IPO-bound start-ups focusing on profitability as investors grow more selective
What's the story
A fresh trend is taking shape among Indian start-ups gearing up for their intial public offerings (IPOs). Unlike the 2021-22 cycle, when high-growth but loss-making firms rushed to go public and faced valuation challenges, this new wave is prioritizing profitability. Companies such as Lenskart, Groww, Pine Labs, Fractal, Shadowfax, boAt, Curefoods, Wakefit, and Shiprocket are reporting stronger margins or even their first profitable quarters ahead of their listings.
Strategic shifts
Cost-cutting and business consolidation strategies
The new crop of start-ups is adopting a more cautious approach, focusing on cost-cutting, business consolidation, and clearer unit economics. Siddarth Pai, Founding Partner at 3one4 Capital, said "Profitability isn't optional - you need to be profitable or have strong reasons for your losses." He added that the core business must be strong and the reasons for losses must be valid for new business lines or expansion.
Financial discipline
Financials show stronger discipline ahead of public listing
Start-ups preparing for their IPOs are showing stronger financials, with many relying on tax credits, one-time gains, and accounting boosts to present cleaner earnings. Deepak Shenoy, CEO of Capitalmind Mutual Fund, said it's not uncommon for IPO-bound companies to dress up their financials. However, industry analysts note that while these accounting effects are fully disclosed and within regulatory bounds, they make it difficult to separate structural improvements from short-term optics.
Investor expectations
Investors demand financial discipline from start-ups
The shift in investor expectations is directly reflected in the financials of companies now approaching the market. Many have spent the last two years tightening operations and correcting unit economics before filing their draft papers. Shriram Subramanian, founder of InGovern, said "When you're coming to the public market, investors will obviously ask why you are in losses and what your profitability is."
Turnarounds
Start-ups' financial turnarounds ahead of IPOs
Several start-ups have shown significant financial turnarounds ahead of their IPOs. Wearables brand boAt posted a profit of ₹30.6 crore in FY25 after a loss of ₹129 crore in FY24. Online brokerage Groww reported a profit of ₹449 crore in FY24 against a loss of ₹73 crore the previous year, with revenue rising to ₹2,005 crore. Logistics platform Shadowfax also turned profitable with a post-tax profit of ₹6.4 crore in FY25 after losses over the last two years.
Scrutiny
Not all improvements reflect underlying business strength
However, not all improvements seen in draft filings indicate underlying business strength. Some companies have relied on one-time gains and accounting adjustments that make profitability appear stronger in the quarters leading up to a listing. Urban Company turned profitable ahead of its draft filing mainly due to a ₹211 crore deferred tax credit, but slipped back into loss after listing, highlighting how sensitive its reported profitability is to one-off items.