India may see more than 100 matured, large-scale profitable or on path-to-profitability start-ups in the next five years, said Redseer Strategy Consultants. With about 20 of them already being listed, about 80 start-ups have the potential to look at an IPO journey in the same period, It added.
Almost all new-age tech startups that got listed in the last two odd years now trade at a significant discount. The big reason behind this is the global macro situation, as profits are a lot more valuable in the current situation.
However, things may be changing, the report added.
“Tech companies have now prioritized growth,” said the report by Redseer Strategy Consultants, authored in collaboration with HSBC.
The strategy consulting firm said India has significant room for growth in public market cap compared to other countries. This becomes even more pronounced when this is compared to the tech/new age ecosystem.
From about $43 trillion market capitalization in the US, about 25 percent can be attributed to tech/new age companies; this includes giants such as Apple, Amazon etc. In India, with about a $3.9 trillion market capitalization, only about 1 percent can be attributed to tech/new age companies.
“We are just getting started with the journey of start-ups coming up and going towards their path to profitability, then looking at that public market journey,” said Redseer.
Being IPO ready
While many sectors have suffered in the volatile market this year, the valuation of the tech companies has suffered a bit more than others. Nonetheless, the potential is out there, especially for tech, said Redseer.
“There must be a deliberate and goal-based approach to be IPO ready,” says Rohan Agarwal, Partner, Redseer Strategy Consultants. “Whatever the goals may be, you have the time and scope to achieve much better outcomes before the IPO and showcase it strongly.”
He said there are a lot of metrics here that the start-up will need to focus on in their IPO journey, including market leadership, clearly visible TAM (total addressable market), moats/multiple use cases, diversified, consumer love, predictable revenues, high operating leverage, achieved sustainable unit economics and a clear path to profitability.
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