By Sandip Khetan and Veenit Surana
The journey to IPO for a corporation is just like that of an airplane planning to take off. All passengers should be aligned and on board (key stakeholders), the runway should be optimised (when it comes to preparation), the climate should be checked (geopolitical and broader market situations), and the monetary and operational prowess should all be thought-about to have a protected take off and a gentle flight. Importantly, it cohesively brings all components collectively.
Similar to the worldwide IPO market, Indian capital markets have witnessed a slowdown in IPO exercise because of geopolitical components, inflationary pressures and an increase in rates of interest. Globally, India is positioned 4th when it comes to the variety of IPOs (~49) and fifth when it comes to proceeds raised in YTD 2022. Recently we witnessed the IPO of Life Insurance Corporation of India (the most important in Indian capital market historical past) which has been met with lackluster post-IPO efficiency because of varied components. This has not diminished different firms from exploring the IPO runway.
Timing, being able to take off through the momentum, is vital. Many firms are persevering with to make preparations for an IPO later this yr or early subsequent yr, primarily based on beneficial year-ended March 2022 outcomes.
Going by the historic expertise of fifty+ current IPOs, firms can take not less than 8 to 12 months to IPO, with SEBI approval consuming 3 to 4 months on common. In 2021 we witnessed that out of 64 firms going public, 50+ firms obtained approval throughout 2021 itself with a median period of three months to obtain the SEBI approval from their DRHP submitting. About 1 out of 4 firms (25%) re-filed their DRHPs in 2021 as a result of beneficial market situations and managed to obtain approval and a listing in the identical yr. This was supported by momentum within the markets and excessive liquidity. The BSE Sensex moved up by round 10,000 factors in a single yr.
IPO preparation includes constructing a compelling fairness story, the well timed appointment of varied stakeholders, enhancing company governance and applicable authorized and capital construction presence. It can also be crucial for firms to undergo the audit course of, restated monetary info (together with quarterly outcomes), take part within the consolation letter course of, get by the authorized/banks due diligence and at last conduct the investor roadshows together with ebook constructing and value discovery. All of those processes can simply take 6 to 9 months.
There is a powerful pipeline for IPOs within the second half of 2022. 10+ firms have filed their Draft Red Herring Prospectus in Q2 of 2022, 40+ firms have already obtained SEBI approval (deliberating higher valuation/market situations) and 50+ firms are ready for SEBI approval.
On a broader enterprise and funding development, India is amongst the world’s fastest-growing start-up ecosystems. The majority of those are platform (Tech-enabled) firms which embody fintech, client web, Ed-Tech, and many others. While there’s a robust base of those rising platform firms, they’re comparatively nascent and most are loss-making. From an funding perspective, traders are adopting a cautious strategy, each with non-public fairness and huge funds, lowering their funding spending. In current instances it has been noticed that many firms are additionally trimming down their IPO dimension. There is a behavioural shift with traders probably in search of firms which might be profit-making (with good money flows or a transparent path to profitability) vs. loss-making (many platform/Tech-enabled) firms.
As take-off is simply step one and never the tip vacation spot, profitable firms have a look at the longer-term horizon in treating IPO not as a monetizing occasion however to springboard to extra milestones and higher success. Recent market volatility and unfavourable improve in inflation & rates of interest, whereas posing a short-term problem, might be conquered with steady enterprise fashions, confirmed money flows and thorough preparation for the journey forward.
(Sandip Khetan, Partner and Financial Accounting Advisory Services Leader, EY India and Veenit Surana, Associate Partner, Financial Accounting Advisory Services, EY India. Views expressed are the authors’ personal.)
Source: www.financialexpress.com”