
NANDINI VAIDYANATHAN jots down the nittie-gritties of listing your business on the bourses
This is a loaded question and is like a summit trail. Before you actually summit, in other words, before you actually go for an IPO (Initial Public Offering), and listing on a stock exchange for your company shares to be publicly traded, you have to take stock of several related questions such as:
1. Why do you want to summit this particular mountain? In other words, why do you want to raise capital this way and not by approaching individual/institutional investors?
2. Are you physically, emotionally and economically prepared for the long, arduous, exhausting climb? Because taking the IPO route means some serious commitment in terms of time, money, and human resources to such an extent that you may have to take your eye off your regular business.
3. How does this summit add brand value to your resume as a trekker? In other words, does this add credibility and long-termness to your organization in the market place by giving you pole position over your competitors?
4. Are you prepared to transition from being a media poster boy (innovative startup, unicorn, etc) to becoming the punching bag of regulatory frameworks? Because a public listing of your company means that you have to be more transparent than Saint Gobain glass in all your dealings and documentation.
The year 2024 was a bumper year in India in terms of the record number of 327 IPOs (as on Dec 2024), which was high not just within India but when compared to US and Europe. They covered a wide range of industries such as renewable energy (ACME Solar), consumer services (First Cry), technology companies (Swiggy and Ola Electric), and financial services (Bajaj Housing Finance and Niva Bupa Health Insurance). This column seeks to throw some light on answers to each of the above questions.
1. Swiggy, for instance, chose the IPO route to reduce its debt and fund its expansion plan. Like all companies in the throes of growth, Swiggy too had used the debt route to give impetus to its growth. The IPO not only reduced this burden but also lent stability to the company even as it hurtled into growth mode, especially on its quick commerce brand, Instamart. Quick delivery promises have to be backed by literally bottomless investments in dark stores, manpower, technology, logistics,member onboarding, – not in a phased manner, but in a single shot across the city. There was no other possible route to lay hands on the volume of capital required while keeping the cost of servicing the capital low. So it was a fait accompli option to go for an IPO for Swiggy.
2. Depending on the size of the company, from the first step to the listing, the IPO process takes anywhere between 9-12 months. It starts with first hiring an investment bank, which is tasked with conducting due diligence on the financial health of the company and the documentation. It is the investment bank’s responsibility to handhold the management team through the entire process, right up to post-listing compliance. The credibility and experience of the investment bank in the successful charge towards listing in turn adds to the company’s IPO success. And the whole process is so detail-oriented that it has to be all-hands-on-the-deck kind of an involvement from the company that seeks the listing. And many a time this begins to reflect in service deliveries rather badly as all human effort and company resources are directed exclusively towards this end.
3. For a global company like Hyundai, IPO in India in 2024 was the only way they could access the kind of capital they required for gaining access to India’s nascent but burgeoning EV market. And since Hyundai has done very well in India since its launch in 1998, (remember Shah Rukh Khan promoting Santro), it was also the company’s way of giving access to Indians to participate in its global growth story.
4. The two major downsides of an IPO are dilution of ownership and therefore loss of control and the inviolable need to maintain clean books of accounts, and a “Caesar’s wife” kind of image. There is simply no scope for compromise or shortcuts as the company is not only in the public glare but on the radar of all statutory bodies that are involved in the listing such as SEBI, RoC and other certificatory bodies, banks, and financial institutions. And there is no statute of limitations for management misdemeanors. Remember the tragic case of Dilip Pendse, the former MD of Tata Finance who was once hailed as a financial prodigy and years later was brought to book as a hustler and a fraud.
So, should organizations opt for IPO? I think by now, you have arrived at the answer yourself. The decision has to be driven by the vision of the organization, its growth narrative, its sound strategy to see that narrative shaping up in the market place and not just on paper, and its resource estimation. But the decision should be taken for the right reasons, not just for the brand glamour.