Pepperfry nears break-even, aims for IPO in 12-18 months

“We set a goal of profitability for the early part of next year," co-founder and chief executive officer Ambareesh Murty said in an interview. “In August, we almost broke even. We are gunning to file for an IPO in 12-18 months. For an IPO, a track record of at least 6-9 months of profitability is important to show the business is capable of making money. Over 6-12 months, we will focus on not only profitability but will also use the opportunity to grow. There is no scope for complacency, and we need to execute the way we have all this while."

The Mumbai-based Pepperfry’s IPO plans come at a time when discretionary spends across sectors, including furniture retail, have been affected by the coronavirus lockdown and economic distress.

Pepperfry isn’t alone. Despite the disruption from the pandemic, startups Zomato, Delhivery, MobiKwik and PolicyBazaar are considering going public in the next two years. Walmart-owned Flipkart, too, may go for a listing next year, Mint reported on 16 September.

Last year, Pepperfry said it has started the process of planning for an IPO.

Pepperfry competes with Urban Ladder, smaller startups, and horizontal marketplaces, including Flipkart and Amazon. Urban Ladder is reported to be in talks for a potential sale.

According to data from RedSeer Consulting, India’s online furniture market grew at an annual average pace of approximately 80-85% to touch $700 million in 2019-20. But online has less than 3% share in the overall furniture market pegged at $17 billion.

Murty said despite the initial disruption in business during the lockdown, various actions helped the company move to profitability.

“Since the lockdown restrictions were lifted, our business has grown sharply every week. We do more business today than we did in January-February. That was made possible because we own our supply chain, though it continues to be tough for the rest of the furniture industry. Building an omnichannel business, investing in the brand and multiple private labels are the other things we have benefited from," he said.

The company has more than 60 experience centres called Pepperfry Studios across cities.

The startup raised $40 million in its Series F round in February from Pidilite Industries Ltd and existing investors. News portal Entrackr estimates the funding raised the firm’s valuation to $462 million from $300 million last year.

The IPO pipeline of startups has also led to speculation over where the listings could happen, and if a dual listing is going to become mandatory.

“If one was to list in the US, then an Indian business would be perceived as an emerging market business; what would matter is its rate of growth and profitability. However, if listing in India, you would be looked at as a consumer brand which gets a valuation premium in the equity markets. Depending on the path a startup has adopted, be it rapid growth or profitability, will decide the market you want to list in. If I am on a balancing path, of growth and profitability, (listing in) India makes a lot more sense for me," Murty said.

Karan Marwah, partner and head, capital markets advisory, KPMG in India said new-age companies looking to tap the market can benefit from the revival of interest in equities as an investment class, especially with retail investors.

“What may make it challenging for them is the lack of peers or comparable companies; however, as we’ve seen with some similar IPOs in the past, that can be an advantage too given their differentiated products or services and resultant market positioning. They should also evaluate how to better articulate their equity stories to highlight the significant non-financial value they may be creating using frameworks like ESG (Environmental, Social, and Corporate Governance)," Marwah said.