Technology companies have seen relative success in their Initial Public Offerings over the years. That success has been the cause for both attention and amazement. The first technology company to ever debut on the Indian Stock Exchange goes by the name Info Edge. The name might now ring bells in people’s minds at the first go, but, Info Edge owns some pretty hot shot internet classified portals such as Naukri.com, Jeevansathi.com and 99acres.com to name a few.
The company was listed on the BSE in November, 2006 at an overpriced valuation which was surprisingly oversubscribed 54.7 times and closed with a gain of around 80% from that of the initial list price. The cause for fanfare was evident from the growing income of the company from Rs 84 crore to 500 crores in 2015. Another big IPO that came next was that of JustDial in June 2013, which also got the support of Bollywood megastar Amitabh Bacchan. In a similar scenario, the company was valued at 60 times its previous year’s income, investors rushed to buy the stock.
The main edge that these two companies had was that of strong financial models and a robust business model. These two companies presented the Indian Stock exchange with an option of investing in homegrown tech companies which were making tremendous progress.
Fast forward to 2015, the next big thing in technology in India is undoubtedly, E-commerce. But, the biggest names in Indian e commerce have not yet lingered even near the thought of making an IPO. Up until now. Infibeam is the first Indian e-commerce firm to trade on the Indian Stock Exchange. The company is hoping to raise around 450 crores from the market and has fixed the price band at Rs 360-432.
But, this time the IPO has received a cautious start with around 10000 bids in the first hour of trading, but, by 4PM, the stock was subscribed 0.20 times on the BSE and the NSE. There is a cautious nature to the amount of subscriptions that the company has received on the very first day. The reasons for that may be several.
One key reason is that Infibeam is not a major e commerce player in the market as yet. Although it is at par in its operational longevity with Flipkart and Snapdeal, however, it has never gained the amount of attention and success that the former have. It is similar in model and approach to them, yet is not nearly near in terms of volume of sales and revenue.
Also, the markets are in a state of volatility and there is some concern over the world economy. In such a period, getting backing for a technology startup; and that too an e-commerce one is difficult. It is a known fact that profits are a mad man’s dream in e-commerce. Even the biggest companies such as Amazon and Flipkart are yet to post profits. Flipkart posted a loss of Rs 2000 crores in FY15. Such indicators are sure to turn away investors looking for safe bets in times of uncertainty.
The e-commerce industry is expected to see a huge growth spike in 2016, but, that does not necessarily bode well for Infibeam. Its IPO success is marred by its small scale, absence of funding, small market share and the absence of popularity that other e-commerce players enjoy.
The lower valuation comes at a time when most e-commerce companies and other service based technology startups are facing increasing pressure over their supposedly over hyped valuations. Some people fear that it is similar to the bubble of internet companies that burst in 2000 over similar concerns. The poor show of Infibeam In its IPO has only further aggravated those concerns.
Industry experts have hinted that the era of deep discounting is a thing of the past for e-commerce companies. For the next phase of the chart, the firms should shift focus to product differentiation and improving the overall customer experience to promote loyalty.
As of Infibeam’s IPO, it feels like a rushed move which is poorly thought and implemented. Out of the four domestic investment banks, two have already backed out due to concerns over pricing. Kotak Mahindra Capital and ICICI Securities have withdrawn from the issue, spelling even more problems and concerns over the success of the issue.
Whether Infibeam will be able to overcome these problems is still unclear, but one thing is certain, the e-commerce industry’s welcome party to the Stock Market is turning out to be more of a sleeper than a hit. It will be interesting to see what turn of events follow this IPO.
