Xiaomi's IPO receives body blow: Raises $4.7 Bn at half of projected valuation

Initially, when smartphone maker Xiaomi filed for an initial public offering in Hong Kong in May this year, it was supposed to be the world’s biggest IPO since 2014 when Alibaba Group raised $25 billion in the IPO filing.

The company was expected to raise around $10 billion in the initial public offering that could value the business as high as $100 billion.

In a month’s time, the scenario completely changed. By last month, it was aiming to raise only $6.1 billion and the valuation plummeted to $53.9 billion, which was roughly half of its initial goal. The smartphone firm was then offering 2.18 billion shares at the price of HK$17 to HK$22 per share.

Xiaomi, which debuted on Honk Kong stock exchange on Monday, saw its shares nosedived by 6 per cent. And far from the high expectations, the company raised $4.7 billion at a valuation of about $54 billion.

The company traded as low as HK$16 compared with its HK$17 initial public offering price.

The current valuation of Xiaomi is nowhere near the figures which the company’s executives had expected when they decided to go public. Xiaomi last raised money in 2014 at a $46 billion valuation.

Experts observe that the company had once taken up the ambitious project to transform the mobile phone market globally, however, its performance has emerged as far below from the expectation.

The proponents, however, argue that dominance in key markets from India to China and a diversifying Internet of Things business will help it grow into its valuation in future.

Recently, the company reported a loss of $1 billion in the first three months of 2018. It also clocked a revenue of $5.37 billion during the quarter.

The Beijing-based company has seen rising sales of lucrative smart-home devices and internet services. Roughly 31.8 percent of Xiaomi’s revenue in 2018’s first three months came from products such as air purifiers and scooters and online services such as mobile apps.

Experts believe that the company’s quick growth outside China, especially in a market like India, has helped the company to expand.

After China, India has become the next largest market for Xiaomi. In less than three years of its launch in India, it turned profitable in the country in the fiscal ended March 2017.

Xiaomi registered the maximum growth during FY17 with sales surging 696 per cent to Rs 8,379.3 crore. It made a profit of Rs 163.9 crore. A year ago, it had revenues of Rs 1,046.2 crore with net loss of Rs 46.9 crore.

It had also set a target of hitting $2 billion revenue mark in 2017, twice the amount from 2016.

The development was first reported by Bloomberg and sourced via Mint.