PhonePe IPO delay signals valuation standoff for upcoming new-age listings

PhonePe’s decision to push back its $1.3-billion initial public offering (IPO), amid volatile market conditions and a valuation gap with mutual fund investors, could impact the listing timelines of several new-age companies preparing to tap the public markets over the course of this year, investors and bankers said.

Companies such as Zepto, Oyo, Flipkart, Razorpay, Infra Market and Acko are among those evaluating IPOs in the next 12 months. While Zepto has filed confidentially to raise up to Rs 11,000 crore in fresh capital from the public markets, hotel aggregator startup Oyo’s parent company Prism has filed to raise Rs 6,650 crore in primary capital via an IPO.

Walmart-owned ecommerce company Flipkart has been engaging with bankers for a potential listing next year, and Accel-backed business-to-business (B2B) firm Infra Market, which has already received Sebi nod for its proposed Rs 5,000 crore offering, raised Rs 1,250 crore in debt last month. Razorpay has already appointed bankers to prepare for a listing and is currently on track to go public in the latter half of this year.

Market participants said PhonePe’s move underscores the widening expectations gap between late-stage startups and public market investors on valuations, at a time when mutual funds are turning more cautious on richly priced tech listings.

“If a company of PhonePe’s scale is choosing to wait, it sends a signal to the rest of the startup ecosystem that public market investors are being far more price sensitive right now,” a senior fund manager said. “Others planning IPOs over the next year will be watching that very closely.”

The market for companies looking to go public has remained subdued since early this year. ET reported in February that several new-age companies that listed in recent months trimmed their issue sizes and accepted lower valuations, as volatile equity markets and shifting investor expectations reset IPO pricing benchmarks.

“Interest from retail investors has died down, so institutional investors are primarily the ones supporting an IPO to sail through. Most IPO-bound firms are therefore working closely with fund houses to gauge interest and making plans accordingly,” said the founder of an IPO-bound startup, requesting anonymity.

For some firms, going public has become a necessity given growth-stage funding has slowed drastically in India. But for cash-rich firms, management teams are choosing to move cautiously and time the issue better.

“Even for firms with a strong profitability profile or a steady path to bottomline improvement, there are question marks because of broader market volatility and uncertainty around how public investors will price growth over the next few quarters,” a Mumbai-based investment banker said.

Incoming investors, however, are not only pushing harder on valuations in the public markets. Even in private markets, several funding rounds for growth-stage startups that have been in the works for the last few months are coming unstuck, with mid-market and growth equity firms seeking to renegotiate terms given the current realities of the stock markets.

“Companies with cash-generating businesses are not in a hurry to raise anyway, but those that continue to burn cash are willing to come back to the table for more realistic valuations because they need to raise,” a venture capital investor said.

A section of the industry believes that many startups have used this period to tighten internal operational controls, put in place systems needed for listed firms, and work closely with bankers, so they will still go ahead with their document filing plans.

“Most IPO-bound companies are getting everything in place. The idea is that once markets improve within Sebi’s approval validity window, they would like to take the plunge,” the founder quoted above said.