India Has a Strong Pipeline of 80 IPOs Over 5 Years India may see 100-plus matured, large-scale profitable/path-to-profitability startups in the next five years, says a report by Redseer Strategy Consultants
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The stock performances of tech IPOs compared to other consumer companies have seen a steeper crash, finds a recent report by Redseer Strategy Consultants. The big reason behind this is the global macro situation, as profits are a lot more valuable in the current situation. Moreover, tech companies have now prioritized growth.
A typical company that would be cash flow positive two years from now would see discounting of at least 20-30 per cent of their valuations in a low-interest rate situation, which goes up significantly in a high-interest rate situation which we are seeing right now. "When we look at similar situations in the past 20-odd years, we realize that it still takes a bit of time for markets to come back sustainably, even after the interest rates start dropping. Because, in effect, the market rates would have already factored in the decreasing interest rates into the prices. The learning is that there may be more time, maybe a few quarters, for the markets to recover. We always see IPOs bouncing back post downturns," said Rohan Agarwal, partner, Redseer Strategy Consultants.
India, in particular, has significant room for growth in public market cap compared to other countries. This becomes even more pronounced when we compare this to the tech/new age ecosystem. From about $43 trillion market capitalization in the US, about 25 per cent can be attributed to tech/new age companies; this includes giants such as Apple, Amazon etc. In India, with about a $3.9 trillion market capitalization, only about 1 per cent can be attributed to tech/new age companies. We are just getting started with the journey of start-ups coming up and going towards their path to profitability, then looking at that public market journey.
India may see 100-plus matured, large-scale profitable/path-to-profitability startups in the next five years. With about 20 of them already being listed, about 80 startups have the potential to look at an IPO journey.
While the markets have been challenged, which has impacted the valuation of the tech companies a bit more than others, the potential is out there, especially for tech. "There must be a deliberate and goal-based approach to be IPO ready," said Rohan adding, "Whatever the goals may be, you have the time and scope to achieve much better outcomes before the IPO and showcase it strongly."
