Indian startups gut valuations ahead of IPO push

Two large Indian startups, Ola Electric and FirstCry, are set to test investor appetite with their public listings this month, but both have had to price their shares below their previous valuation asks as they come to terms with new market realities.

Ola Electric, India’s biggest electric two-wheeler maker, aims to raise over $730 million by selling shares at ₹72 to ₹76 (86 to 91 cents) each, according to its term sheet. The pricing values the company at about $4 billion, which is 26% lower than the $5.4 billion valuation it earned in a funding round in October 2023, and well below the $6.5 billion to $8 billion range it initially targeted for the IPO. In fact, Ola Electric was valued at $5 billion in a round in January 2022 itself.

FirstCry, the country’s biggest e-commerce platform for mother and baby products, aims to raise up to $501 million at a $2.9 billion valuation, according to its term sheet. While that’s in line with its late-2023 private valuation, it’s well below the $4 billion valuation it sought last year and the $6 billion price tag it aimed for in 2022.

The companies’ more conservative stance reflects the shift in startup valuations as companies adapt to public market scrutiny. “Founders and the board of directors at several companies have realized the importance of downside protection and leaving value on the table during IPO,” said Swapnil Sheth, director and partner at IndigoEdge, an investment bank that focuses on advising startups.

Getting the pricing right “helps attract anchor investors and long-term public market investors, as well as retail subscription to the IPO,” he said. And attracting such investors, in turn, increases a company’s chances of increasing gains from the IPO while bolstering the performance of the stock after the listing, he added. 

Ola Electric and FirstCry are yet to become profitable. Ola Electric reported a loss of $189.2 million on revenue of $626.3 million in the financial year ended March 2024, while FirstCry saw a loss of $38.3 million on revenue of $774 million in the same period.

Ola Electric said Thursday evening that it had raised $319.5 million, or about 45% of its IPO offering, from anchor investors that included mutual funds from HDFC and SBI as well as Norges and Nomura.

For some investors, the lower valuations will result in diminished returns. While Tiger Global and Matrix Partners stand to profit from their early investment in Ola Electric, more recent backers like Alpine Opportunity Fund and Tekne Private Ventures might suffer losses if the company lists at this IPO price range. SoftBank, an investor in both firms, is poised to make money: 48% profit on Ola Electric and over $450 million on FirstCry, according to a TechCrunch analysis.

Ola Electric and FirstCry are following insurance startup Go Digit to the public markets. Go Digit also slashed its valuation by 25% to $3 billion ahead of its listing in May, but its market cap has climbed to $3.8 billion since then.

The IPOs come as Indian startups prepare for a wave of public listings over the next two years. Tech companies that went public in the country since 2021 have shown mixed results, even as the benchmark Sensex index has risen more than 50% in three years.

“Several new-age IPOs have traded below their IPO prices for long periods. There’s also post lock-in expiry selling pressure on the stock,” said Sheth. 

Companies in India will likely raise about $11 billion via IPO and FPOs in the second half of this year, Bank of America analysts wrote in a recent note to clients. Hyundai, Ola, Swiggy and Afcons are planning to raise about $5 billion in 2024, the bank said. 

Swiggy, which once led the food delivery market in India but has since lost the crown to rival Zomato, has also filed to go public. An investment bank was offering to sell equity in Swiggy at a $10 billion valuation when Zomato’s market cap stood at $18 billion, according to a note seen by TechCrunch. Swiggy last raised at a valuation of $10.7 billion in January 2022. 

“Contrary to industry lingo, I believe calling IPO an ‘exit event’ is a bit of a misnomer. I believe IPO is not an exit, but the start of another decade or longer journey, at least for the founders/promoters. They need to show an even larger vision and growth journey to the public market investors, who will track the company every quarter, with even higher scrutiny of growth as well as profitability,” said Sheth.