes to push the company into the market."

Anand Rathi's Lodha also said that investment bankers are now better placed to value a new-age company after having seen how previous IPOs in the sector have performed.