Nearly half of IPO-bound Indian start-ups are loss-making
What's the story
In a year of high public market activity, nearly half of the Indian start-ups eyeing an IPO are still in the red. Out of 42 companies that either filed their draft red herring prospectuses with SEBI or are preparing to do so, 21 reported net losses in their latest financials. The list includes popular names like PhysicsWallah, Meesho, Flipkart, PhonePe, and Zepto.
Financial impact
Combined net loss of ₹12,000 crore
The 21 loss-making start-ups have a staggering combined net loss of over ₹12,000 crore. This is largely driven by Flipkart, PhonePe, Zepto and Zetwerk. Companies are not required to show a net profit for listing. However, the National Stock Exchange mandates that they must have an operating profit or EBITDA for at least two out of the three preceding financial years. There are alternate routes for loss-making companies to proceed with their IPO plans despite not meeting this specific criterion.
Investor perspective
Operating metrics more meaningful than net profit
Punit Shah, managing partner at venture debt fund Alteria Capital, said start-ups prioritize growth and customer acquisition over short-term profits. He said unlike traditional manufacturing firms that capitalize large costs on their balance sheets, start-ups channel most of their spending into growth. This often makes them appear loss-making despite being profitable at a unit economics level. Hence, operating metrics are more meaningful to look at than net profit.
Market trends
Retail participation expected to be strong
Shivani Nyati, head of wealth at Swastika Investmart, said factors like strong unit economics, scalability, positive cash flows and working capital management make start-ups more attractive to investors. She expects the current wave of start-up IPOs to attract strong retail participation despite profitability concerns. "Retail investors are increasingly drawn to high-growth opportunities and are willing to invest in companies with promising business models and long-term potential," she added.
Future prospects
Profitable start-ups preparing for market debut in 2025
While half of the IPO-bound start-ups are still in the red, an equal number are already profitable and preparing for their market debut in 2025. This includes Oyo, Kissht, Lenskart and Pine Labs. These companies have reported significant profits in their latest financials and are expected to make a big impact on India's tech IPO scene in 2025 despite mixed results across the sector.