Redseer estimates that by FY28, the number of companies that are listed or are IPO ready will witness a significant spike due to their increased focus on profitability in the coming years.
In preparation for a successful initial public offering (IPO), Rohan Agarwal, partner at Redseer stresses 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.
Speaking at the strategy consultant’s new-age business summit, Ground Zero 8.0, Agarwal sheds light on what can be expected regarding startup IPOs in five years.
Offering an insight into the IPO landscape, Agarwal explains that after a period of sharp correction in stock prices until Q4 FY22, the listed new-age tech players bounced back in FY24 indicating a trend of gradual recovery.
Indian startups have been focusing on profitability, weathering through macroeconomic headwinds and a funding winter. The result of which the partner says will be a sizable pipeline of IPO-ready companies in the next 5 years.
In contrast to FY21, nearly twice the number of Indian unicorns are on their way to profitability in FY23. He elaborates that startups have substantially improved their profitability in FY24. Moving forward, about 50 percent of unicorns in India will be profitable by FY27.
However, the story is bleak for ~20 percent of unicorns, who will likely struggle due to regulatory challenges, plummeting demands and unclear business models. These could pivot to new models, get acquired by other companies or close for good.
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 partner explains, the Tech contribution to public market capitalisation in India is only about one percent, whereas the same is roughly 25 percent in the USA, so there’s 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.
Commenting on what can be expected, Agarwal adds, “By FY25, India is likely to have up to 40 listed/IPO ready new-age companies, which can grow to 90 by FY28. SaaS, B2C Product Companies, and FinTech are amongst the most promising categories to produce IPO-ready companies.” These companies have sizable revenues, sustainable growth, a strong EBITDA, and operate on defensible business models, making them strong candidates for IPO.