Ajay Tyagi, SEBI Chairman | Photo Credit: SHASHIASHIWAL
ESG framework requires careful preparation: SEBI
With an increasing trend of New Age Tech Companies (NATCs) accessing public markets, there is a need for research on identifying key performance indicators (KPIs) and developing valuation models for such companies, SEBI Chairman Ajay Tyagi said on Thursday.
Addressing the inaugural session of the third SEBI-NISM Research Conference, Tyagi said that research on these areas could be “very useful” and highlighted that globally, valuation of such NATCs is generally determined on the basis of additional factors – trends in key KPIs and their comparison with peers, valuation at earlier funding rounds and market conditions etc.
He counted this increasing trend of NATCs accessing public markets as one of the key challenges faced by the capital markets today.
Loss makers
At the time of accessing the capital markets, these NATCs are generally loss making as they prefer gaining scale over profits in their growth phase, he said.
The traditional parameters to be disclosed in offer document, i.e., the financial ratios, are typically descriptive of profit making companies. Disclosure of additional parameters will aid investors in making investment decisions in NATCs, Tyagi added.
In the current financial year, NATCs through IPOs have raised approximately Rs. 43,283 crore till date. Out of these, no less than 85 per cent of the issuer companies were backed by private equity investors and all of such issues also had an offer for sale (OFS) component, Tyagi said.
“Appropriateness of valuation of these companies is a matter of intense debate among stakeholders these days”, he said. Tyagi also highlighted that SEBI has come out with a public consultation paper on strengthening the disclosure requirements in offer documents so as to ensure that rationale adopted by issuers for valuation is transparently known to the market and investors are able to take more informed investment decisions.
Tyagi’s remarks assumes significance as several NATCs like Paytm, Zomato, Nykaa and Policybazaar — which commanded astronomical valuations when they hit the markets in current fiscal — are now quoting at 40-60 per cent below their listing price ( some of them seeing listing day gains), leading to severe market capitalisation erosion in these companies.
In the absence of better communication of the business models of NATCs ahead of their IPOs, some retail investors were caught off guard in the recent tech meltdown in the equity markets and lost their shirts.
ESG challenge
On the next challenge of Environment, Social and Governance (ESG) norms, Tyagi said that a “lot more work is required before we can put in place a comprehensive framework that deals with all aspects of ESG and related issues”.
He also highlighted that SEBI had recently come out with a consultation paper on ESG rating providers. “SEBI will take a view in this regard after evaluating all stakeholders inputs”, Tyagi said.
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