Despite the risks in its business and the IPO, the stock is trading at a 50% premium on the grey market. It’s set to hit the markets on Wednesday, and promises to be the hottest Indian IPO of 2025 so far.
Investors have tried to be discerning with their IPO bets this year. Even Ather Energy, which has seen its stock appreciate by more than 80% since listing, saw its IPO subscribed only 1.4 times. Against this backdrop, the enthusiastic reception for Urban Company’s IPO has come as a surprise. For investors blindsided by the bumper listing, a little FOMO (fear of missing out) is only natural.
In this article, we will address the top five questions on investors’ minds about IPO-bound unicorns.
Is Urban Company a blip, or has retail sentiment for unicorn IPOs improved?
Urban Company is set to become the only listed company in the home-services industry, enjoys a strong brand recall, and has turned towards profitability. But even if we set aside the nuances in its ‘profitability’ (covered in a subsequent section), it faces some obvious challenges: intense competition from local, unorganized players, dependence on the gig economy and uncertainty around its aggressive expansion into new services.
The IPO is priced at 13 times sales, leaving little room for negative surprises. It consists primarily of an offer for sale, with only ₹472 crore going towards growing the business. The massive oversubscription despite these challenges suggest speculation and hype are driving the IPO. The limited float, with only 10% of the offer reserved for retail investors, may have also played a role.
Meanwhile, previously listed unicorns have been outperforming in recent months. Paytm has become a wholly Indian-owned company, Ola Electric has promised to pivot towards profitability, and Ather has outperformed massively since its listing. These rallies have also lifted investor sentiment around new-age IPOs, boosting demand for Urban Company’s offering.
But for this positive sentiment to continue over the long term, fundamentals will need to follow.
Is the grey market premium a reliable indicator?
The demand for stocks in the grey market (the unregulated over-the-counter market for IPO-bound shares and share applications) is often extrapolated to estimate listing gains. A stock that’s in high demand in the grey market trades at a higher grey market premium (GMP) and is expected to deliver similarly high gains on listing.
But GMPs do not necessarily translate into listing gains. Grey market trades are unofficial and unregulated. The grey market operates on trust, and the bids and offers are not legally binding. Smaller issues and issues with relatively small floats can be manipulated by large investors.
Also, GMPs change throughout the listing process. The GMP an investor sees while subscribing to an IPO could be very different from the GMP right before listing. In the case of Urban Company, the GMP accelerated to more than 68% before mellowing down to about 50% at the time of writing this article.
Even if you consider the GMP right before listing, it may not translate into listing gains. Take the cases of FirstCry and Zomato, which had GMPs of 29% and 19% before listing, but delivered much larger listing gains of 40% and more than 50%, respectively. On the flip side, Paytm’s listing disappointed investors who were lured by its high GMP.
Going one step ahead, returns after listing are driven almost entirely by fundamentals, with hardly any correlation to GMPs and listing gains. We have seen extremes such as Nykaa’s 80% listing gain being followed by a 38% correction, as well as Ather Energy’s measly 2% listing gain blowing up into an 80% rally. This is to say that long-term investors should focus on business fundamentals rather than be swayed by fickle metrics like GMP.
Can the financials of IPO-bound unicorns be taken at face value?
Analysts have pointed out that companies often report superlative numbers when listing, but these later mellow down. For instance, before Nykaa’s IPO in late 2021 the company reportedly shipped excess product to distributors and clocked 29% revenue growth in FY22.
However, with distributors holding excess inventory, revenue growth fell to 18% by FY24, and margins contracted from 65% to 23%. Of course, growth in FY25 has since reinvigorated investor interest.
Another metric to keep an eye on is non-operating income. For example, Urban Company reported ₹243 crore in net profit for the nine months to December 2024. This makes for an eye-catching turnaround from losses to profits.
But a closer look reveals that operating profitability remains elusive. Profit before tax was only ₹27 crore. A one-time deferred tax credit of ₹216 crore accounted for a bulk of the reported bottom line. Remove other income (from investments) worth ₹84 crore and you are left with a loss of ₹57 crore—roughly the same as a year ago.
What should investors watch out for after a unicorn IPO?
Sometimes, when a unicorn lists on the stock exchanges, it completely changes the way it does business.
While VC and PE backers conduct due diligence and keep tabs on their businesses, the standard for public disclosures, regulations, reporting and governance for listed companies is on a whole other level. How such a company holds up to public scrutiny plays a key role in determining whether it is a potential multibagger or a dud.
Paytm’s IPO, for example, saw a lot of fanfare as the largest listing ever seen on Indian stock markets. But it reportedly took the RBI’s repeated warnings casually. Following slaps on its wrist for its deeply intertwined operations and finances with its Chinese parent firm, the RBI cracked down on the fintech company last year. Investors lost as much as 80% of their wealth amid the regulatory tussle. The company has since cleaned up its act and won back investors’ favour.
Listed unicorns such as Ola Electric, Nykaa and FirstCry have also struggled with governance issues. Ola Electric has had repeated run-ins with auditors, vehicle registration agencies and dealerships, leading to delayed registrations, showroom closures, consumer lawsuits, and management churn. FirstCry has faced raids by the Bureau of Indian Standards (BIS) over concerns about product quality, allegations of tax evasion against its cofounder, and board and management exits over alleged insider trading. Nykaa’s bonus issue soon after its IPO lock-in period ended raised suspicions of stock-price manipulation.
Could we see more unicorns hitting the markets?
A record 13 startups listed in 2024. But regulatory changes, global uncertainty, and slow markets have curbed investor enthusiasm around IPOs this year. We have seen only five startups listed so far in 2025, and most have received lukewarm responses.
The result? As many as 25 startups including Lenskart, PhysicsWallah and Meesho have filed their draft IPO papers but are waiting for a conducive environment. If Urban Company manages to buck the trend and list with strong gains, this pipeline could finally get going.
For more such analysis, read Profit Pulse.
Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa
Disclosure: The author holds shares of some of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
