New-Age Companies Report Profits Before IPOs: A Closer Look at Sustainability
Several new-age companies are reporting profits just before their IPOs, sparking concerns about the sustainability of these financial turnarounds. Lenskart reported a profit of Rs 297 crore, with Rs 167 crore from one-time acquisition gains. Urban Company's Rs 7 crore profit turned into a Rs 59 crore loss post-listing. Pine Labs narrowed losses from Rs 341.90 crore to Rs 145.50 crore, reporting a Rs 4.80 crore profit. Experts warn that these profits often involve one-off gains, expense timing adjustments, and fair-value changes, potentially misleading investors. They advise focusing on cash flows, core operations, and long-term business models when evaluating these companies.
*this image is generated using AI for illustrative purposes only.
In recent times, several new-age companies have been reporting profits just before their Initial Public Offerings (IPOs), raising eyebrows and concerns about the sustainability of these sudden financial turnarounds. This trend has caught the attention of market analysts and investors alike, prompting a closer examination of the reported figures and their implications for long-term business viability.
Profit Reporting Patterns
A notable pattern has emerged among new-age companies preparing for their IPOs:
| Company | Reported Profit | Key Details |
|---|---|---|
| Lenskart | Rs 297.00 crore | Rs 167.00 crore from one-time acquisition gains |
| Urban Company | Rs 7.00 crore | Swung to Rs 59.00 crore loss post-listing |
| Pine Labs | Rs 4.80 crore | Narrowed losses from Rs 341.90 crore to Rs 145.50 crore in the previous fiscal year |
Analysis of Reported Profits
Lenskart
Lenskart's reported net profit of Rs 297.00 crore includes a significant one-time gain of Rs 167.00 crore from acquisitions. When normalized, the actual profit stands at Rs 130.00 crore, representing a slim margin of 1.96%.
Urban Company
The company's pre-IPO profit of Rs 7.00 crore quickly reversed into a substantial loss of Rs 59.00 crore after listing, highlighting the volatility and potential unsustainability of pre-IPO profits.
Pine Labs
While Pine Labs showed a profit of Rs 4.80 crore, it comes after a period of significant losses. The company has been working on narrowing its losses, reducing them from Rs 341.90 crore to Rs 145.50 crore in the previous fiscal year.
Expert Insights
Market analysts have pointed out that these reported profits often involve:
- One-off gains
- Expense timing adjustments
- Fair-value changes
These accounting practices, while legally disclosed and within accounting standards, may not accurately reflect the sustainable earnings of the business. Experts caution that such figures could potentially mislead investors who don't delve deeper into the financial statements.
Implications for Investors
For retail investors considering these new-age companies, it's crucial to:
- Look beyond headline profit figures
- Focus on cash flows and core operations
- Analyze the sustainability of reported profits
- Consider long-term business models and growth potential
Conclusion
While the trend of new-age companies reporting profits before IPOs is noteworthy, it's essential for investors to approach these figures with caution. A thorough analysis of financial statements, understanding of one-time gains, and evaluation of core business operations are crucial for making informed investment decisions in this evolving landscape of new-age companies going public.
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