There are multiple players who allow trading in unlisted stocks. But these trades are usually booked over telephone calls, and there is no formal marketplace like a stock exchange where they can be traded.
Despite Indian startups having to constantly prove themselves over questions of scalability, profitability or even viability, retail investors are still keen on betting on these technology disruptors.
In the unlisted share trading market, quite a few of the new generation companies command massive values and often sell like hot cakes, Tech2 has learnt.
Shares of Swiggy, the food delivery startup based out of Bengaluru are available at Rs 2.5 lakh per share. Paytm, the Noida based digital payments giant commands almost Rs 16,000 per share in the secondary market. Even hotel booking startup Oyo has a going rate of almost Rs 50 lakh per share or more. B9 Beverages, the maker of the Bira brand of beer, is also highly in demand with an asking price of Rs 950 per share. Nazara, which makes mobile phone games, is available for Rs 640 per share.
Most of these companies are available at some premium compared to what external investors valued them at during the last funding round. As per filings accessed from business intelligence platform Tofler, during the last fund raise, B9 Beverages sold its shares at Rs 600 per share, Swiggy's shares were valued at Rs 2.3 lakh per share, and Oyo's shares were valued at Rs 37 lakh per share.
“There is demand for shares of these unlisted startups, which shows that people are bullish about large Indian unicorns, but the price becomes prohibitive in most cases, because very few of them are actually available in the market,” said Anurag Bhatia, founder of Minance, a wealth management startup that manages the buying and selling of unlisted stocks.
As per government rules, private limited companies cannot have more than 200 shareholders, thereby preventing a large number of small investors to buy these shares. Further, these shares are only available when an employee who was allocated ESOPs (stock options for employees) agrees to sell them. Very rarely does the founder or may be their relatives, sell these stocks to become available in the market.
“Most of the startups have strict rules around when and to whom can these shares be sold, while Paytm shares are comparatively easy to get. Swiggy, Oyo and others only allow the selling of shares at the time of a fund raise,” said Bhatia. “Unlisted share trading is a Rs 5,000 to 7,000 crore market. If unicorn shares were easily available, it could have been bigger.”
Before buying shares of Paytm, one needs a consent taken from the management before they can be sold, and they have the first right to buy them. Tech2 has seen few of the stringent terms and conditions laid out by these startups regarding the sale of their shares.
The business of buying shares of unlisted companies is mainly undertaken by investors with a diversified portfolio and with enough risk appetite. The market is extremely illiquid, and hence shares that are once bought cannot be easily sold.
There are multiple players who allow trading in unlisted stocks like Unlistedzone, Unlistedkart, Minance and few others. But these trades are usually booked over telephone calls, and there is no formal marketplace like a stock exchange where they can be traded.
“Investors buy such shares hoping to make a blockbuster exit at the time the company goes for its IPO (Initial Public Offering),” said Dinesh Gupta, cofounder of Unlistedzone, an entity which deals with unlisted shares. “I made half in terms of annual turnover in 2019 compared to 2018 since not many IPOs happened last year.”
In many cases, high net worth individuals buy these stocks just to be able to own a small chunk of the companies they like. For instance, a top executive at one of the largest stock broking companies said that he owns around 300 shares of Chennai Super Kings (CSK), which he bought for Rs 10,000 just because he loves Mahendra Singh Dhoni, its captain.
Gupta gave another example where an HNI owns 2.5 lakh shares of Mohan Meakin, which makes the Old Monk rum, one of the most famous alcoholic drinks in India.
These markets usually become active during certain events such as the Indian Premier League, which could see a rise in the sale of CSK shares, or impending IPOs that increase public interest in a specific company. For instance, there is a huge demand for the shares of Studds Accessories, a company that makes helmets, and the National Stock Exchange, which is slated to go public soon.
But startups are still lagging behind traditional companies which rule these unlisted trading markets. Companies like HDB Financial Services, SBI Home Finance, HDFC Securities, Barbeque Nation Hospitality, Kurl-on Enterprises, among others are the ones in high demand.
There is also a risk factor associated with trading in these stocks, since the space is not regulated by markets regulator Sebi. There is no dispute resolution mechanism here and information about the business is difficult to access. If investors are not well aware of the financial health of the company, there is high chance they might end up losing money in the game.“Most of the large unicorns are not making money, thereby discouraging a large chunk of traders in these markets from investing in them,” said Bhatia.