Razorpay to fast-track India return ahead of global expansion, IPO

Razorpay is likely to complete its reverse-flipping process in six months, co-founder and chief executive Harshil Mathur told Mint in an interview, adding that an initial public offering of its shares would possibly take another two years.

“We are still waiting for the approvals (for moving the parent entity’s domicile) to happen so it should take anywhere between 3-6 months from now. After we flip, we need at least 6-8 quarters of clean financials before we go public, so I’d say that we are at least 2 years from an IPO," he said.

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Razorpay, however, may incur $200-300 million in tax outgo in the process of shifting its domicile to India, as per various media reports. Without disclosing the exact figures, Mathur explained that the tax would be paid to US authorities and the financial impact would be decided based on the company’s fair market valuation at the time of approval. 

Razorpay was last privately valued at about $7.5 billion when it raised $375 million in its Series F funding round in 2021. The Bengaluru-headquartered startup was founded by Mathur and Shashank Kumar in early 2014 and its parent entity, Razorpay Inc., was incorporated in the US later that year.

Several startups set up bases in Singapore or the US as India’s commercial, regulatory, legal, and tax landscape was deemed less investor- and business-friendly, said Vaibhav Kakkar, senior partner at law firm Saraf and Partners. By incorporating abroad, Indian startups were also able to raise funds from foreign private equity and venture capital funds more easily and at more attractive valuations.

However, the Indian government has in recent years made efforts to improve the ease of doing business in the country by offering financial and policy incentives to encourage startups to list on domestic bourses, Kakkar said. 

The recently amended framework for fast-track domicile flipping has further simplified the process for startups to list in the country, he added. “With the sustained and gradually improving performance of the Indian capital markets, investors (specifically private equity and venture capital funds) also have greater confidence in getting an exit from the Indian markets."

The fast-track route

Several companies, including PhonePe, PineLabs, Zepto, and Groww, have shifted or are in the process of flipping their domicile to India to take advantage of a large addressable market, greater access to domestic capital, and the improving ease of doing business in the country.

Broadly, companies can move back their domicile to India via two common routes: a share-swap, where shareholders swap their foreign shares for those in the Indian company, or by merging the foreign parent with the Indian subsidiary. 

In September, India’s ministry of corporate affairs announced that any merger between a foreign holding company and its wholly owned Indian subsidiary would only require approval from the Reserve Bank of India. This effectively scrapped the need for securing clearance from the National Company Law Tribunal, reducing the time needed for reverse-flipping.

Razorpay has opted for the fast-track route.

Also read | Startups flipping to India gain pace in fintech, other segments

Towards profitable units and global growth

Razorpay’s total income in 2023-24 improved to ₹2,501 crore from ₹2,293 crore in the year prior, with nearly 75% of its revenue coming from its online payment gateway business. Net profit surged to ₹34 crore from ₹7 crore.

The company anticipates online payments—its only profitable business segment—to grow at a compound annual growth rate of 50% over the next few years. Its offline payments division and its neo-banking business, RazorpayX, each contributed 10-12% to the total revenue, while its international businesses contributed the rest.

Razorpay, which has operations in the UAE and Malaysia, plans to launch in Singapore and other Southeast Asian markets shortly. 

Also read | Razorpay bets on offline, overseas business ahead of IPO

“Almost all our new businesses are growing at nearly 100% year-on-year. While there is high growth, there is also a cost to it, so we expect each vertical to break even and eventually become profitable over the next 1-1.5 years," Mathur said. 

He added that Razorpay has a healthy balance sheet and does not need to raise funds for expansion soon. The company will reserve a portion of its corpus for the tax implications of the reverse-flipping.

Razorpay has raised over $740 million from investors including Tiger Global, Peak XV Partners, Y Combinator, Lone Pine Capital, and Alkeon Capital.