IPO: What are the sudden profit turnarounds at a raft of start-ups hiding?

India’s start-up initial public offering (IPO) pipeline is humming again at the start of this year as attractive headline valuations and a seeming revival in investor appetite prompt consumer brand names, tech platforms and late-stage unicorns to line up on Dalal Street for funds.

Outwardly, the mood is almost celebratory. However, a quieter, more consequential shift is taking place beneath the surface.

Last year, 16 start-ups raised more than Rs 40,000 crore from public markets. Yet only one had a record of consistent profitability. Nearly half reported a sudden swing to profits, or a sharp compression of losses, in the run-up to listing. The rest stayed in the red.  

With as many as 48 start-ups expected to file their share-sale papers with market regulator Securities and Exchange Board of India (Sebi) over the next 12–18 months, the pattern raises an uncomfortable question: are these profits truly a sign of these companies attaining maturity or merely optics—a result of last-mile financial optimisation?

“In some cases, profitability may be driven by one-off factors such as accounting adjustments; in others, it may reflect a more sustainable earnings trajectory,” says Rahul Chandra, Managing Director of venture capital (VC) firm Arkam Ventures. “The challenge and responsibility lies with investors to distinguish between the two.”

That distinction requires stripping out one-time gains and tracking operating trends to determine if profitability is durable and margins are indeed improving structurally.

Fine Print

Take eyewear company Lenskart, among the largest start-up listings of recent years, which tapped the market with an IPO of Rs 7,278 crore in October-November 2025. In financial year 2024-25 (FY25), the Peyush Bansal-led firm reported a profit of Rs 297 crore, swinging from a loss of Rs 10 crore in FY24, according to Tracxn, which follows start-ups.

The numbers seemed to signal an inflection point. Yet, disclosures and media reports suggest that roughly Rs 167 crore of this profit stemmed from one-time accounting gains linked to acquisition revaluations.

A closer look at operating metrics offers a more layered picture. In FY24, Lenskart’s revenue from operations rose 34% year-on-year (YoY) from Rs 2,375 crore to Rs 3,187 crore and expenses climbed 30% to Rs 3,184 crore. In FY25, revenue growth moderated to 27%, reaching Rs 4,039 crore even as expenses rose 25% to Rs 3,974 crore, the company’s annual reports show.

To be sure, losses had been narrowing over time. But the timing of the company’s first reported profit—just ahead of its listing—invited scrutiny by investors.

Urban Company’s trajectory followed a similar arc. The home services platform debuted on the markets with an IPO of around Rs 1,900 crore in September 2025, after swinging from a Rs 93 crore loss in FY24 to a Rs 240 crore profit in FY25.

A large part of that turnaround was driven by a Rs 211 crore tax adjustment—once again highlighting how profitability can be shaped by non-operating factors.

Governance focus

“Governance practices from the early on are still largely ignored by start-up founders,” says Amit Tandon of Institutional Investor Advisory Services (IiAS), a proxy advisory firm providing investors with opinion, research and data on corporate governance issues.

The focus, he says, is overwhelmingly on growth. “The moment you have systems and processes, there are checks, which is not what start-up founders want.”

Those concerns are playing out in the case of Imagine Marketing, parent of consumer electronics brand boAt, set to go public with a Rs 2,000 crore IPO. The biggest red flag, market experts say, is that both co-founders—Aman Gupta and Sameer Mehta—stepped down from executive roles ahead of listing.

The company’s financials add complexity. boAt reported losses of Rs 129 crore in FY23 and Rs 80 crore in FY24 before swinging to a profit in FY25. Revenue has declined for three consecutive years—from Rs 3,403 crore in FY23 to Rs 3,135 crore in FY24 and Rs 3,098 crore in FY25.

According to a source in the accounting profession running a chartered accountancy firm, boAt reported a profit in FY20 and FY21, but slipped into a loss due to a surge in advertising expenditure. Marketing expenses jumped from around Rs 99 crore in FY22 to over Rs 400 crore in FY23.

While revenue peaked in FY23, the subsequent moderation raises questions about whether heavy marketing delivered durable topline gains, or merely short-term scale.

The company declined to respond to questions sent by Business Today, saying it was not in a position to participate in any form of interview because it was close to its initial share sale.

Several companies founded nearly a decade ago—Lenskart (2008), software-as-a-service (SaaS) firm Capillary Technologies (2008), Urban Company (2014) and workspace provider WeWork India (2017), among others—reported profitability only around the time they went public.

Lenskart declined to comment for this story, citing the silent period ahead of earnings announcements during which companies refrain from speaking to the media. Urban Company didn’t respond to requests for comment.

Lenskart shares had slid as much as 11% from their sale price on their stock market debut before recovering in November. Urban Company’s shares made a stellar debut on the BSE on September 17, 2025, listing at a 56.3% premium over its issue price. The Rs 1,900-crore IPO was oversubscribed by over 103 times, indicating strong investor interest.

Business Today reached out to other start-ups that went public in 2025 for comment; only edtech company PhysicsWallah responded.

To be sure, this isn’t the first time that start-up stocks have attracted negative scrutiny. As long ago as in 2021, Paytm, India’s largest digital ecosystem for consumers and merchants, made a disappointing stock market debut because of investor concerns around its perceived overvaluation and lack of profitability at that time.

Maturity or Makeover?

Profitability achieved just ahead of going public can, of course, signify genuine business discipline. On the flip side, it can also mean short-term financial manoeuvring designed to meet market expectations, analysts and market participants say.

