Indian New-Age Companies: A Pre-IPO Profit Mirage and Post-IPO Loss Reality
A recent analysis by Mint has uncovered a concerning trend among India's new-age companies: many have shown a sudden shift to profitability or significant loss reduction just before their initial public offerings (IPOs), only to fall back into losses shortly after listing. This pattern, driven by temporary financial maneuvers rather than sustainable business improvements, has sparked calls for stricter regulatory oversight to protect investors from misleading signals about company health.
Pattern of Pre-IPO Financial Optimization
The analysis focused on high-growth, technology-driven firms such as Lenskart, Urban Company, Zomato (now Eternal), Swiggy, PB Fintech, Paytm, and Nykaa. Of seven loss-making companies that went public in FY26, five reported either profitability or sharply narrowed losses in the year preceding their IPO. This mirrors a broader trend over the past five years, where companies often improve their bottom lines temporarily before listing, then revert to earlier loss patterns.
Experts attribute this to last-minute cost pullbacks, accounting adjustments, and one-off gains. For instance, discretionary spending on marketing and expansion is often reduced, and expenses like employee stock ownership plan (ESOP) charges are carefully timed within accounting rules. While these practices comply with regulations, they create an information asymmetry, misleading public investors who rely on recent financial performance for valuation and risk assessment.
Case Studies: Temporary Gains and Underlying Issues
Lenskart posted a profit of ₹297 crore in FY25 after losses in previous years, but a significant portion came from a non-cash gain related to its acquisition of Japan's Owndays Inc., with no actual cash realized. Urban Company reported a profit of ₹240 crore in FY25 due to deferred tax impacts and reduced salary costs, peaking performance before its September 2025 IPO. Similarly, Nykaa's profitability was boosted by a deferred tax impact, though it has maintained profits post-IPO, unlike most others.
Companies like Zomato, Swiggy, PB Fintech, and Paytm sharply cut losses pre-IPO, often through expense reductions rather than revenue growth. For example, Zomato's loss dropped from ₹2,385.6 crore in FY20 to ₹816.4 crore before its 2021 listing, while Swiggy reduced losses from ₹4,179 crore in FY23 to ₹2,350 crore in FY24.
Regulatory and Investor Implications
The trend highlights the pressure on new-age companies to show profitability or a path to it, especially in a competitive IPO market where domestic investors are conservative. However, experts warn that this can lead to misinterpretation, as headline profitability is often used in IPO marketing. Hardeep Sachdeva of AZB & Partners emphasized the need for regulators like the Securities and Exchange Board of India (Sebi) to apply heightened scrutiny to sudden financial improvements pre-IPO, focusing on earnings quality and consistency.
Retail investors, who may not read prospectuses thoroughly and rely on grey market premiums, are particularly at risk. In contrast, sophisticated institutional investors can often see through these financial dress-ups. The analysis calls for greater transparency in how improvements are achieved, distinguishing between genuine operating leverage and temporary adjustments.
Broader Context and Future Outlook
This phenomenon is not unique to new-age firms; traditional companies also tidy up balance sheets before listing. However, the scale of losses and dramatic turnarounds in new-age issuers make the trend more pronounced. As India's IPO market booms—raising ₹1.95 trillion in 2025 and becoming the world's largest by deal count—the need for robust oversight grows.
Moving forward, experts advocate for regulatory measures that go beyond surface compliance, ensuring that pre-IPO financials accurately reflect long-term sustainability. This will help maintain investor trust and support the healthy growth of India's vibrant startup ecosystem in the public markets.
