SEBI will examine the IPO valuation of tech startups in more depth. Sources told Reuters that Sebi has tightened its probe into IPO-bound firms. They are asked how are key internal business metrics used to arrive at valuations? Due to this, bankers and companies are afraid of delay in listing. After the flop listing of SoftBank-backed payments firm Paytm’s $2.5 billion IPO in November, there has been criticism of how loss-making companies price hike and people say valuations of such companies are too high. Huh.
SEBI asked questions to tech firms
The Securities and Exchange Board of India (Sebi) last month expressed concern after stringent regulations said more and more new-age tech firms that “generally make losses for a long period” are filing papers for IPOs. She was This may be a traditional financial disclosure but it will not help investors. Five banking and legal sources said that even before the proposal is finalized, Sebi has in recent weeks asked several companies to get their non-financial metrics – KPIs, or key performance indicators – audited and said that How they are used to arrive at the valuation of an IPO.
Firms said- evaluation audit difficult
Typically for a tech or app-based startup, KPIs can be statistics such as the number of downloads on a platform or the average time taken. But this makes it difficult to audit or link to a company’s valuation, sources say. Sebi asking us to “justify valuation” is creating uncertainty and increasing the cost of compliance, said a lawyer who has advised several companies on IPOs. SEBI did not respond to a request for comment. Regulators in major markets, including Hong Kong, follow practices that give companies a close check on their business practices and financials, but they don’t usually do a close check on valuation metrics.
SEBI asked how KPIs are made Aadhaar
A document containing SEBI’s comments (as seen by Reuters) for an IPO-bound Indian company asked “how KPIs form the basis for arriving at an IPO issue price. SEBI has said theirs “certified by a statutory auditor”. Indian digital healthcare platform PharmEasy, which filed papers for an $818 million IPO in November, is one of the companies that has been hit by such probes, a source said. PharmEasy did not respond to a request for comment.
Growing concerns in the IPO market
Pranav Pai, founder partner of Indian VC firm 3one4 Capital, said Sebi is not setting any cap on valuation and is only “bringing information parity” between profitable and loss-making companies targeting IPOs. Pai said Sebi was not asking for anything extraordinary. Startups and other companies from India have become favorites for foreign investors and are increasingly hitting the markets. Last year, more than 60 companies — including high-profile tech companies — made their market debuts and raised more than $13.5 billion, with several ride-hailing firm Ola and hotel aggregator Oyo still in the pipeline.
Paytm listing raises concerns
Paytm listing, however, has raised concerns about valuations. After tanking on listing day, shares of the Indian payments firm are currently trading 64% below their issue price, and some fund managers had said the episode would “bring some realism to valuations.” The three sources said concerns among bankers, lawyers and companies are widespread as investigations are on, even as SEBI’s proposal on whether the KPI-related disclosures should be implemented or not is open to public comments. It was open till 5 March.
SEBI wants more information
The proposal stated that key accounting ratios such as price-to-earnings were not sufficient to assess the businesses of loss-making firms. SEBI wants audit and disclosure of “all material KPIs” shared with pre-IPO investors for three years. Vivek Gupta, national head of M&A at KPMG in India, said, “Many investors, founders and merchant banks have objections to SEBI’s proposal.” According to sources, investment bankers of both Bank of America and Kotak Mahindra of India have raised concerns with Sebi about such a planned investigation of the IPO.