The Great Indian Tech IPOs Race Zomato's megahit IPO has opened the floodgates for a host of unicorns to line up for public listing. But do the markets have the appetite?

Zomato's stellar Initial Public Offering (IPO) last month marked the dawn of a new era for the Indian startup ecosystem. Not the first tech company to have gone public in India, but Zomato was evidently the most sought-after tech IPO. The food delivery major listed on the Indian bourses at over 50 per cent premium on the issue price of INR 76. That's not all. The INR 9,375 crore IPO recorded a 38x subscription--the highest among the listings valued at more than INR 5,000 crore each in the last 13 odd years. "The strong brand recall of Zomato also contributed to the success of the IPO. Investors also realized that Zomato will have a much longer runway for growth given lower penetration of food delivery in India as compared to developed and other Asian markets like China and Korea," said Jyoti Roy, DVP - equity strategist, Angel Broking. "We believe that strong growth prospects, high barriers to entry and duopoly nature of the food delivery business in India would ensure that Zomato would keep growing at a very rapid pace over the next 5-10 years." Zomato's megahit IPO
has also prompted a host of unicorns--startups valued USD 1 billion or more--to line up for public listing.

The impressive line-up includes the likes of insurance aggregator Policybazaar, lifestyle marketplace Nykaa, fintech major Paytm, payments solutions company Mobikwik, hospitality major Oyo Rooms and e-commerce logistics company Delhivery, among others. "It's clear to say that Zomato has been a catalyst. There have been a handful of digital IPOs in India in the last decade or so and now we finally see the floodgates open as companies line up for IPOs," said Rohan Malhotra, managing partner, Good Capital.

THE YEAR OF TECH IPOS
Ask experts whether the upcoming tech IPOs will play out like Zomato or will it be a shot in the dark for each one of them, most agree in unison that while the sentiment for tech IPOs in India markets will be largely positive, the magnitude of success for different companies may vary. "We believe that there will be strong investor demand for most of the other new age tech companies which have proposed to get listed on the exchanges. However, the demand will vary for each of the companies given different business models and growth potential in the long run," said Roy. "Given the multi-year growth story of most of these companies we believe that the new age tech IPOs shouldn't have any problem attracting investors." Malhotra said the fact that technology, which was so far seen vertically as a separate industry along with other industries is now totally horizontal as an asset class will definitely create a lot of excitement around tech-led businesses in the foreseeable future. "That said, at critical mass that thought process changes so we're still away from seeing critical mass of IPOs in India of tech-led companies." Nitish Mittersain, founder and MD, Nazara Technologies, which got listed earlier this year, concurred and said that as the number of options increase for the investors, the latter will start filtering and curating on the basis of the quality of the companies going public. But, what is driving this boom? High liquidity in the market along with the listing gains of past IPOs are the key reasons for the IPO market doing well, believes Deepak Jasani, Head of Retail Research, HDFC Securities. As for tech IPOs in particular, he adds that in these disruptive times, investors are hopeful that new players would be more capable of adapting to changing times compared to the already listed players. "Additionally, the fact that
there is little existing float available in these businesses, some of which may be in niche areas, also helps build the hype." Riding the hype and blockbuster success of one tech IPO, a lot of other tech companies would want to encash on the sentiments and bring their IPOs as soon as possible before the sentiment around such listings cools off, Jasani added.

Nykaa turning profitable in FY21 will definitely provide it an edge over other tech IPOs"- JYOTI ROY, DVP - EQUITY STRATEGIST, ANGEL BROKING

ALL EYES ON NYKAA
For market experts, the upcoming IPO of the online beauty aggregator Nykaa, which will be the first woman-led profitable tech company to go public, stands out from other tech companies for a variety of reasons. Foremost, the fact that Nykaa is a rare tech company making profit gives it an edge. "What is also important is that the company posted strong consolidated revenue growth of 38 per cent year-on-year to INR 2440.9 crore in the financial year 2021," said Roy. In the financial year 2021, Nykaa reported an EBITDA (earnings before interest, taxes, depreciation and amortization) of INR 1,614.26 million and an EBITDA margin of 6.61 per cent. Jasani pointed out that while profit making tech companies will be welcomed by investors, that won't be the only driving factor. "A lot would depend on the valuation in terms of price to earning (P/E), price to sales (P/S) and the expected growth rate in their key parameters."