A recent report by the Financial Express (FE) reveals a significant challenge looming over more than half of India's startups set to launch their initial public offerings (IPOs) this year.
Out of the 12 companies submitting their draft red herring prospectus (DRHP) to the Securities and Exchange Board of India (Sebi), eight are grappling with losses, amounting to a cumulative Rs 8,000 crore. Notable unicorns like FirstCry, MobiKwik, and Ola Electric are among those facing this hurdle.
The major contributors to the Rs 8,000 crore loss are Swiggy and Ola Electric, while other startups like Portea Medical, Awfis, FirstCry, MobiKwik, and PayMate have also recorded losses in their recent filings.
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Although profitability isn't a mandatory prerequisite for IPOs, the National Stock Exchange (NSE) requires companies to demonstrate operating profit or earnings before interest, depreciation, and tax for at least two of the three preceding financial years.
The FE report further said that Investors, however, tend to scrutinize trends in operating profitability more than immediate net profit, particularly for high-growth startups.
Despite these losses, some startups have showcased remarkable sales growth in the past financial year. Ola Electric witnessed a nearly sixfold surge in its topline, reaching Rs 2,782 crore by FY23's end, and FirstCry doubled its revenue to Rs 5,632 crore in the same period, albeit with increased net losses.
It's common for startups eyeing IPOs to prioritize scaling operations over immediate profitability. Nevertheless, there are already some startups in the landscape that have achieved profitability.
Go Digit, Oyo, and FirstCry have filed their DRHP and await regulatory approval. PayU, Unicommerce, Swiggy, and Garuda Aerospace, however, are yet to file their papers. MobiKwik, which received Sebi approval in 2021 and subsequently deferred its listing, is expected to file fresh IPO papers soon.