According to a discussion paper floated by Sebi on Friday, such companies will have to disclose more details pertaining to how they arrived upon the offer price for their IPOs. This proposal aims to cover only those companies which don’t fulfil the three-year profitability track record, while the rules remain unchanged for others.
The development comes as the stock prices of several newly-listed technology companies tumbled post their listing over the last few months.
In the discussion paper, Sebi observed that the current IPO rules only require companies to disclose ‘traditional parameters’ such as key accounting ratios. However, since the new-age companies are usually loss-making, the regulator felt there was need for additional disclosures. Sebi proposed that such companies will have to disclose their key performance indicators (KPIs) during the IPOs. Typically, start-ups use various statistical models such as gross merchandise value(GMV) to make revenue projections. Private equity and venture capital investors who buy stakes in unlisted start-ups typically go by such KPIs.
“The issuer company shall disclose all material KPIs that have been shared with any pre-IPO investor at any point of time during the three years prior to the IPO,” said Sebi’s discussion paper adding that the companies shall also make disclosure of “Valuation of Issuer Company based on secondary sale / acquisition of shares (equity/convertible securities) excluding gifts, in the 18 months prior to the date of filing of the DRHP / RHP where either acquisition or sale is equal to or more than 5% of the fully diluted paid-up share capital of the issuer.”
To be sure, these new proposals will apply to only those companies which have not been profitable in the last three years and are planning an IPO.
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Indian markets witnessed a flurry of IPOs by technology companies since mid-2021. Food delivery app Zomato was the first to float a public offering followed by others like Policy Bazaar, Paytm and Nykaa. The share prices of all these companies have corrected post their IPOs, prompting criticism amongst market participants saying the issuances were priced steep, leaving little money on the table for the IPO and post-IPO investors.
“The new-age technology companies generally remain loss making for a longer period before achieving break-even as these companies in their growth phase opt for gaining scale over profits,” Sebi said. “Investors are on boarded on these companies on the premise of future potential and accordingly the company strives for long-term market leadership rather than short-term profitability considerations.”
