India is likely to see over 100 mature, large-scale profitable or on the path to profitability startups in the next five years, of which 80 have the potential to go for public listing, market research and consultancy firm Redseer said on Tuesday.
Redseer Strategy Consultants, in a report on IPOs, said 20 of the mature startups have gone public so far.
“India may see over 100 matured, large-scale profitable/path-to-profitability start-ups in the next five years.
“With about 20 of them already being listed, about 80 start-ups have the potential to look at an IPO journey,” Redseer said in the report.
It also said technology IPOs have seen a steeper crash compared to stocks of consumer companies mainly due to the global macro situation.
The report, authored in collaboration with HSBC, noted that technology companies have now prioritised growth.
“A typical company that would be cash flow positive two years from now would see discounting of at least 20-30 per cent of their valuations in a low-interest rate situation, which goes up significantly in a high-interest rate situation which we are seeing right now,” it said.
The firm sees significant room for growth in public market cap in India compared to other countries.
Out of the about $43 trillion market capitalisation in the US, around 25 per cent can be attributed to technology or new age companies which includes giants like Apple and Amazon.
In India, with about $3.9 trillion market capitalisation, only about 1 per cent can be attributed to technology or new age companies, the report said.
“When we look at similar situations in the past 20-odd years, we realize that it still takes a bit of time for markets to come back sustainably, even after the interest rates start dropping.
“Because, in effect, the market rates would have already factored in the decreasing interest rates into the prices.
“The learning is that there may be more time, maybe a few quarters, for the markets to recover.
“We always see IPOs bouncing back post downturns,” Redseer Strategy Consultants Partner Rohan Agarwal said.
According to the report, there are a lot of metrics that the startups will need to focus on in their IPO journey, including market leadership, clearly visible total addressable market, multiple use cases, predictable revenues, high operating leverage, sustainable unit economics and a clear path to profitability.
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