India’s largest online pharmacy PharmEasy’s decision to cancel its listing plans reinforces the problems start-ups face when it comes to tapping the public markets, a report by Business Standard stated.
Bolstered by successful listings of Zomato, Nykaa, and Policy Bazaar, PharmEasy parent firm API Holdings filed for a ₹6,250-crore initial public offering (IPO) with markets regulator Securities and Exchange Board of India in November 2021. However, since then, the market has turned on its head with shares of new-age companies dropping more than 60 percent from their highs amid tightening liquidity conditions, the brokerage noted.
This queered the pitch for new-age companies, such as Oravel Stays (Oyo Hotels and Homes), Snapdeal, and Yatra, looking to raise capital from the public and now PharmEasy has said it will raise money from existing shareholders through rights offering instead of an IPO, informed BS.
Investment banking experts told the market daily that more start-ups and their private equity (PE) investors are looking for alternative avenues of raising capital as secondary market valuations have turned viable.
As per the report, last year was a record year for IPO fund-raise, with companies mopping up ₹1.2 lakh crore. Volatile market conditions have hit the primary market this year, with only one company managing to conclude its IPO in three months even after a sharp rebound from June lows, it added.
The report also noted that it isn’t just the valuations of start-up firms that have fallen off the cliff; they have faced backlash from public shareholders on issues such as liberal employee stock ownership grants and remuneration of their top executives.
Experts told BS that the new-age companies — many still uncertain when they will turn profitable — are wondering if public markets are indeed the right fit.
During the first half of the calendar year 2022, listing mop-up by companies involving stake sales by PEs slumped 70 percent to $423 million, compared with $1.4 billion during the same period last year, according to IVCA-EY data.