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Last year was a momentous period for the Indian startup ecosystem as eight eight The Economics Times 2021 Year in Review | Indian startups come of age with 8 IPOs in 2021 Read more of the largest internet companies launched their initial public offerings (IPOs), mopping up north of US$6 billion from both domestic and foreign investors. From lifestyle e-tailer Nykaa’s bumper opening to Paytm’s* discounted listing, Indian tech companies witnessed it all in 2021.

In the last 12 months, four of these companies—Nykaa, foodtech major Zomato, fintechs Paytm and PB Fintech—have faced intense selling pressure from private-equity (PE) and pre-IPO venture-capital investors.

But it was not entirely unexpected. 

As we in 2021, it was a brave new world for the Indian IPO market. Neither did losses dissuade companies from public listings, nor did they drive away eager investors keen on a slice of such companies.

Loss-making IPO-bound companies upended traditional valuation metrics such as P/E (price-to-earnings). Instead, alternatives such as P/S P/S Price-to-sales ratio The price-to-sales (P/S) ratio shows how much investors are willing to pay per dollar of sales (price-to-sales) were in vogue. Exhibit A was Zomato. Its IPO in July 2021 was valued at a price-to-trailing-sales ratio of nearly 30X, and with stellar listing gains, this shot up even further. 

More than a year down the line, the company is still making losses. The market has now cut down its price-to-trailing sales multiple to 11X. 

Zomato also witnessed an intense sell-off at the end of its IPO Lock-in period Lock-in period Lock-in period In an IPO, the lock-in period is the length of time that a certain investor must hold onto their shares before they are allowed to sell them. on 23 July. The food-delivery company’s stock price dropped 11%. 

PB Fintech—the parent of insurance aggregator PolicyBazaar and lending marketplace PaisaBazaar—rose 5% when its lock-in period ended on 11 November before dropping 3% when trading resumed on 14 November.  One of its venture backers, Tiger Global, sold shares worth Rs 606 crore (US$75 million).    

But Nykaa managed to buck that trend when its lock-in period ended on 10 November because, among these four, it’s the only profitable company. Moreover, its bonus issue—giving five shares for every share held—in October also came in handy. 

Paytm’s lock-in period is also ending in November, and the shareholders are gearing up for a price correction like that of Zomato.

AUTHOR

Gaurav Tyagi

Gaurav covers the money trail around everything startups and internet economy. A graduate from the University of Delhi, he joined Institute of Chartered Accountants of India before finding his way to research and journalism. Apart from being a petrolhead, he pretends to be Ari Gold on weekends.

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