Sebi lens on steep IPO valuations of startups

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MUMBAI: According to two persons familiar with the situation, the stock market regulator is debating why several high-profile companies have fallen considerably below their issue price, while encouraging IPO applicants to reassess their values. Experts say that tighter scrutiny and disclosure standards, as well as unpredictable markets, have placed public offering plans worth almost $24,000 crore on hold, adding that many of these companies may now go public in the second half of this fiscal year.

Given that market leaders like Paytm and Zomato are trading at deep discounts to their offer price, many IPO hopefuls may have to settle for lesser values. “The regulator is engaged in extensive discussions on many such startup listings to understand what went wrong and if there is a need for tighter regulations,” one of the two people cited earlier said on condition of anonymity.

“Sebi has begun closely analysing the draught red herring prospectus (DRHP) on minute facts of a lot of these companies after investors lost money in recently listed digital startups. One of the two sources cited above, a market analyst, said, “The regulator is wanting a lot more explanation on the comparables of companies or how the valuation was arrived at.” According to the analyst, one reason for the delay in issuing DRHPs is that Sebi is urging companies to lower their values in some situations.

“A lot of these things together are why it’s likely that these new IT firms would postpone their intentions to go public,” the analyst said, acknowledging that markets have weakened owing to a variety of factors, not just in India but globally as well. “A lot of the startup IPOs may potentially take a backseat due to the crash in valuations,” Sandip Khetan, partner, EY, said.

Many of these businesses want to go public, although development in this area is expected to stall in the near future. The halt might last 6 to 9 months. The disparity in valuations is one of the reasons, but many profit-making companies will tap the markets.”

By this the SEBI are valuating the IPO of startups.

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