Meesho's $6B IPO: A Test for New-Age Tech?
Investors in India are gearing up for one of the most anticipated technology sector listings. Bengaluru-based social commerce giant, Meesho IPO is going live on 3rd - 5th Dec.
The issue is scheduled to open for subscription on Dec 3. The subscriptions will close on Dec 5, with the anchor book likely opening a day prior. The company has fixed a price band of ₹105 to ₹111 per equity share. Thus, Meesho is implying a valuation close to $6 bn.
The public offer is going to be a mix of a ₹4,250 cr fresh issue and an OFS (Offer for Sale) of 175.7 mn shares by existing shareholders. At the upper end of the price band, the total issue size is to be around ₹6,000 cr.
A heavyweight bankers’ consortium, including Kotak Mahindra Capital, JPMorgan India, Morgan Stanley India, Axis Capital, and Citigroup Global Markets, are managing the IPO. KFin Technologies is serving as the registrar.
So, the price band is set and the dates are locked. Now, there is an important question for investors. Does Meesho's unique zero-commission model offer a sustainable path to value creation in a crowded e-commerce market?
What Fuel Does the Fresh Issue Add?
A considerable IPO portion is allowing early investors to exit. However, the fresh capital being raised is earmarked for specific, high-impact areas. The use of fresh capital is in areas that are signalling the company's future strategic direction.
Instead of investing in heavy physical assets like warehouses or logistics fleets, Meesho is doubling down on its digital backbone.
A considerable chunk of the fresh proceeds is allocated to its subsidiary, Meesho Technologies Pvt. Ltd. This allocation is specifically made to bolster its cloud infrastructure.
As an asset-light platform, connecting millions of buyers and sellers, robust cloud capabilities are the lifeline of the business. The cloud capabilities can ensure uptime and scalability during high-traffic festive sales.
Furthermore, the company has set aside funds for the payment of salaries for existing and replacement hires in its Machine Learning, Artificial Intelligence, and technology teams. Thus, the brand is clearly shifting towards deep-tech capabilities to personalise user experience and optimise logistics algorithms.
Additionally, a huge portion of the capital would be directed towards marketing and brand-building initiatives.
Lastly, in the hyper-competitive landscape of Indian e-commerce, customer acquisition costs are notoriously high. So, continuous investment in brand visibility can be non-negotiable to maintain its position as the preferred marketplace for Tier-2 and Tier-3 India.
Who Is Selling and Who Is Staying?
Some of the most prominent names in the global venture capital ecosystem are in the list of selling shareholders. Corporate investors such as Peak XV Partners, Elevation Capital, Y Combinator, and Venture Highway are paring their stakes (SEBI UDRHP). Thus, early-stage investors can monetise their long-term bets after the company achieves scale.
Promoters Vidit Aatrey and Sanjeev Kumar are also participating in the OFS, offloading a part of their holdings.
The exit of these early investors can pave the way for public market participants to own a slice of a company that is claiming to be India’s largest online marketplace in terms of placed orders and transacting users.
The transition from private venture capital to public ownership would mark a maturation point for the company's governance structure.
The Financial Picture
Meesho has demonstrated its ability to scale its topline revenue. Mainly, its popularity in smaller Indian cities and its zero-commission model for sellers have driven its revenues.
However, the bottom line might tell a different story. The company reported a widened net loss in the last fiscal year compared to the one prior.
Even at the operating level, the company posted negative EBITDA. The asset-light model has shielded it from heavy capex. However, the high operational costs associated with logistics and marketing have continued to weigh on profitability.
The market is digesting the financial details. However, the focus will shift to how effectively the management can execute its path to profitability post-listing.
Source
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