Redseer Report Predicts IPO Surge, 90 Start-Ups Poised for Profitability in India by FY28
According to a new report by Redseer, India’s start-up ecosystem is set for a promising future, with an expected surge in initial public offerings (IPOs) and profitability by FY28. The report highlights that after a period of stock price correction until Q4 FY22, new-age tech players have shown a trend of gradual recovery in FY24.
The focus on profitability has been a driving force for Indian start-ups, enabling them to weather macroeconomic challenges and funding difficulties. As a result, Redseer predicts a significant pipeline of IPO-ready companies in the next five years.
In FY23, nearly double the number of Indian unicorns were on track to achieve profitability compared to FY21. The report further suggests that start-ups have significantly improved their profitability in FY24, and by FY27, approximately 50% of Indian unicorns are expected to be profitable.
However, the outlook is not as positive for 20% of unicorns, as they may struggle due to regulatory challenges, declining demand, and unclear business models. These companies may need to pivot to new models, seek acquisition by other firms, or even shut down.
When it comes to tech IPOs, India is just beginning to tap into its massive potential. Factors such as a thriving tech ecosystem, strong investor interest, rapid digitization, supportive policies, and global market opportunities contribute to an optimistic outlook. Currently, the tech sector’s contribution to India’s public market capitalization is only around 1%, compared to approximately 25% in the USA. This signifies significant room for value creation in the Indian tech space.
The country boasts 100 unicorns and over 150 soonicorns (recently launched businesses with the potential to become unicorns). With a robust number of tech companies, India is poised to create a strong pipeline of start-ups with IPO potential. The situation mirrors what was witnessed during the US tech bubble, where tech IPOs grew threefold in the years following the dot-com bubble.
Looking ahead, the Redseer report suggests that India may have up to 40 listed or IPO-ready new-age companies by FY25, which could double to 90 by FY28. Particularly promising categories for generating IPO-ready companies include Software-as-a-Service (SaaS), business-to-consumer (B2C) product companies, and fintech. These sectors exhibit sizable revenues, sustainable growth, strong EBITDA, and operate on defensible business models, making them attractive candidates for an IPO.
To ensure a successful IPO, Redseer partner Rohan Agarwal emphasizes three key areas that companies should focus on. Firstly, building strong investor relationships and trust is crucial. Companies are advised to proactively engage with potential investors well in advance of the IPO, establishing rapport. Secondly, reputation and transparency are paramount; providing clarity on business models and key metrics is essential for investors to make informed decisions. Lastly, maintaining open communication with investors throughout the IPO process is vital.
As India’s start-up ecosystem continues to evolve, investors and entrepreneurs alike can look forward to a flourishing IPO landscape and a surge in profitability. The country’s technology sector holds tremendous potential for growth, driven by a supportive ecosystem, increasing investor interest, and favorable market conditions. As long as start-ups prioritize profitability, build strong investor relationships, and operate on robust business models, they stand poised for success in the coming years.
