Half a dozen small and medium e-commerce companies are planning to go public in the next two to three months as private equity (PE) players want to exit the firms before any further dip in the valuations happens. Three companies — Bharat Matrimony, Infibeam and AGS Transact — have already filed their draft prospectus with the regulator. Together, these three companies plan to raise more than Rs 2,000 crore from the primary markets, calculations based on regulatory filings showed.
Sources told FE that the three more companies are planning to file draft prospectus with the regulator in the next six months. While Bharat Matrimony and Infibeam are pure e-commerce companies, AGS Transact is a provider of end-to-end payment solutions and develops mobile and web-driven payments gateways.
V Jaya Shankar, senior executive director at Kotak Investment Banking, said this would be a great opportunity for all investors including those in the retail category to be a part of the e-commerce growth story. “However I don’t think there will be rush of e-commerce IPOs. They would rather happen gradually,” Jaya Shankar said.
But e-commerce companies’ complicated business model could adversely affect investor appetite for these IPOs, investment bankers said. “There is no single thumb rule to value an e-commerce company as parameters vary from company to company. For some companies you need to consider revenues while for others you might have to look at parameters like Ebitda,” Jaya Shankar said.
Another concern is that a majority of these companies have not made profits in the recent past. For instance, Infibeam has not registered a profit for four years fiscal 2013-14 as well as for the first nine months of FY15, DRHP data showed.
Bharat Matrimony has posted losses in the last two financial years. According to the financials declared in the regulatory filing, the company registered a loss of Rs 2.89 crore in FY15 and Rs 9.13 crore in FY14.
Dharmesh Mehta, managing director and chief executive officer, Axis Capital, feels the listing prospects of e-commerce companies do not necessarily rely only on their financials but also the perceived upside value a particular company can offer post listing. “The most important criteria would be whether the business model is sustainable and how cheap or expensive the offering is,” he said.
However, bigger e-commerce players are not looking to go public anytime soon as strong inflows from PE players have ensured adequate capital availability for these companies. Buoyant PE appetite for such companies has also lead to steep increase in their valuations.
For instance, according to various media reports, Flipkart — India’s largest e-commerce company — has been valued at $15 billion. At the current value of the Sensex, Flipkart would be among the top 20 listed companies in terms of market capitalisation and could match the market value of large-caps like Axis bank, L&T and Tata Motors. Another Indian e-commerce giant, Snapdeal, is valued at $5 billion as per the latest PE transaction.
Even among listed e-commerce players, the buying interest seems to have outpaced financial performance. For example, JustDial, a provider of search services, has rallied as much as 57% since its listing in June 2013 while the benchmark Sensex gained 27% in the period. Within a year of its listing, the share price had more than tripled in value. It reported 15% growth in its consolidated profit in FY15.
Info Edge, the owner of India’s leading job portal naukri.com, which is listed in 2006, has seen its market value more than double in the last two and a half years even as its earnings have only declined from Rs 103 crore in FY12 to Rs 24 crore in FY15, Bloomberg data showed.