Unicommerce IPO interest paves way for small, profitable startups to go public

Last month, a clutch of tech startups filed their initial public offering documents  (IPO) with the Securities Exchange Board of India. A move that has been welcomed by institutional as well as retail investors.

After the success of Nykaa, Zomato, Mamaearth, Ixigo, TBO Tek, and others, one thing is clear: solid numbers and strong fundamentals are key to making a significant impact in the public market.

Electric mobility company Ola Electric and SaaS firm Unicommerce opened for public subscription on August 2 and August 6 with an issue size of Rs 6,145 crore and Rs 276 crore, respectively.

The Delhi-based Unicommerce has been oversubscribed by 168 times, indicating a very high possibility of a lucrative pop on listing. SoftBank-backed Ola Electric, on the other hand, was merely oversubscribed by 3.86X only. 

Significantly, Unicommerce’s IPO raise was less than 4.5% of Ola Electric's, yet it outbid the EV unicorn by Rs 11,000 crore. Unicommerce's total bids stood at over Rs 25,600 crore compared to Ola Electric’s Rs 15,000 crore, according to information available on exchange websites.

Unicommerce reported a revenue of Rs 104 crore in the fiscal year ending March 2024, with a profit of Rs 13 crore. Ola generated Rs 5,010 crore in income during the same period with a loss of Rs 1,584 crore.

While comparing different segments might not be entirely appropriate, the performance of these firms' stock prices post listing will do one thing for sure if one set of projections come true. Namely, a big jump for Unicommerce and for Ola, a lower price after week 1 possibly. 

Should that play out, retail investors will continue to tilt towards companies with strong fundamentals aka profitability and decent year-on-year growth. A strong, sustained show by Ola on the other hand will do much for loss making firms waiting in the wings with their IPOs.

Companies like Unicommerce, Ixigo, and TBo Tek are demonstrating to growth-stage founders that entering the Unicorn Club might not be the ultimate goal. Instead, they show that companies can successfully go public with a strong financial foundation or a visibly viable model, even at a modest scale.

Small firms, once they establish their credentials or capability to grab opportunities, are being priced at a massive premium simply because of the longer and steeper growth opportunity that is perceived to be ahead of them. For large firms on the other hand, an IPO, especially if it involves a significant secondary offering is going to be seen as an exit opportunity for its investors. Rather than an entry point for retail investors.