MUMBAI: Startups gearing up to go public are setting their financials in order – cutting losses and chasing profitability.
IPO-bound Urban Company reported its first full year of profitability in FY25, the firm said in its annual report last week. Although much of the profits – Rs 240 crore on a consolidated basis – came on the back of a Rs 211-crore deferred tax credit, the startup managed to turn in profits even on a pre-tax basis.
Hit by the tech downturn post pandemic that saw valuations of loss-making startups getting eroded in private market and investor narrative shifting from growth at any cost to profits – companies had already begun fixing their financials; those eyeing an IPO had been more focused given the affinity of public markets for profitable firms and the added scrutiny they bring forth. The trend is not new but in the current times, companies may have to do more than just paring losses. In a volatile market situation, the bar for IPOs is much higher and it is imperative for companies to be profitable, analysts said.
“The revenue metrics are no longer benchmarks from a (IPO) valuation perspective. For even the anchor book to come in, profitability is important. Ebitda level profitability is also fine but investors will not favour companies that burn cash,” Mehekka Oberoi, fund manager at IIFL Fintech Fund told TOI.
Given that there are some listed startups today, the benchmarks for companies now going IPO are higher and profitability has become more important, said Gopal Jain, managing partner at Gaja Capital. “There is less space for vanity metrics in public markets. Because they cater to all kind of investors, they focus on simple metrics like profitability.” “Also, public markets show leniency when new sectors are born, as the sectors become deeper, the bar for subsequent companies go up,” Jain said.