Indian startups slash their valuations in anticipation of IPO endeavors

In a significant move this month, Ola Electric and FirstCry, two notable Indian startups, are gearing up for their initial public offerings (IPOs), albeit at share prices that fall short of their past valuations, signaling an adjustment to the current economic climate.

Ola Electric, which leads India’s electric two-wheeler market, is set to garner upwards of $730 million with shares priced between ₹72 and ₹76 (approximately 86 to 91 cents), as per the disclosed term sheet. This prices the firm around $4 billion, marking a 26% decrease from its $5.4 billion valuation in October 2023 and significantly lower than its initial $6.5 billion to $8 billion ambition for the IPO. Notably, as of January 2022, the company was valued at $5 billion.

Meanwhile, FirstCry, India’s largest online platform for baby and mother care products, is looking to raise about $501 million at a valuation of $2.9 billion. This is consistent with its valuation later in 2023 but is beneath the $4 billion sought last year and far from the $6 billion target in 2022.

These more prudent valuations reflect a broader recalibration of startup worth in the face of public market examination. Swapnil Sheth, a director and partner at investment banking firm IndigoEdge, emphasizes the importance founders and boards have placed on downside protection and ensuring value during the IPO process.

“Proper pricing is key to securing anchor investors and ensuring the long-term engagement of public market investors as well as retail IPO subscriptions,” Sheth mentioned. This strategic approach ultimately heightens the probability of a successful IPO outcome and improves post-IPO stock performance.

As it stands, neither Ola Electric nor FirstCry has reached profitability, with Ola Electric reporting a $189.2 million loss against $626.3 million in revenue for the fiscal year ending March 2024, and FirstCry recording a $38.3 million loss on $774 million in revenue for the same period.

For certain investors, the reduced valuations might lead to decreased returns. Despite this, early investors like Tiger Global and Matrix Partners stand to gain from their investments in Ola Electric, whereas newer stakeholders like Alpine Opportunity Fund and Tekne Private Ventures could face losses if the IPO is executed within the aforementioned price range. SoftBank, holding investments in both entities, is poised for a 48% profit on Ola Electric and a profit exceeding $450 million on FirstCry, according to a TechCrunch analysis.

Following in the footsteps of insurance startup GoDigit, which trimmed its valuation by 25% to $3 billion ahead of its May listing but saw its market cap rise to $3.8 billion thereafter, Ola Electric and FirstCry are venturing into public markets.

These IPOs arrive as Indian startups brace for an anticipated surge in public listings over the coming two years. Despite the mixed performance of previously public tech companies against a backdrop where the benchmark Sensex index has soared more than 50% in three years, the landscape looks promising.

Sheth noted, “Many new age IPOs languished below their debut prices for extended periods, facing selling pressure post lock-in expiry.”

According to Bank of America analysts, companies in India are projected to raise about $11 billion through IPOs and FPOs in the latter half of this year, with Hyundai, Ola, Swiggy, and Afcons planning to secure around $5 billion in 2024.

Swiggy, a former leader in India’s food delivery domain now trailing behind Zomato, is also taking the IPO plunge. Investment bankers have floated an offer to sell Swiggy equity at a $10 billion valuation, contrasting with Zomato’s $18 billion market cap, based on a note viewed by TechCrunch. Swiggy previously achieved a $10.7 billion valuation in January 2022.

Sheth challenges the conventional view by suggesting, “Rather than being an ‘exit event,’ IPOs should be seen as the commencement of a longer, possibly decade-spanning, journey for founders/promoters. It’s a phase that requires conveying a grander vision and growth trajectory to public market investors who will scrutinize the company’s performance and profitability even more intensely every quarter.”