Sebi brings in stricter disclosure norms for IPO-bound companies

New guidelines by Industry Standards Forum to take effect from April 1

The Securities and Exchange Board of India (Sebi) has introduced stricter Key Performance Indicator (KPI) disclosures for initial public offers (IPOs).

 

These new standards, developed in collaboration with industry associations, aim to enhance transparency and provide investors with a clearer understanding of a company’s valuation and business performance.

 

The guidelines, issued by the Industry Standards Forum, mandate unambiguous definitions of KPIs, inclusion of non-traditional financial metrics relevant to valuation, and enhanced oversight by the audit committee and board of directors.

 

Effective April 1, investment bankers and issuer companies must comply with these standards, ensuring proper disclosure of KPIs in draft and final offer documents.

 

KPIs are critical for investors to evaluate a company’s performance, assess risks, and compare with other industry peers.

 

The new standards exclude business-sensitive data, unverifiable information, and projections to ensure only relevant and reliable metrics are disclosed.

 

Under the guidelines, KPIs identified or certified by the issuer company’s management must be approved by its audit committee before inclusion in the offer document.

 

Companies will also need to disclose “operational measures” — non-financial data points that provide insights into valuation and business models. These metrics must be included in the “basis for offer price” section of the offer document.

 

Additionally, companies must disclose key information shared with investors who were allotted securities in any primary issuance within three years prior to the filing of the offer document, excluding employee stock ownership plans (ESOPs). This includes details provided during secondary sales and any rights granted to such investors.

 

KPIs must also encompass information from private placement or rights issue offer letters issued within the same three-year period.

 

Gokul Rajan, partner and regional co-head (Capital Markets – North) at Cyril Amarchand Mangaldas, said: “The new KPI standards emphasise disclosures made by comparable peers, though ambiguity remains regarding global peers. The requirement for clear definitions and enhanced audit committee oversight will bolster investor confidence in these metrics.”

 

The guidelines also mandate that KPIs disclosed in the offer document be certified by a professional.

 

Post-listing, companies must continue to disclose these KPIs periodically, either annually or until the issue proceeds are fully utilised.

 

Kunal Sharma, partner at Singhania & Co, said: “While the audit committee’s role in approving KPIs strengthens governance, it may also increase scrutiny on internal financial reporting processes, potentially delaying IPO preparations. However, the requirement to disclose all KPIs previously shared with investors ensures retail investors have access to the same information as institutional players, creating a more equitable playing field.”

 

Sharma added that the standards will minimise discrepancies between issuers and their industry peers, enabling investors to better assess relative performance.