When is the right time for an IPO?

Pushback by MFs has forced q-comm firm Zepto to put off its IPO. Fund houses are reportedly unwilling to buy the Zepto issue at valuations linked to its latest fundraising rounds, and the cash-burning startup plans to tap PE before it returns for a listing. Q-comm has disrupted India's retailing industry, but questions linger over its path to profitability. Eternal (formerly Zomato) and Swiggy have listed their profitable food delivery businesses, but face investor scrutiny over their q-comm operations. Ecommerce heavyweights Amazon and Flipkart have deep-pocketed foreign parents and are dialling up the q-comm intensity. Zepto, as a standalone player, has to explain its business model to institutional investors in greater detail. It plans to revisit the IPO with a better set of numbers.

That may not be easy. The competition is sitting on large cash piles needed to grow the discounted retail business. If Zepto is left out in the cold, the competitive intensity eases for the industry. Institutional investors with uncomfortable pre-existing exposure to q-comm will have reason to maintain their vigil over Zepto. Denied access to public investment, Zepto faces an uphill climb to profitability. The concentration risk increases for q-comm if newcomers confront entry barriers in the form of capital. Wider resistance to q-comm from kirana stores could mount if it is directed at fewer large, market-dominating firms, particularly if they are MNCs.

Consumer goods and electronics companies pivoting their retail strategies to the 10-min delivery platforms are better served by more players, not fewer. The q-comm business needs to evolve beyond pricing rivalry to smarter engagement. The operational efficiency of existing dark stores must improve to justify geographical expansion. Disruptors are more likely to be pure-play q-comm startups rather than their larger e-comm rivals. Zepto has an opportunity to rework its strategy before it returns to the IPO market.