IPO-bound startups race to turn profitable ahead of listing as investors turn more selective

startups, IPO, startup IPO, profitability, funding, venture capital, VC funding

India’s latest crop of startups preparing to go public have shown stronger financials before they enter the public markets. Companies that have filed initial public offering papers or have recently listed — including Lenskart, Groww, Pine Labs, Fractal, Shadowfax, boAt, Curefoods, Wakefit and Shiprocket — are reporting sharper margins, narrower losses or their first profitable phases in the quarters leading up to a listing.

Investors, founders and industry stakeholders Moneycontrol spoke with said this marks a clear shift from the 2021–22 cycle, when high-growth companies with heavy losses rushed to market and then struggled to hold valuations. The new cohort is taking a more deliberate approach through cost cuts, business consolidation and clearer unit economics.

“The biggest takeaways are very clear now. Profitability isn’t optional - you need to be profitable or have strong reasons for your losses. The core business must be strong and the reasons for losses must be valid - for new business lines or expansion. The public market is unforgiving and everything is analysed to the last decimal,” said Siddarth Pai, Founding Partner at 3one4 Capital.

“The core offering must be portable and cash accretive. Expansions take time to stabilise, but the core business must be able to operate without external support,” he added.

How are IPO-bound startups turning profitable?

Some gains reflect genuine restructuring, while others are supported by one-time items and accounting effects that help present cleaner bottom lines. Together, disclosures in draft prospectuses and recent quarterly results show that startups now recognise public markets expect far stronger financial discipline than they did three years ago.

“It’s not uncommon for IPO-bound companies to dress up their financials. It’s happened in the past with non-tech companies too and will continue to happen. Their IPOs are just like the public market listing of other companies,” said Deepak Shenoy, CEO of Capitalmind Mutual Fund.

Industry analysts note that while these accounting effects are fully disclosed and within regulatory bounds, they complicate the task of separating structural improvements from short-term optics. For companies preparing to list in the coming months, sustaining these gains beyond the first few quarters of reporting will be a key test of credibility with public-market investors.

Why are investors demanding profits from startups before IPOs now?

The reset in the startup listing pipeline goes back to the 2021–22 cycle, when companies such as Paytm and Zomato (now Eternal) went public while still loss-making and without a clear path to profitability. Both stocks corrected after listing, and that experience has made investors far more demanding about financial discipline.

“When you’re coming to the public market, investors will obviously ask why you are in losses and what your profitability is. Globally, companies with sustained losses have seen their stocks fall sharply,” said Shriram Subramanian, founder of InGovern.

“Even in India, after a few quarters if a company does not show a path to profitability, they will see stock prices decrease. Private investors are putting pressure too, because without a path to profitability even merchant bankers cannot underwrite or place the shares,” he added.

This shift in expectations is reflected directly in the financials of companies now approaching the market, many of which have spent the past two years tightening operations and correcting unit economics before filing their draft papers.

Wearables brand boAt, which recently received the Sebi nod for a Rs 1,500 crore IPO, delivered one of the clearest turnarounds, posting a Rs 30.6 crore profit in FY25 after a Rs 129 crore loss in FY24 as it tightened procurement and marketing spends. Online brokerage Groww showed a similar shift, reporting a Rs 449 crore profit in FY24 versus Rs 73 crore the year before, with revenue rising to Rs 2,005 crore. Logistics platform Shadowfax also moved into the black, recording a Rs 6.4 crore profit after tax in FY25 after losses of Rs 11.9 crore in FY24 and Rs 15.3 crore in FY23, while dairy firm Milky Mist continued to expand margins as it scaled.

Meesho saw a sharp improvement in unit economics, with its contribution margin rising from Rs 5,658 crore in FY23 to Rs 14,836 crore in FY25 despite a one-time restructuring hit to net profit. Cloud-kitchen operator Curefoods narrowed its FY25 loss to Rs 95 crore from Rs 167 crore. D2C furniture brand Wakefit reduced its loss to Rs 31 crore from Rs 74 crore as EBITDA improved with offline expansion. Shiprocket also strengthened its financials, cutting its net loss to Rs 74 crore in FY25 from Rs 341 crore a year earlier while improving fulfilment and shipping metrics.

“Founders have realised the market will not reward companies that keep burning cash without discipline. The moment losses come down and growth becomes steady, the market respects them — but if you are making losses and not growing, that becomes a problem,” said the founder of an IPO-bound startup, requesting anonymity.

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Are startups boosting profits with real improvements—or accounting tweaks?

But not every improvement showing up in draft filings reflects underlying business strength. Alongside companies that have tightened operations over multiple years, a few have relied on one-time gains and accounting adjustments that make profitability appear stronger in the quarters leading up to a listing. The distinction has become more important as public-market investors scrutinise how these profits are being generated.

Urban Company, for instance, turned profitable ahead of its draft filing largely because of a Rs 211 crore deferred tax credit. Once listed, the company slipped back into a Rs 59 crore loss in the September quarter, underscoring how sensitive its reported profitability is to one-off items. Lenskart’s FY25 profit of Rs 297 crore was similarly shaped by Rs 356 crore of other income, including a Rs 167 crore non-cash gain from remeasuring deferred consideration from its 2022 Owndays acquisition. Pine Labs also swung into the black in Q1 FY26 after booking a Rs 354 crore deferred tax credit against a pre-tax loss of Rs 93 crore.

Several of the technology companies are compounding and growing which is why short-term profits are compromised, according to Ambareesh Baliga, an independent public markets participant, had said earlier. “As long as the bread and butter businesses, the core units, of these new-age companies are growing and are profitable and these companies are also adding new verticals, they will continue to attract investor interest,” he said.

For such businesses, it is usually the new verticals that are responsible for the losses. “Earlier it was one vertical which was profitable and the second vertical being in the investment stage, because of which they were showing a loss. Two-three years later, these tech companies will have two or three verticals making profits and one vertical making a loss, so net-net they’ll be profitable.” Baliga said. “Investors cannot stick to the same old idea that a business should be run in a particular and traditional way only. The world is changing,” he added.

What will determine which IPO-bound startups succeed after listing?

As the next set of DRHPs moves through the pipeline, investors say the real test will come after listing, when quarterly results begin to show whether these profit improvements can hold without one-time boosts. Companies with a genuinely profitable core are expected to find more stable demand, while others may face the same valuation pressure that hit the 2021–22 cohort.

For now, the message from both public and private markets is clear: profitability is no longer a box to tick before filing but a threshold companies are expected to sustain. The coming year will reveal how many of these issuers can carry that discipline into life as listed firms.