Two India IPOs of Foreign Companies Highlight Valuation Divide with Desi Startups
Indian IPOs are experiencing a significant divide in valuation strategies. While foreign firms like LG Electronics India and Tenneco Clean Air India are opting for attractive pricing, many local startups are consistently pushing for maximum valuations with minimal perceived value for investors. The contrasting strategies are evident in the recent offerings from these foreign companies.
Attractive Pricing of Foreign IPOs
– LG Electronics India: Priced at approximately 35 times FY25 earnings, which is notably lower than its sector peers trading between 50x and 60x. The market response was robust, with investors enjoying a remarkable 50% listing gain, marking it as one of the year’s strongest debuts.
– Tenneco Clean Air India: Listed at a steep discount of 29x FY25 P/E, compared to competitors like Bosch at 57x and Uno Minda at 64.9x. Analysts have highlighted the offering’s strong fundamentals, with ten brokers unanimously recommending subscription.
Contrast with Homegrown Startups
In stark comparison, new-age Indian firms such as Lenskart, Groww, and Pine Labs have entered the market with aggressive pricing, often leading to investor fatigue:
– Lenskart: Marketed at 235 times earnings.
– Groww: Launched around 40 times earnings.
– Pine Labs: Implied an EV/EBITDA multiple of 82.8x, with an EV/Sales ratio of 8x based on post-issue capital.
Despite their lofty valuations, Lenskart and others have struggled with disappointing debuts, raising concerns among investors about sustainability.
Divergence in IPO Pricing Strategy
Experts note that the pricing decisions of LG and Tenneco reflect a broader trend, showcasing a divergence between foreign and domestic firms.
– Ravi Singh, Chief Research Officer at Master Capital Services, emphasizes that foreign companies typically aim to create shareholder value through transparent participation in India’s growth market, while Indian startups often prioritize rapid expansion driven by early-stage investor pressures.
– Vinod Nair, Head of Research at Geojit Financial Services, states that many domestic issuers are pricing IPOs based on existing investor expectations rather than sustainable market demand.
Investor Psychology and Future Trends
The evolving psyche of investors is influencing the market. Vinit Bolinjkar from Ventura Securities notes that today’s investors demand visibility on profits and governance, rather than unsubstantiated growth narratives.
As a result, the robust listing of LG suggests that value-oriented pricing will attract sustained interest, potentially encouraging more global companies to consider Indian markets as viable listing platforms. This may pressure local startups to reevaluate their pricing strategies to align more closely with investor expectations.
For investors navigating this landscape, a selective approach is crucial.
– Analysts recommend focusing on companies that offer clear profitability and governance structures, highlighting that momentum-driven IPOs may provide short-term opportunities, but often yield disappointing long-term returns.
The contrasting paths of foreign and domestic IPOs underscore the importance of thoughtful valuation strategies in achieving successful market entries.