Why Snapdeal has decided to call off its IPO Plans?

Even as smaller IPOs are not coming back into the IPO markets with a vengeance, the larger IPOs, especially the digital names, are shelving plans. The latest in the list of digital companies to shelve IPO plans in the Indian market is Snapdeal. It may be recollected that Snapdeal had filed its initial public offering (IPO) regulatory papers including the draft red herring prospectus (DRHP) with SEBI for approval in December 2021. The company got the approval but it has decided to shelve the IPO plans for now. In a statement released on Reuters, Snapdeal confirmed that it was pulling the plug on the proposed IPO plan.

The withdrawal of its $152 million IPO will be the latest in a list of IPOs that are opting out of the markets due to unfavourable market conditions. In the last one year since the stocks like Paytm, Nykaa, Policybazaar and Zomato listed with a lot of fanfare, the story has had a tumultuous journey. Most of the digital stocks that got listed have either lost substantial value from the issue price, or they have lost substantial value from their peak prices. Either ways, it is a statement on the public sentiments surrounding the digital stocks in India. Snapdeal considers it an inopportune moment to tap IPO markets in these conditions.

In terms of its business model, Snapdeal competes with larger rivals like Amazon and Walmart's Flipkart in India's booming e-commerce space. Despite having more time before the one year limit expires, Snapdeal has taken a policy decision to opt out of the IPO market for the time being. According to Snapdeal, there was virtually no appetite for tech stocks at the current juncture. Apart from the market conditions, the company has also taken a strategic view that the IPO route may not be the best suited to the company at this juncture and other routes, like PE funding or private placement, may be better options for Snapdeal.

While Snapdeal officially announced the withdrawal of its IPO prospectus, it did not rule out coming back to the IPO market at a more opportune moment. Of course, such a decision will largely depend on the need for capital and market conditions. It may be recollected that Snapdeal was founded back in 2010 by Kunal Bahl and Rohit Bansal. Its focus has undergone a total transformation in the last few years when it has tried to regain its mojo. Currently, the company predominantly caters to the value e-commerce segment by selling "value-for-money" products. You can also read that as more affordable products for the mass market.

The valuation saga is another story for Snapdeal. Back in 2016, the company was valued at a whopping $6.5 billion in 2016. Over the next few years, the company saw a sharp fall in valuations as its traditional model faltered. At one point, Snapdeal was almost on the verge of selling out to Flipkart, which was eventually scrapped and instead they decided to rethink the business model and start afresh. That appears to have worked for Snapdeal. While the company continues to record net losses over the last 3 years, it is confident that it can easily raise new funds via the IPO route at a valuation of close to $1 billion.

Some of the big IPO stories of the last one year have fallen really hard in terms of price performance. Paytm, the largest Indian IPO prior to LIC, has seen value erosion to the tune of 76% over the listing price of Rs2,150. Now it is planning a buyback to prop stock prices that does not address the core problem of rich valuations and weak financials. Snapdeal did not want to come out with an IPO when it would have to face the brunt of investors' wrath. The price damage from peak prices has been huge for stocks like Nykaa, Zomato, Policybazaar, Paytm and CarTrade. Even Delhivery fell sharply to trade below IPO price.

Other high profile names to withdraw their IPO plans include MobiKwik, PharmEasy, BOAT Lifestyle, Macleods Pharmaceuticals, Go Air etc. There are scores of other companies that have firmed up IPO plans but are wary of the current market conditions. Snapdeal was not only worried about the response to the IPO, but also about the post listing price as well as the pressure created in the market when the stock gets into free sale period post the completion of the anchor lock-in. Not surprisingly, Snapdeal has decided to opt out of any IPO plans for now.