The IPO market in India is turning into a food frenzy.
The amount of money raised in this year’s IPOs has reached $ 8.8 billion, already exceeding the totals for the past three years, even though it’s only August. At the current rate, 2021 would surpass the all-time high of $ 11.8 billion. Founders, bankers, lawyers and advisers are rushing to cash in on the fervent demand for new public offerings.
The catalyst, in a word, is Zomato Ltd. The food delivery startup went public in July, and despite deep losses and lackluster prospects for profitability, the stock has soared more than 70%. That has fueled the idea that startups with similar earnings challenges could find a strong reception from investors.
Oyo Hotels & Homes Pvt, a longtime troubled lodging giant, began work last week on its draft prospectus and intends to release it in October, according to people familiar with the matter. Ola, a leader in ridesharing, and fintech startup Pine Labs Pvt have also started conversations with investment bankers, according to others familiar with the situation.
“India is definitely the star of the show, that’s the new phenomenon,” said Udhay Furtado, co-head of Asian equity markets at Citigroup Inc., the leading foreign bank in Asia IPO ratings so far this year. . “Zomato really opened people’s eyes to India and now we have all these privately funded unicorns hitting the public market.”
The performance of recent IPOs, such as Zomato, has fueled the excitement. Newly listed Indian stocks are outperforming the benchmark Nifty 50 by more than 40 percentage points this year, the biggest gap in seven years.
The three most valuable startups in the country are considering or planning IPOs. Paytm, the country’s leader in digital payments, submitted its preliminary offering documents, aiming to raise up to 166 billion rupees ($ 2.2 billion). If it reaches that level, the IPO would be the country’s largest debut in history, dwarfing the more than 150 billion rupees raised by state-owned Coal India Ltd.
Flipkart, the Indian e-commerce giant controlled by Walmart Inc., is targeting an IPO in the fourth quarter, Bloomberg News reported. Byju’s, a $ 16.5 billion digital education startup, is in early IPO discussions and bankers are encouraging the company to tap into the red-hot market, according to people familiar with the matter. Byju’s is absorbing several substantial acquisitions and is likely to postpone any listing for at least a year.
Such is the hysteria that PhonePe, a payments startup that Walmart acquired as part of its deal with Flipkart, is considering moving its incorporation to India from Singapore to capture the attention of local investors, according to two people familiar with the matter who declined. be identified. . Regulatory turmoil in China has also led investors to seek promising opportunities in countries with more predictable government policies.
“If global investors have to choose an emerging market, the balance tips in India’s favor following regulatory action in China’s internet ecosystem,” said Pankaj Naik, CEO and co-head of technology and digital at the consultancy. Avendus Capital Pvt. “India may not be as attractive as China in the broader economic sense, but it seems like a safer bet.”
Oyo Hotels, PhonePe and Pine Labs did not respond to emails seeking comment.
India’s success with startups has lagged much longer than that of the US or China. But this year it has been a kind of break. With the Covid-19 pandemic, many consumers have turned to online services for grocery deliveries and other e-commerce, along with math tutoring and medical diagnostics. Income has skyrocketed.
Global investors such as Fidelity Investments, KKR & Co. and Singapore’s Temasek Holdings Pte have pumped money into India, while China’s crackdown on private enterprise has spooked financiers. The value of venture investments in India reached $ 7.9 billion in July, surpassing China for the first time on a monthly basis since 2013, according to researcher Preqin Ltd.
That kind of funding has helped India build a substantial blessing of unicorns, startups worth a billion dollars or more. There are more than 35 such companies, led by Byju’s, Paytm and Oyo, according to CB Insights, suggesting that dozens more could go public in the coming years. While the largest IPOs of the past were conglomerate or state-backed companies like Coal India, startups are now leading the way.
“Many of India’s tech unicorns have huge growth opportunities ahead of them,” said Devarajan Nambakam, managing director of Goldman Sachs Group Inc. in Mumbai. “Everything is relative and given the great opportunity, India’s macroeconomic fundamentals, political stability and overall investment policies make it one of the best destinations for global investors.”
Investment banks such as Goldman, Morgan Stanley, JPMorgan Chase & Co. and Citigroup Inc. are at the forefront of multiple discussions, the people said. Kotak Mahindra Bank’s investment banking team, led by Mumbai, is also part of various IPO conversations, the people said.
Oyo, a SoftBank Group Corp.-backed startup with a history of trouble, is one of the most surprising IPO candidates. The hotel reservation company, led by 27-year-old Ritesh Agarwal, failed in a global expansion with overly aggressive targets and was then hit by the Covid-19 pandemic. Last year, it cut its workforce, licensed thousands, and slashed compensation and marketing as it backtracked.
But the brutal reform allowed Oyo to survive when people stopped traveling and now reservations are recovering in Europe, the United States and parts of Asia. Agarwal, in an interview with Bloomberg TV, said that the coronavirus pandemic hit Oyo like “a cyclone” with a 66% business drop in 30 days.
But the company made difficult changes to focus on the technology and services most valuable to its hotel partners. The startup recently secured $ 660 million in debt financing from global investors to service their existing loans.
Work began this week on the draft of Oyo’s prospectus with the goal of submitting it to regulators within the next 10 weeks, a person familiar with the developments said. Two banks, Kotak and JPMorgan, have already been selected, and Citi is close to being added to a lineup that is likely to grow. The timing, size and combination of the primary and secondary stocks has yet to be decided, several people said.
Agarwal declined to comment specifically on OPI’s plans in his interview.
“We are already operating as a public company, when we go public it depends on the board of directors,” he said.
If Agarwal tries the public markets, he will have plenty of company. Beauty retailer Nykaa submitted its initial offering documents this month for a share later this year. API Holdings, which owns the nation’s largest online pharmacy, PharmEasy, is targeting an initial public offering of more than $ 1 billion with plans to file initial documents in mid-October, according to people familiar with the matter. Pine Labs, a fintech startup operating in India and parts of Southeast Asia, is being courted by bankers who claim it could fetch a $ 10 billion valuation, according to a person with knowledge of the discussions. It was last valued at $ 3 billion, according to CB Insights.
“Investors in the Indian public market have shown that they indeed value the role of disruption and growth,” said Vani Kola, founder and CEO of venture firm Kalaari Capital. “We will see hundreds of such IPOs over the next decade.”