The historic bull run of the premier stock indices of the country, aided by the dizzying IPO valuations has earmarked a tectonic shift in the economic success story of the country. There is a carnival of sorts across the country with even a layman is pondering of investing in IPOs – a feat, which would have been deemed rather unthinkable a few years ago.
While companies going public, one after another, augurs well for the economy of the country, it needs to be taken with a pinch of salt, given the shaky numbers of the companies taking the plunge.
Nykaa soared but the quarter results brought it down:
Reportedly, Indian beauty startup Nykaa that got listed on the stock market last week with the market capitalization crossing Rs 1 lakh crore has sprung up a surprise. The IPO investors had massive listing gains as the shares opened at Rs 2,018 on the NSE, with a jump of 79 percent from its issue price of Rs 1,125 per share.
However, today (November 15), the share price took a severe beating, as it was revealed that the company’s profit fell 96 percent as marketing costs surged in the quarter preceding its IPO launch.
According to news reports, Nykaa’s net income dipped to Rs 1.2 crore ($161,000) in the quarter ended September from Rs 27 crore the previous year, as a 92 percent increase in expenses dwarfed the 47 percent gain in revenues.
While Nykaa’s results of last quarter were not published until after the listing — the investors gung-ho about the profitability of the company subscribed to the IPO by over 100 percent on the first day of the offering itself.
Paytm crawled to subscription:
Compare that to Paytm – formally known as One97 Communications and one can apprehend the difference in enthusiasm. At Rs 18,300 crore, Paytm had the biggest IPO ever in the country after Coal India in 2010. However, unlike Nykaa, the Vijay Shekhar Sharma led company crawled to a full subscription before its close. The slow subscription suggested that retail investors were wary of the over-inflated numbers.
Institutional investors bid only for 2.79 times the shares reserved for them, while retail investors subscribed only 1.66 times the shares on offer. Moreover, Jack Ma’s Ant group selling its stakes in the company further sent the alarm bells ringing.
Paytm is not the market leader and has no proper map for achieving profitability:
It is pertinent to note that Paytm competes in an oversaturated market where it is no longer the leader. PhonePe and Google Pay together had an 80 share of the UPI transactions in September 2021. PhonePe had the greatest number of UPI transactions in September 2021 (1,653.19 million), followed by Google Pay (1,294.56 million) and Paytm (462.71 million).
Moreover, in its 11th year of operation, the company is still a loss-making company. In FY21, when the use of digital wallets and mobile payments surged, the company posted a decline in revenues. Despite a 60 percent cut in marketing and promotional expenses, the losses continued and the road to profitability is unclear.
There is no denying the fact that despite being a loss-making company, with no hopes of breaking even in the coming years, Paytm might have a bumper listing, much like Zomato, which defied common sense as well.
Zomato, the dark horse that belied expectations:
As reported by TFI, Zomato rode the hype train with inflated valuations and managed to bag a lucrative IPO listing. However, even today, observing the food aggregator’s numbers, leading up to the IPO makes one wonder how the Indian market operates or is it just a big bubble waiting to burst.
At the time of the IPO issue, Zomato was pegged at Rs 66,000 crore or $8.8 billion in valuation. However, a year ago, when the pandemic had not struck the world, the food major’s valuation was $ 3.5 billion, and that too after acquiring Uber Eats and its India services.
What appeared rather quizzical was the fact that in a pandemic year when Zomato’s average delivery order value fell from Rs 400 odd to Rs 238, the company managed to scale its valuation manifolds.
Read More: Zomato’s IPO may be big but its financials present a very different story
Make no mistake, the company is still making a handful of money to its investors, From the issue price of Rs 76 per share, the company has risen to Rs 161 per share, as of the last recorded trading session.
What is an IPO?
Understanding IPO is simple. There are two ways through which any company generates capital for any of the myriad purposes. Most companies need capital to expand their operations, some require it to infuse vertical growth, while some require it to wipe the slate clean and fend off the debt.
The first option to raise capital is to head towards the banks and ask for the loan or turn towards venture capitalists which is a rather risky proposition. The second way is by offering shares of the company to the public and making sure that debt loads are reduced, liquidity is achieved and hopefully, the visibility of going public helps achieve the desired goals.
Using the last option has become a recent fad in the Indian market. Even the government has hopped on the bandwagon and is coming up with the biggest IPO the country has ever seen. The government is planning to sell up to 10 percent of the Life Insurance Corporation of India (LIC) to raise up to Rs 900 billion.
Meanwhile, another Indian unicorn, SoftBank-backed Indian hotel aggregator Oyo Hotels, envious of the success of Nykaa and Zomato is mulling rolling out the IPO. It is pertinent to note that Oyo’s net losses, stood at Rs 33.82 billion, for the year ended March 2021, and yet there is a palpable excitement surrounding it.
Optimism and Indian market — a true romantic story:
TFI is not being a negative Nancy and understands that the Indian market defies expectations. A year ago, if someone had prophesized that Sensex would be breaching new records every day, the majority of us would have scoffed at the proposition. However, here we are, and Sensex is one of the best performing indexes on the global map.
As Rakesh Jhunjhunwala, the Big Bull of D-Street remarked, “We are just at the threshold of what I think is going to be one of the largest (stock market) bull runs in India ever. India is changing and many people are investing in the change,”
Read more: What really puts the “sex” in Sensex?
Thus, it makes sense to take the leap of faith. However, the investor should not be on a spree to invest in every single IPO. Reading the numbers and anticipating future movements is necessary while making the decision. As for the country, we sure do hope that the deluge of unicorns we have seen this year soon get to the podium and launch their IPOs as well. India is finally realizing the power of its stock market.