The $1.3 billion IPO of Zomato Ltd. was completely subscribed on the opening day, a vote of confidence in a market where a slew of local entrepreneurs are gearing up to go public.
Zomato, an online meal delivery service, received bids for 749 million shares out of 719.2 million available. According to data provided by Bloomberg, it will be India's largest IPO since March 2020, with the largest offering being 40% subscribed on the first day.
"Startups that are big enough and mature have outgrown the venture capital and private equity funds' ability to invest," said Manisha Girotra, country head for Moelis & Co. "These companies which need larger pool of capital to grow are the ones readying to go to the public market."
Internet-based consumer companies have become more popular as the pandemic fueled the adoption of digital technologies. The high investor recognition is a boon when they sell stock. Blackrock Inc. and Fidelity International Ltd. were among the dozens of anchor investors that piled into Zomato's float, resulting in the company receiving about 35 times more bids than it had expected to sell, people with knowledge of the matter said earlier.
Another closely watched initial public offering is the pending deal by digital payment startup Paytm, also backed by Jack Ma's Ant Group.
With investors also including SoftBank Group Corp. and Berkshire Hathaway Inc., India's leading fintech firm is seeking around $3 billion in what could be the country's largest debut ever. Its shareholders this week approved a resolution to sell 120 billion rupees ($1.6 billion) of new shares, people familiar with the matter said.
These two unicorns, or privately held startups valued at at least $1 billion -- are coming to a market already enjoying blockbuster listings for a few months. About $5.6 billion has been raised in initial public offerings on Indian stock exchanges so far in 2021, according to data compiled by Bloomberg. UBS Group AG expects the annual tally to be more than double last year's $4.6 billion.
Stocks that have debuted this year are up by an average of 62%, according to data compiled by Bloomberg -- buoyed by a liquidity-fueled stock market that has defied one of the world's worst Covid-19 outbreaks.
Already, Zomato and Paytm's popularity among institutional investors is prompting the other unicorns the country has been minting at a rapid pace to consider going public. Among those are cosmetics retailer Nykaa E-Retail Pvt and Policybazaar Insurance Web Aggregator Pvt Ltd. A Credit Suisse Group AG report this year found there are about 100 unicorns in India with a combined market value of $240 billion, in sectors from e-commerce and fintech to education, logistics and food-delivery.
A public presence also means increased disclosure, an issue for many of these loss-making startups.
"Given that a number of these companies operate in the consumer segment, retail investors may identify with these companies a lot more," said Devendra Agrawal, founder of Dexter Capital Ltd. "However, the companies would now be required to report their performance every quarter and will be under pressure to deliver on profitability much sooner.
Zomato's losses stood at 6.82 billion rupees ($91.7 million) for the nine months ended December 2020, according to the IPO draft prospectus it filed with the Indian market regulator, while Paytm parent One 97 Communications's consolidated losses for the financial year ended March 2021 were at 17.01 billion rupees.