IPO-bound startups recalibrate strategy to tackle market volatility

Blame it on the market volatility, many IPO-bound companies have begun reviewing their plans to go public. Geopolitical tensions, soaring inflation and apprehensions of further rate hikes by global central banks are weighing on the market participants and compelling the companies to either postpone their plans to go public or reduce the offer size.

Sample this: Ecommerce firm FirstCry has put off its $1-billion initial public offering (IPO) by a few months. The company is also reconsidering its overall issue size and valuation it would seek, compared to its initial plans earlier this year.

It may be recalled that LIC’s mega public offer, which was slated for March this year, got postponed to May and the offer size was reduced to 3.5 percent from 5 percent, planned initially owing to a choppy market.

“We have seen some delays in the recent IPO but all the delays not just for timing the market some are related to cross the regulatory hurdles. Like the recent IPO of LIC has to cross a lot of regulatory hurdles because it's one-of-a-kind of IPO. Sometimes companies take decisions to decrease the IPO size due to not receiving overwhelming response in the pre-IPO road shown from investors,” said Yash Gupta, Equity Research Analyst, Angel One.

“So, there are lots of reasons for delaying the IPO or reducing the issue size and they include regulatory hurdles, pre-IPO response from investors, along with this larger IPO in terms of issue size has also need to look at the current market conditions also as all this big issue size IPO need lot of liquidity, so when market are in good condition it will be little bite easy for companies to get fully subscription from investors,” Gupta said.

New-age logistics startup Delhivery, which had filed IPO papers with Sebi in November last year, too postponed its plans to go public amid market volatility. While the IPO opened for subscription from May 11-13 this year, the company reduced total issue size to Rs 5,235 crore from Rs 7,460 crore planned earlier.

Imagine Marketing Limited, the maker of boAt headphones, which filed its draft red herring prospectus in January is reportedly looking to list in the first quarter of 2023. The company is looking to raise Rs 2000 crore through its public offer.

Hospitality unicorn OYO, which has received in-principal approval from SEBI for its Rs 8,430 Cr IPO has not announced the date to go public and is planning to cut the offer size by 50 percent.

Further, Pharmeasy and MobiKwik, which have received the final clearance have not set a date for their public issues so far.

"It's definitely bad for all IPOs now. Especially new age ones or big issue sizes. With the tightening of liquidity and rate hikes by central banks across the globe. Sentiment is also bad. Every IPO going company would want Euphoric conditions because especially for startups their pricing was extremely steep now that reality is setting back in. Investors are impatient too, they want profitability or path to profitability and of course it works both ways; when it was good it was very good, now when its bad its very bad," said an independent IPO expert.

The underperformance of the recently listed startups is also pushing companies to ‘wait for the right time’ before going public.

The S&P BSE IPO Index, a gauge of newly listed shares, has declined nearly 26 percent so far this year, while the benchmark Sensex has declined nearly 11 percent. The country’s biggest IPO until LIC, Paytm, is the index’s worst performer, down 75 percent since its highly anticipated float in November.  The scrip traded at Rs 562 apiece early on May 16 against the listing price of Rs 1,950.

Shares of Nykaa, which went public in October 2021, are trading 34 percent lower at Rs 1355, against the listing price of Rs 2063.