2024 expected to be year of IPO boom led by new-age firms, say experts

Experts said a combination of various factors including rise of tech firms, investor confidence, a resilient economy and a supportive regulatory environment are propelling growth of India's IPO market

The year 2024 is expected to be a year of initial public offering (IPO) boom mainly led by startups and new-age companies, according to analysts and industry experts.

The IPO and deal-making activities are expected to be very active this year. Kotak Investment Bank expects equity issuance to top $40 billion this year underpinned by robust liquidity conditions. The investment bank foresees combined inflows of $50 billion from domestic and foreign institutional investors (DII and FIIs) across equity issuances and deals.

In 2023, about $38 billion was mobilised by the equity capital market (ECM). This is closer to the peak of $39 billion seen in 2020 —making India the fourth-best market in fundraising globally. In 2023, DII flows stood at $22.3 billion, while the net FII inflows were $20.5 billion.

Around 40 startups or new-age firms could go public or be ready for an IPO by fiscal year 2025 as the ecosystem has turned its focus on profitability, according to a report by consulting firm Redseer. The startups are weathering through macroeconomic headwinds and a funding winter.

Analysts believe the momentum in sell-downs to continue this year by private equity and venture capital exits. The year 2024 will likely witness IPOs in spaces like electric vehicles, fintech, consumer technology and software-as-a-service.

Experts said the growth of India’s IPO market is propelled by a combination of various factors. These include the rise of technology firms, investor confidence, a resilient economy and a supportive regulatory environment.

In the last few weeks, a handful of startups have already filed their draft red herring prospectus (DRHP). It is an offer document issued by the firm with the Securities and Exchange Board of India (Sebi) and the Registrar of Companies before the IPO process.

Among these startups is Bengaluru-based Ola Electric. Bhavish Aggarwal, 38, the founder of Ola Electric, is set to offload 3.48 per cent of shares in an individual capacity (he has 1.36 billion) as part of the e-vehicle maker’s IPO. Aggarwal will sell around 47.4 million in the SoftBank-backed company, ahead of the firm’s IPO, contributing almost half the offer for sale (OFS) shares.

His pre-IPO shareholding in the company is 36.94 per cent. This is the first time that Aggarwal, a serial entrepreneur, is taking a company public. The firm is targeting a valuation in the range of $7-8 billion by early 2024, according to industry sources.

The company filed its DRHP on December 22 with the Sebi. This is a fresh issue of equity shares of up to Rs 5,500 crore and an OFS of more than 95 million equity shares at a face value of Rs 10.

The other selling shareholders include Indus Trust, Alpha Wave Ventures Alpine Opportunity Fund, DIG Investment, Internet Fund III (Tiger Global), MacRitchie Investments, Matrix Partners, SoftBank Vision Fund, and Tekne Private Ventures. SoftBank is selling 23.8 million equity shares.

The company may consider a pre-IPO placement of equity shares for cash consideration aggregating up to Rs 1,100 crore. If it is undertaken, the fresh issue size will be reduced accordingly.

The firm will utilise the capital raised via IPO for capital expenditure (capex), repayment of debt, and research and development (R&D). Out of the total capital raised, the firm would invest Rs 1,226 crore towards capex and Rs 800 crore for repaying the debt. It would also utilise the net proceeds of Rs 1,600 crore on R&D and Rs 350 crore on organic growth initiatives.

In the area of consumer technology, FirstCry recently filed its DRHP with Sebi on December 28, 2023. SVF Frog, a SoftBank-operated, Cayman Islands-registered entity, is set to offload over 16 per cent of its stake as part of the OFS in Brainbees Solutions’ (FirstCry.com) IPO. PI Opportunities Fund-1 is expected to offload over 36 per cent stake and Mahindra & Mahindra would sell over 5 per cent stake as part of the IPO of the multi-channel retailing platform for newborns, mothers, and kids.

The Pune-based unicorn’s initial public offering comprises a fresh issue of equity shares aggregating up to Rs 1,816 crore and an OFS of up to 54,391,592 equity shares by selling shareholders.

Individual selling shareholders in the OFS include Ratan Tata, the Chairman emeritus of Tata Sons, who holds 0.02 per cent of the company and 77,900 equity shares and is expected to sell his entire shareholding. FirstCry co-founder and chief executive officer (CEO) Supam Maheshwari, holds 5.95 per cent stake in the entire company which comprises 28 million equity shares. Maheshwari is set to offload 6.3 per cent of his total stake in the firm.

The Supam Maheshwari-led company proposes to utilise the net proceeds from the offer towards funding the expenditure for setting up new modern stores, a warehouse, and lease payments for existing identified modern stores in India. It would also use it towards funding the investment in its subsidiary, FirstCry Trading. The plan also includes overseas expansion by setting up new modern stores and warehouses in the Kingdom of Saudi Arabia (KSA).

In the area of financial technology, MobiKwik, which plans to raise Rs 700 crore, also recently refiled its DRHP. With the second filing of the DRHP, the fintech company is planning to mop up less than half of what it had aimed to raise earlier. Earlier in 2021, the Peak XV-backed company had filed a DRHP with a target to raise Rs 1,900 crore. However, the company had to abandon its plan due to weak market conditions. The husband-wife duo founders of Mobikwik — Bipin Singh and Upasana Taku — will not be selling any of their shares.

The Gurugram-based company said that of the proceeds, it will use Rs 250 crore for growth, Rs 135 crore for financial and payment services business, and Rs 135 crore for investment in data, artificial intelligence and machine learning (AI/ML) as well as product and technology. About Rs 70 crore will be used as capital expenditure for its payment devices business and general corporate purposes.

Gurugram-based Unicommerce, which provides software-as-a-service to the e-commerce industry also filed its DRHP with Sebi to raise funds through an IPO. The issue is entirely an OFS aggregating up to 298 million equity shares by the selling shareholders. Under the OFS, SB Investment Holdings (UK) Ltd, an affiliate of Japan's SoftBank, will offload 161 million shares, promoter AceVector Limited (formerly known as Snapdeal Limited) will sell up to 11.4 million shares and B2 Capital Partners will be selling up to 2.2 million shares. Since the IPO is completely an OFS, the entire proceeds will go to the selling shareholders.

Coworking space startup Awfis also recently filed its DRHP with Sebi. The firm has proposed to raise funds through a fresh issue of equity shares aggregating up to Rs 160 crore and an OFS of up to 10,023,172 equity shares. The company proposes to utilise the net proceeds from the offer towards funding capital expenditure towards the establishment of new centres, funding for the working capital requirements, and general corporate purposes.

Analysts foresee an active two-month IPO period, followed by temporary inactivity due to upcoming elections. But they predict a resurgence afterwards.