New Delhi, November 19 : .Market valuations for just-listed startups have risen in relation to those of legacy brick-and-mortar businesses due to the prospect of further digitalisation-driven economic growth, analysts stated.Accordingly, the valuations of companies such as PB Financialtech (PolicyBazar), Zomato, and Nykaa have risen multiple times over their original offer prices.
These startups have a market value of over Rs 1 lakh crore.
Because of the high potential for growth in this digitally advancing world, new generation businesses can be very expensive.It is therefore fair to assume that these new-age businesses will be valued higher and traded more than old models,” Vinod Nair (Head of Research, Geojit Financial Services) said.
He said, however, that it is important to realize that the huge difference in valuations stems from the belief that companies will grow stronger, penetrate more, expand their brand faster and eventually become profitable.
“Else they run the risk of becoming cash-gumping machines, which could lead to the collapse of the industry’s commercial system.” Nair stated that not all companies will be winners from the new-age firms.
“The older businesses can also be expected to integrate and develop new technologies in the future.” We can see that not all of the listed 2020 or 2021 tech-based businesses have done well,” he said.
Parth Nyati (Founder and CEO of Tradingo): “We know the digital economy has been experiencing exponential growth around the world, where India is the leading country.”
Many people believe that India has the potential for big tech companies to be created like the US or China.There is an inordinate rush for new-age business in India IPOs and many promoters are looking to capitalize on the hype with unrealistic valuations.
Nyati pointed out, too that only a few companies can survive and make wealth for investors.The rest will go bust.
Nyati stated that many US companies attempted to capitalize on the tech boom with Google and Microsoft.However, most failed to keep their businesses afloat and it took years for Google and Microsoft both to achieve their highest valuations during the tech boom.
Likhita Cherpa is a Senior Research Analyst with CapitalVia Global Research.She said that the technological revolution of the past decade witnessed a lot of startup companies emerge, disrupting the status quo, and establishing a new business model.
Some of these startups are now profitable businesses, and others have expanded sufficiently to be able to take their companies public.
Although the shift from brick-and-mortar businesses to technology started long before the Covid-19 outbreak, it has definitely benefited the online business community.
There are a few key differences between digital firms and traditional brick-and-mortar or asset-heavy businesses.These companies are more likely to have long growth periods and a path to profitability.
They also use traditional valuation methods in order for growth and net profits assessments.
Digital players have a lot of assets, are quick to disrupt markets and gain market share.They also grow quickly.”Markets place their trust in smart promoters and digital-driven disruption business models.They are open to looking into the future and making substantial and actual gains,” Chepa stated.
Additionally, she said that Zomato and Nykaa had seen huge listing gains (53% and 88%, respectively) and have been oversubscribed (38.26 and 81.78, respectively).
Listing gains are the profits above and beyond the initial offer price.
Chepa said that changing consumer preferences and behaviour can also have an impact on performance.
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