Mid to late-stage private markets in India are feeding from the valuations and corporate actions of the listed VC-backed cohort – the most prominent trend that we are seeing play out is increased interest in secondaries in companies that are a step away from IPOs.
We think this is the most attractive segment of the market both for the exiting sponsors and incoming investors seeking predictability of returns in quality assets. The valuation and degree of interest in these companies are increasingly being driven by the valuations of their listed peers.
While compiling the Q3 FY24 edition of the TRMG RainGauge Index- a market cap weighted index of venture backed companies that really matter, we came across some interesting learnings:
As expected, the VC-backed listed cohort reflects NASDAQ and S&P BSE mid-cap more than NIFTY50.
Material re-rating in the RainGauge Index (RGI) valuation multiples has happened between September 2023 and now.
India’s listed tech platforms have come of age – both in terms of delivering profits with scale coupled with supernormal growth and the markets are appreciating that. Growth is being richly rewarded - those index constituents that are growing at higher than 25% are trading at 40% premium to those who don’t.
On the contrary, those with EBITDA margins less than 5% today are trading at a 2x premium to those with higher current margins. The market is clearly valuing earnings power over current earnings.
The RGI companies trade at 1.7x the mid-cap companies because they grow at 1.5x times higher than them.
RGI Companies trade at 1.3-4.9x its direct peers which is a mix of traditional companies and global tech peers.
Zomato and PolicyBazaar have been top gainers in the RGI riding on first time profitability while RateGain and MakeMyTrip have been gainers riding on significant margin expansion.
The majority of the RGI companies that listed at a premium have sustained the momentum and continue to trade above their listing prices.
The buoyant market and performance of listed peers have prompted several VC-backed companies to file for IPOs.
The complete report can be downloaded from: RainGauge — The Rainmaker Group
Kashyap Chanchani is the Managing Partner at The Rainmaker Group, Dhwani Mehta and Jayati Jain are his colleagues. The firm advises mid-late stage private, venture-backed companies on fundraising.
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