Look out for these Indian Unicorn Startup IPOs

Digitisation has provided an impetus to the start-up ecosystem in India.

Grocery shopping, responding to work emails, catching up with friends, reading the news - we live in a world where, for all of these activities and more, we turn to our smartphones.

Technology has been touted as the game-changer for human civilisation ever since the industrial revolution.

But it's only in the last couple of decades that we have seen just how much technology has changed our day-to-day lives.

The Indian technology start-up ecosystem continues to be on a growth trajectory on the back of rapid digitalisation and tech adoption as we emerge from the pandemic.

At the moment there is no place better than India where one can find the most tangible evidence of this wave, in the form of a tech initial public offering (IPO) boom that boasts of an impressive line-up of stock market listings that have generating significant interest among investors.

It all began with Zomato which was recently welcomed to the bourses by investors with open arms.

Food delivery company Zomato became the nation's first unicorn to make its stock-market debut, raising US$1.3 bn with backing from Morgan Stanley, Tiger Global, and Fidelity Investments.

A unicorn is a privately held start-up company valued at over US$1 bn.

Following the current trend, a wide range of homegrown start-ups are eyeing listing on the bourses in the coming months.

Let's know, which are the key unicorn players seeking listing in India.

#1. Policy Bazaar

Policy Bazaar, promoted by EtechAces Marketing and Consulting, is an Indian insurance aggregator founded in June 2008 by Yashish Dahiya, Alok Bansal, and Avaneesh Nirjar.

EtechAces, which houses Paisa Bazaar, may hit the primary markets with the Policy Bazaar IPO. The Gurugram based Policy Bazaar may target valuation around US$3.5-bn ahead of its IPO.

Recently, Policybazaar's parent PB Fintech approved a resolution to raise up to Rs 60 bn via an IPO, making it the fifth Indian start-up to initiate proceedings to list on the national bourses.

In its draft red herring prospectus (DRHP) filed with the market regulator, Policy Bazaar said it will raise Rs 37.5 bn in a fresh issue with the remaining Rs 22.7 bn will be through a secondary sale via an offer for sale (OFS).

The insurance aggregation firm has the potential to become the first of India's mega-start-ups to debut as its digital economy booms.

Started as an insurance policy price comparison website, the start-up has shaped itself as an insurance selling entity.

The company claims to process nearly 25% of India's life insurance and over 7% of the country's retail health cover.

#2. Delhivery

Delhivery is an Indian delivery and supply chain company, founded in 2011 by Sahil Barua, Mohit Tandon, Bhavesh Manglani, Suraj Saharan, and Kapil Bharati.

The company offers logistics services to a number of e-commerce companies.

According to some media reports, the company is expected to go public in next 6-8 months, valued at US$3.5-4 bn. It expects to raise US$400 m to US$500 m through the public offer.

Delhivery raised US$100 m from FedEx Express, a subsidiary of global delivery services giant FedEx Corp.

The company is backed by the Softbank Carlyle Group, Tiger Global, Stead view Capital, Fosun International, Nexus Venture Partners, among others.

Two weeks back, IPO-bound Delhivery said it may acquire a 100% stake in rival express logistics player Spoton Logistics for US$200 m. Acquiring Spoton Logistics will enable Delhivery to further strengthen its delivery network.

#3. Nykaa

Nykaa is an Indian lifestyle marketplace for beauty, wellness, and fashion products, incorporated in 2012 by Falguni Nayar, an alma mater of Indian Institute of Management (Ahmedabad) and former MD of Kotak Mahindra Capital.

The company has expanded from online-only to an omnichannel model to sell the products.

The unicorn start-up is expected to hit with an IPO, valuing company around US$4 bn.

Nykaa, the largest in its space in India, has filed DRHP with the market regulatory for its public offer.

The filing for an IPO is being hailed as a milestone for Indian markets as Nykaa is one of the few start-ups going for a stock market listing after declaring a profit.

The sector is dominated by global players - US e-commerce giants Amazon and Walmart-owned Flipkart, and by the likes of Sephora in brick-and-mortar.

Nykaa's plans to offer up to 43 m shares worth Rs 5.3 bn. It's seen by industry analysts as timely despite the pandemic.

The Mumbai headquartered start-up has warehouses in Delhi, Mumbai, and Bangalore. It claims to have over 3 lakh products across 1,500 brands.

Nykaa has raised money through multiple rounds of funding. Its key investors include private equity funds like Stead View Capital, Fidelity Management, and Lexdale International.

Also, B-town celebrities like Alia Bhatt and Katrina Kaif have invested an undisclosed amount in the company.

#4. Paytm

Paytm is an Indian multinational technology company that specialises in digital payment systems, e-commerce, and finance. It's based in Noida.

The company wants to hit the market with its Rs 166 bn IPO at the earliest and very likely by October.

The Paytm IPO is suspected to be the biggest in the IPO history of India. It's likely to surpass Coal India's IPO of 150 bn, which is the biggest in Indian history to date.

The company had filed draft papers for its initial share sale with the market regulator on 15 July 2021.

It expects a response from the capital market watchdog by mid-September, after which it plans to proceed with listing as early as possible.

According to the draft document, the company plans to raise Rs 83 bn through fresh equity issuance and another Rs 83 bn through an OFS.

Paytm founder, managing director and chief executive officer Vijay Shekhar Sharma and Alibaba group firms will dilute some of their stake in the proposed offer-for-sale.

Alibaba group firm Antfin (Netherlands) Holding BV will be selling at least 5% stake to bring its shareholding below 25% to comply with regulatory requirements.

Speaking of the Paytm IPO, here's what Richa Agarwal, lead small cap analyst at Equitymaster, wrote in one of the editions of Profit Hunter: Paytm IPO: Will it Deliver Profits?

• I'm a big admirer of these companies as a consumer.
  
  However, looking at them through an investor's lens, I'm sceptical. These successful disruptors aren't anti-fragile themselves.
  
  

  In a world of cheap money and deep pocketed private investors willing to burn cash on promising ideas, they are facing brutal competition.
  
  Their only chance of survival is their ability to raise more money. Hence the IPOs.

In a similar vein, Co-head of Research at Equitymaster, Tanushree Banerjee talks about start-ups and how India is emerging as the hotbed of tech unicorns.

She discusses whether Zomato and Paytm are set to be the next Microsoft and Apple.

Tune in to the below video to find out more:

Looking ahead, not behind...

The impressive line-up of tech IPOs that we are witnessing today is a testament to the evolution of the Indian markets.

Gone are the days when the stock market responded to an IPO solely based on its past performance and profits. The market is seeing value in these companies and investing in its future.

While concerns about Zomato's lack of profitability were raised in the run-up to its IPO, the overwhelming response by investors has helped the company's stock soar since its debut.

Two decades ago, this would have been tall ask from India's retail investors. They perhaps, would not even consider start-ups until the coveted crown of profitability was achieved.

However, to today's young investor who perhaps regularly uses the services and platforms of these tech start-ups to order food, compare policies while purchasing insurance, research pre-owned cars, send packages or keep up with the latest beauty trend, the value of these businesses is evident.

Start-up founders are now much more confident on this front as well, evident in the fact that the blows from the recent second wave of the pandemic did not dampen their listing goals.

To sum up

As things stand now, the future of India's new economy looks very bright indeed.

However, a gold rush of sorts in the tech start-up space here may draw increased scrutiny from the regulators.

Therefore, one must keep an eye out for any tweaks in regulations or compliance requirements that may surface in the coming months.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...