IPO valuations, listings under Sebi scanner | Top points

The Sebi last month flagged concerns in proposing stricter disclosures, saying more and more new-age tech firms which "generally remain loss-making for a longer period" were filing for IPOs.

In a jolt for companies aiming to raise funds through the initial sale of their shares, market regulator Securities and Exchange Board of India (Sebi) has tightened scrutiny of Initial Public Offering (IPO)-bound firms, according to a Reuters report.

The development comes after the flop listing of SoftBank-backed payments firm Paytm's $2.5 billion IPO in November which sparked criticism of lax oversight of how loss-making companies price issues at what some say are lofty valuations, the Reuters report said.

The Sebi last month flagged concerns in proposing stricter disclosures, saying more and more new-age tech firms which "generally remain loss-making for a longer period" were filing for IPOs, and traditional financial disclosures "may not aid investors."

But even before the proposal is finalised, Sebi has in recent weeks asked many companies to get their non-financial metrics -- KPIs, or key performance indicators -- audited, and then explain how they were used to arrive at an IPO's valuation, five banking and legal sources said.

Typically, for a tech or app-based startup, KPIs could be figures like the number of downloads or average time spent on a platform -- metrics sources said are disclosed but difficult to audit or link to a company's valuation, according to the Reuters report.

The market regulator is asking us to "justify the valuation," said a lawyer advising several companies eyeing IPOs, adding it was "creating uncertainty and increasing cost of compliance."

Regulators in major markets including Hong Kong do follow practices that subject companies to tighter scrutiny about their business practices and financials, but they don't usually make granular checks on valuation metrics.