Imagine Marketing, the company that owns the portable brand Boat, has become the latest national technology (tech) company to suspend listing plans. The popular consumer technology brand joins parent company PharmEasy API Holdings and online automotive marketplace Droom Technology in withdrawing its proposed red diversion prospectus (DRHP). Industry players aren’t ruling out that more tech companies are following suit. Falling valuations of publicly traded tech companies, heightened regulatory scrutiny and weak investor reaction to roadshows are seen as reasons for the suspension of tech company listing plans.
“Sebi has tightened oversight, particularly around valuations, and has also introduced various disclosure requirements requiring companies to provide explanations of valuation changes between pre-IPO placements and the issue price when of an IPO. This has forced new era tech companies to reconsider their valuations, strategies and also the timing of their IPO. Moreover, it seems that some companies are also experiencing weak demand in the process tenders and road shows. This has also resulted in some listings being postponed or withdrawn,” said Gaurav Mistry, Partner, DSK Legal.
Boat had filed its DRHP with the Securities and Exchange Board of India (Sebi) in January and obtained a green light in April. The company was looking to raise Rs 900 crore in fresh capital through the IPO. On Friday, it announced that it had raised Rs 500 crore from an affiliate of Warburg Pincus and Malabar Investments.
Companies that are unable to launch their IPOs instead raise capital from private equity (PE) investors. “Financial conditions are currently choppy and we thought it would be prudent to wait to do an IPO,” said Vivek Gambhir, Chief Executive Officer (CEO) of Boat.
In August, PharmEasy decided to put its Rs 6,250 crore IPO on hold and raise funds from existing investors via a rights issue. The online pharmacy had filed its DRHP in November 2021 and obtained Sebi approval in February. Droom, which had filed for an IPO of Rs 3,000 crore in November 2021, withdrew its IPO earlier this month. Sources said the company was targeting a valuation above Rs 15,000 crore and failed to find enough takers amid collapsing prices for listed tech companies.
Shares of Zomato, Paytm, Nykaa and Policy Bazaar are down 50-75% from their highs, forcing companies on hold to rethink their valuations.
“I think this reflects the current market environment where technology companies are seeing their valuations weaken, particularly in public markets, due to tight capital flows due to geopolitical tensions, and fears of a recession. which threatens some of the world’s economies,” said Murtaza Zoomkawala, Partner, Saraf & Partners.
New-age companies such as Oravel Stays (Oyo Hotels), Snapdeal, Navi Tech and Yatra Online are currently awaiting Sebi’s green light for their IPOs. Sources said the sharp erosion of investors’ wealth prompted the regulator to take a cautious approach to approving IPOs of loss-making companies. Last month, Sebi’s board approved changes to the IPO framework requiring companies to justify pricing by disclosing key performance indicators (KPIs) and referencing them to the most recent capital raise. .
“While this may make the already onerous disclosure of IPOs more onerous, it will not necessarily deter new-era tech companies from launching their IPOs in India, if a market for their shares is available,” he said. Zoomkawala.