Explaining the broader backdrop, Chandra of Arkam Ventures points to shifting global dynamics. As public markets rallied, IPO size thresholds—especially on overseas markets like Nasdaq—rose sharply.

“For many Indian start-ups that had earlier incorporated overseas with an eye on foreign listings, these markets began to look increasingly difficult to access,” says Chandra, formerly Managing Director of Helion Ventures, one of the earliest India-focused VC firms. That prompted several companies to flip back to India.

In some recent listings, the ecosystem acknowledged that private market pricing had overshot public market realities. Subsequent valuation resets lowered the high watermark, making their IPOs viable again.

Chirag Agrawal, Partner and Head of Investment Banking at Deloitte South Asia, cautions against relying on revenue metrics alone.

“GMV or topline growth doesn’t tell the full story; what matters is how revenue is generated and whether the business model is sustainable. Growth should be organic, not simply bought,” he says. GMV stands for gross merchandise value, a key metric in e-commerce.

A business, Agrawal adds, should prove its ability to scale independently before tapping public markets. “Capital is available, but the rush to list is often driven by richly valued private markets in India,” he says.

For Sandesh Sharda, a veteran Washington-based investor, consistency matters more than timing.

“Ideally, companies entering public markets should have been Ebitda-positive for a meaningful period. What we are seeing instead is that some start-ups report profitability only in the run-up to listing, often driven by sharp cuts in discretionary spends such as marketing,” he says.

From an investor’s standpoint, the focus should be on companies that can stand on their own without relying on IPO capital.

Cash Out, Not In

“For any business, the three essential metrics are growth, profitability, and governance. Yet, the rush to the IPO market is often driven less by these fundamentals and more by the need for liquidity for early investors,” says Padmaja Ruparel, co-founder of the Indian Angel Network.

That shift is visible in IPO structures. Of the Rs 41,111 crore raised by 16 start-ups in 2025, Rs 21,459 crore came via Offer for Sale (OFS), used by existing shareholders to exit their investments. Capex-driven growth is increasingly absent; IPOs are now largely liquidity events.

Aakash Agrawal, Head of Digital and New Age Business at Anand Rathi Investment Banking, says this marks a structural change in ownership patterns. “This is the first time in India that we are seeing companies where founders hold well below 50% at the time of listing.”

As a result, IPOs are increasingly being used as exit routes. Yet, a key question remains: how will companies fund future expansion and create long-term value for public shareholders?

Agrawal argues that growth expectations need recalibration. “Companies do not need to grow at 100% year-on-year indefinitely. Most established businesses grow at a steady 10–15% annually, which is considered healthy.”

Post-IPO growth of 30–35%, he says, remains far higher than that logged by traditional listed companies. At that scale, growth depends less on capital deployment and more on market size and business maturity.

Reality Check

Valuation remains the most contested battleground. Companies such as asset manager Groww and Lenskart, which listed at valuations of Rs 60,000–70,000 crore, have faced sustained scrutiny. Others like online commerce firm Meesho have recalibrated expectations pre-listing.

Samir Arora of Helios Capital points to the disconnect. “When a company positions itself as a new-age business—frequently loss-making and valued at steep revenue multiples—on the promise of 50–100% growth, investors are willing to support it,” he says. “But when post-listing guidance drops to 20%, it begins to resemble a traditional business.”

Assessments by financial services firms echo the recalibration. A report by IIFL projects Lenskart’s India business to grow at a compound annual growth rate (CAGR) of around 19% between FY25 and FY35—healthy, but reflective of a maturing curve.

Gaurav Sood, Managing Director and Head of Equity Capital Markets at Avendus, puts it plainly: “People have also understood that in a great market, any kind of IPO can get sold. But in the long run, there will be tests. Profitability is very important.”

“A company may turn profitable in one, two, or even three years, but investors need visibility that break-even and profitability are achievable in the foreseeable future—typically within the next one to three years,” Sood says. “What matters is whether the business is maturing towards a steady state.”

Narrative v/s Performance

Several cases show how projections alone don’t guarantee market success. Ola Electric, among the youngest start-ups to list, entered the markets on a strong Make in India positioning and optimistic growth assumptions. Yet in 2025, its market share more than halved to about 16%, down from 36% in 2024, with revenue also declining.

In contrast, Ather Energy continued to gain ground, with market share rising to around 16–18%, overtaking Ola Electric during the year. While Ather did not turn profitable ahead of listing, its loss narrowed sharply to Rs 812 crore in FY25 from Rs 1,060 crore in FY24.

Post-listing performance ultimately hinges on execution, competitive dynamics and financial discipline, not narrative alone.

Big Picture

Prashant Singhal, Partner and India Markets Leader at EY, says IPOs are expanding investor participation. An IPO, he says, allows Indian investors and funds to participate in growth that would otherwise remain confined to founders or private equity investors.

Siddharth Chandrashekhar, a lawyer at Bombay High Court who advises early-stage companies, says the moment a start-up seeks retail capital (from the primary market), the rules of the game change. Public markets do not fund ambition alone; they fund sustainability, predictability and efficient corporate governance. “We need start-up IPOs where the numbers in the Draft Red Herring Prospectus tell the same story before and after the bell rings,” he adds.

Investor trust remains fragile. While it is natural for start-ups to go public during their growth phase, a few missteps can quickly amplify scepticism and reshape sentiment around the ecosystem, which is the world’s third largest.

As the IPO wave gathers pace again, the market’s message is clear: valuations may open the doors, but only consistent profitability, governance and execution will decide who stays for the long haul.

@PalakAgarwal64