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Online startups' listings make a killing
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SME Times News Bureau | 19 Nov, 2021
Expectations of further digitisation-led economic growth has propelled
the market valuations of just-listed startups in comparison to
legacy-cum-brick and mortar businesses, analysts said.
Accordingly,
valuation of firms such as PB Fintech (PolicyBazar), Zomato and Nykaa,
among others, have risen multifold times from their offer price.
Besides, most of these startups' market valuation has crossed the milestone of Rs 1 lakh crore.
"New
generation businesses are expensive because of their high growth
potentials in this essentially rising digital world. Henceforth, it is
fair to accept that such new-age companies will be valued and traded
much higher than the old business models," said Vinod Nair, Head of
Research at Geojit Financial Services.
However, he said that one
needs to understand that this huge gap in valuations is based on a
belief that they will evolve stronger, increase penetration, grow their
brands faster, and ultimately become profitable.
"Else, they have
the risk to end-up as a cash-gulping equipment, destroying the
commercial system of the respective industry. Not all will rise as a
winner from the new-age companies," Nair said.
"The old
businesses are also expected to develop and integrate with new
technology in the future. Accordingly, we can also notice that not all
from the 2020 and 2021 listed tech-based companies have performed
great," he added.
According to Parth Nyati, Founder of Tradingo:
"We know that the digital economy is witnessing exponential growth
across the globe where India is in a leading position.
"The
startup ecosystem is changing in India and many people think that the
country has the potential to produce big tech companies like what the US
and China did in the past. Therefore, there is a frenzy for new-age
business IPOs in India and most of the promoters want to cash in on this
euphoria with unrealistic valuations."
Nyati also pointed out
that only one or two companies will survive and create wealth for the
investors, while others will be wealth destroyers.
"We can take
the example of the US market where many companies tried to cash in on
the tech boom along with Google and Microsoft, but most of them failed
to continue with their business and even it took many years for both
Google and Microsoft to reach their peak valuations of the time of the
tech boom," Nyati said.
Likhita Chepa, Senior Research Analyst at
CapitalVia Global Research, said: "The technological revolution in the
last decade saw a slew of startups coming up, which disrupted the status
quo and established a new way of doing business.
"Some of these
startups have grown into profitable companies, while the others have
expanded to a size where they can take their company public."
While
the transition from brick and mortar companies to technology began to
happen long before the Covid-19 pandemic broke out, the pandemic has
certainly boosted the online business sentiment.
"Digital firms
differ from traditional brick and mortar or asset-heavy companies in a
few important ways. The latter set of companies have a long gestation
period and path to profit and they apply traditional valuation methods
for growth and net profit assessments.
"Digital players are asset
light, quick to enter markets, disrupt and garner market share, and
they also tend to grow rapidly. Markets are betting on smart promoters,
digital-driven disruptive business models and are willing to look far
into the future for actual and substantial gains," Chepa said.
She
added that companies like Zomato and Nykaa have witnessed huge listing
gains (53 per cent and 80 per cent, respectively), and were over
subscribed (38.26 times and 81.78 times, respectively).
Listing gains is the profit over and above the offer price on the exchange debut day.
Changing consumer behaviour and preferences are also something which have a cascading impact on this performance, Chepa added.
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