Case Studies of IPOs: Lessons Learned from Past Offerings

Introduction: The History of IPOs

Initial Public Offerings or IPOs, have been a big part of the financial scene for hundreds of years. The idea of public companies goes back to the early 1600s when the first publicly traded company was the Dutch East India Company. Since that time, IPOs have become an important way for companies to access financing and grow their businesses.

The number of companies looking towards IPO has surged in India over the last 30 years or so. India opened up its economy in the 1990s, triggering a boom in public offerings. The Indian stock market is now home to several of the hottest IPOs in the world today, with businesses from multiple sectors looking to access a huge reserve of public capital.

This article explores three known case studies on IPOs in India, discussing their successes and failures.

Case Study 1: Paytm: A Story of Unrealised Potential

Once a leader in digital payments in India, Paytm’s much anticipated public debut raised record-breaking funds but struggled to deliver on expectations. This case study on IPO in India explores the factors that led to this underperformance and what investors can learn.

Paytm Journey: From Revolutionary Start to IPO

Paytm, which stands for Pay Through Mobile, was initiated in 2010 as a mobile recharge company. Set up by Vijay Shekhar Sharma, the business swiftly grew its offerings to become India’s largest digital payments firm. The growth of Paytm was boosted further by the Indian government’s demonetisation drive in 2016, which forced millions of Indians to switch to digital payment solutions.

Encouraged by this success, Paytm had its IPO in November 2021. It was looking to raise ₹18,300 crore, making it one of the largest IPOs in Indian history. The valuation stood at over $20 billion, with the offer price pegged at ₹2,150 per share.

Paytm IPO: Lessons For The Future

Paytm IPO can be considered one of the biggest failed IPO examples in Indian history. Paytm shares tanked 27% in the opening day session, erasing billions in market value. This unsatisfactory performance was due to a number of factors:

• Overvaluation: Many analysts thought Paytm’s valuation was too high to be justified especially since the company was not generating profits.
• Difficult to understand business model: Paytm’s wide array of services made it difficult for investors to grasp the company’s core business and growth potential.
• Regulatory concerns: It has found itself facing scrutiny from regulators, which means there are questions about how it will look in the future.
• Market timing: The IPO happened during a period of market volatility, which may have tempered investor enthusiasm.

Case Study 2: JSW Infrastructure: A Resounding Success

JSW Infrastructure, operating in a fast-growing sector, used its strategic planning and strong market position to attract significant investor interest. This case study on IPO in India analyses what made its public issue a great success.

JSW Infrastructure’s Growth and IPO Performance

In contrast to Paytm, JSW Infrastructure’s IPO stands out as one of the most successful IPO examples in India. JSW Infrastructure, a part of the JSW Group, is one of India’s leading private-sector infrastructure companies.

The company launched its IPO in September 2023, aiming to raise ₹2,800 crore. The issue price was set at ₹113-119 per share. Unlike many tech startups, JSW Infrastructure has a track record of profitability, and a clear growth strategy focused on expanding its port capacity.

Key Takeaways from JSW Infrastructure IPO

JSW Infrastructure IPO was well received by investors, with the issue being oversubscribed 39.36 times. On its listing day, the stock opened at a premium of 20% above the issue price. Several factors contributed to this success:

• Strong financials: The company demonstrated consistent revenue growth and profitability.
• Clear business model: Investors could easily understand JSW Infrastructure’s operations and growth potential.
• Sector potential: The infrastructure sector in India is poised for significant growth, adding to the company’s appeal.
• Reasonable valuation: The IPO was priced attractively, leaving room for potential upside.

The success of JSW Infrastructure’s IPO highlights the importance of solid financials, a clear growth strategy, and appropriate pricing in attracting investor interest.

Case Study 3: Zomato: Tech Unicorn IPO Journey

As one of the first tech unicorns to go public in India, Zomato’s IPO journey is filled with lessons on branding, market sentiment and the challenges of sustaining growth post-listing. This case study on IPO in India offers key takeaways for investors and companies alike.

Zomato’s Path to IPO and Market Impact

Zomato IPO case study offers valuable insights into the journey of a tech unicorn going public. Founded in 2008, Zomato evolved from a restaurant discovery platform to a leading food delivery service in India.

Zomato’s IPO in July 2021 was a landmark event, marking the first Indian unicorn to go public. The company aimed to raise ₹9,375 crore with shares priced at ₹72-76. Zomato IPO generated significant buzz, being oversubscribed 38.25 times.

Financial Improvements Over the Years

Unlike many tech startups, Zomato showed steady improvement in its financials leading up to the IPO:

• Revenue growth: In FY24, Zomato’s revenue from operations surged by 71% year-on-year, reaching ₹12,114 crore.
• Registered Profits: Zomato achieved a net profit of ₹351 crore in FY24, marking a significant turnaround from a net loss of ₹971 crore in FY23.
• Market expansion: Zomato has successfully expanded its presence across India and entered international markets.

Lessons Learned from Zomato IPO

Here are some key lessons from this case study on IPO in India:

• Market readiness: Zomato IPOs success was a good sign that the Indian market was ready for tech startup IPOs.
• Timing: The firm went public at a time when investor sentiment regarding tech companies was bullish.
• Brand pull: Zomato’s well established branding also attracted retail investors.

Zomato’s IPO journey indicates the potential for tech startups to thrive in the Indian public markets despite the stock’s ups and downs after listing.

Key Takeaways for IPO Investors

Based on each of the above case studies on IPO in India, here are some key lessons for investors:

• Assess the business model: Know the company’s fundamental business and the potential for growth.
• Evaluate financials: Focus on profitability and cash flow rather than just revenue growth.
• Think of valuation: Beware of extremely high valuations, particularly for loss-making businesses.
• Analyse the market’s potential: The company’s position in its industry and the potential of the sector as a whole.
• Be wary of red flags: Monitor for regulatory issues, complicated business structures or excessive reliance on specific drivers.
• Don’t overlook the fundamentals: While hyper-growth industries such as tech are exciting, fundamental analysis still matters.
• Wait: In some cases, waiting to invest post-IPO can allow for better price entry points.

Conclusion: Learning from IPO Successes and Failures

The Indian IPO market offers both opportunities and challenges for investors, as shown by the contrasting experiences of Paytm, JSW Infrastructure, and Zomato. While failures like Paytm can create caution, the most successful IPO in India like JSW Infrastructure highlights the potential for returns. The future of successful IPOs will rely on strong fundamentals, clear growth plans, and reasonable valuations.

As 2025 promises more IPO activity, investors should adopt a well-researched, long-term approach to navigate the market’s complexities