Lenskart, PhysicsWallah, PineLabs: Why new-age IPOs fail to maintain profitability post debut

Last few months have seen a strong pipeline of new age businesses launching their IPOs and making Daal Street debut. Interestingly, a number of companies from these niche and new age sectors turned profitable just after making their market debut or in the first quarterly earnings. However, the majority of them failed to maintain the momentum to reward investors.

Names like Lenskart Solutions, Pine Labs, PhysicsWallah, Urban Company, WeWork India, Dev Accelerator and others just turned profitable before making their stock market debut. Market participants often criticize these start-up companies for 'accounting tricks' to turn profitable only on paper, not through their operational business.

In the run-up to a public listing, profits more-less than not is becoming an essential ingredient of IPO-bound companies. Profitability is one among several other metrics that gives confidence to investors to go ahead and buy the IPO. Their profitability from the regular business and sustainability of the same continue to remain under scrutiny.

These new age companies were also questioned for their expensive valuations, with a number of issues barely managing to sail through on the back of the QIB push. Experts say these numbers may not yet reflect a fully stable business model and this issue is not about legality, but sustainability.

After listing, many startups see profits decline not because of one clear issue, but due to a mix of accounting adjustments and operational realities coming to light. In the private phase, companies enjoy flexibility — they can emphasize growth, delay certain costs, or use one-time gains and aggressive revenue recognition to present a stronger pre-IPO financial picture, said Harshal Dasani, Business Head at INVasset PMS.

"Profits before IPOs are short-lived. Once normalised accounting and higher transparency set in, core business challenges resurface, and profitability moderates. Post-listing profit declines are less about manipulation and more about transition. For investors, the key is to look beyond the headline numbers and assess whether the growth engine can sustain itself once the IPO spotlight dims," he adds.

Experts believe that such tactics have become a common practice for start-ups to show profitability right before the IPO. However, capital markets regulators can not do much if the accounting adjustments are within Indian standards, properly disclosed, and backed by auditors and merchant bankers. Disclosures and transparency remain the legal standards.

Startups often enter listings with a 'growth at any cost' approach, prioritizing customer acquisition and market share over profitability. Once public investors demand predictable earnings and paths to profit, companies are forced to cut back on subsidies and expansion, exposing underlying cost structures and limiting revenue growth, said Swatantra Bhatia, Partner, Accounting and Outsourcing Services, Forvis Mazars in India.

Listing brings elevated compliance and governance costs that startups were less burdened by as private entities. The need to invest in audit, legal, investor relations, and governance functions to meet regulatory standards erodes already thin margins. Public companies face intense scrutiny on every pivot and pricing strategy, further weighing on profits, he said.

"The key challenge is that many startups list before stabilizing their business models or achieving sustainable unit economics. Their IPO stories emphasize growth narratives more than proven profitability, a gap that becomes glaring under public market pressures. To avoid post-IPO profit decline, startups need to achieve operational breakeven before listing," Bhatia adds.