From easy access to large capital to improved visibility and brand image, here are some reasons behind the recent rise in the number of retail businesses taking the IPO route
New Delhi: Telangana-based saree retailer Sai Silks Kalamandir Ltd. went public last year. So did Honasa Consumer Ltd., known for its personal care brand Mamaearth. Kidswear brand Firstcry is expected to get listed this year.
Companies are increasingly taking the Initial Public Offering (IPO) route. According to Bombay Stock Exchange (BSE) data, 2023 saw about 102 IPOs being launched. Out of these, seven were by companies in the retail ecosystem from logistics service providers to brands and omnichannel retailers.
Twenty two IPOs have already been listed on BSE this year so far, with 10 being mainboard IPOs and 12 belonging to the SME IPO segment. The number of IPOs on NSE in 2024 till mid-February was about 30.
Here’s what’s driving retail businesses to go public:
- Easy access to funds
The retail business is capital-intensive. It requires investing large amounts in real estate, stocks and working capital. Getting access to funds through traditional lending channels is difficult and time-consuming. “Retailers are ready to share their equity with the people and get ready access to funds and give back good returns and hence they choose going public,” said Vikram Bothra, Managing Director, Chandan Retail, who is preparing for an SME IPO.
2. Debt reduction
Long-term debt affects the health of a business and many retail businesses also get listed to reduce their debt burden from the funds raised. In an exclusive interaction with Indiaretailing Prasad Chalavadi, Managing Director, Sai Silks Kalamandir Ltd. cited “reducing debt and other working capital requirements” as one of the reasons that prompted the company to go public.
3. Scalability
With the improvement in consumer sentiment and the ease of doing business, many companies are scaling up their businesses—either by adding more categories, people or new technologies. “Retail companies are investing in technology for strengthening merchandising, and inventory management besides strengthening senior management and merchandising team to support the store expansion,” Chalavadi of Kalamandir said. All this require immediate funds.
“One of the primary reasons for companies to go public is scalability. IPO helps you to achieve scalability by providing the funds you want for growth,” said the managing director of a retail company that is in the process of filing IPO papers, requesting anonymity.
This was true in the case of Sai Silks Kalamandir too, which plans to open 30 stores in the next three years from the IPO proceeds Chalavadi shared.
4. Exit opportunity / Liquidity
IPOs provide a great opportunity for existing investors to liquidate their shares and exit the company if they so wish. “Often angel investors use IPOs as an opportunity to exit the business and cash their share in the company,” the anonymous retailer said.
Furthermore, shares of privately held companies cannot be easily traded. “However, after launching an IPO, a company’s shares get listed on stock exchanges which then are easily tradable. This increases the liquidity of the shares and allows anyone to easily buy or sell the shares,” wrote ICICI Direct in a blog post on the topic.
5. Visibility
Companies filing for IPO often have to set their house in order in terms of financials and compliances. “This brings transparency into the company’s financials and operations which enhances its credibility,” wrote ICICI Direct, adding that it helps build a better public image.
Such companies also often engage in aggressive advertising and marketing to make themselves attractive to retail investors. This leads to “increased awareness and visibility of the company,” the blog further said.
The flip side
However, once public, a company becomes more accountable for everything. It has to maintain transparency and follow certain produces, which makes decision-making cumbersome. “Post-IPO promoters of the company become custodians of the business for the investors,” said Chalavadi of Sai Silks Kalamandir. “We need to be on our toes to understand the fashion trends, serve our customers as per their tastes and do well,” the MD added.
