REVOLUTIONARY SURGE OF UNLISTED GIANTS

By Dipika Miglani

INTRODUCTION

In the dynamic Indian corporate environment, listed and unlisted companies are fighting rigorously for market share and dominant position market. Unlisted businesses are becoming fierce rivals, indicating a revolutionary shift from focusing solely on publicly traded companies. They are agile, often privately funded, and not subject to the quarterly obligations that publicly traded companies must meet. This begs the question of whether unlisted companies are doing better listed counterparts?

Unlisted companies, often family-owned conglomerates or venture capital-backed startups, enjoy a level of operational autonomy that listed companies can only dream of. Since they are not limited by stringent disclosure requirements, they are able to pursue long-term strategies without any intervention from shareholders. This facilitates quicker decision-making, faster growth and improves risk taking behaviour. One of the primary benefits of unlisted businesses is their ability to access private funds. They can get money from venture capitalists, private equity firms, or family members without having to undergo complex and burdensome compliances of IPO’s. They can expand their company, invest handsomely in R&D, and thrive economic downturns without feeling the onus of quarterly profit obligations because they have access to patient capital.

In FY24, a CMIE study comparing 4,231 unlisted companies with 3,575 listed companies found that unlisted companies had higher revenue growth at the rate of 8% compared to that of 1.7% of listed firms. Moreover, NPAT surged by 29% for unlisted companies and 27% for listed companies. Unlisted companies are also enhancing their scale of operations. Their fixed assets have risen by 7.5%, exceeding the 6.4% growth seen in listed counterparts. This growth is further accentuated by the substantial disparity in Capital Work in Progress (CWIP) growth, which saw unlisted companies see a spike of nearly 7% in CWIP while listed firms only saw a modest rise of 0.3%. An elevated interest coverage ratio of approximately 3, signifies a solid capacity to fulfil interest commitments of the shareholders and indicates financial position of unlisted companies. Furthermore, unlisted companies usually focus on complex technologies or work in niche markets where they can obtain an advantage prior to going public. They are consequently able to create a solid business plan and acquire a sizeable share of the market.

The unlisted business does have some drawbacks. Their ability to grow may be hindered by a lack of transparent and restricted access to public funds. Even though private funding can be crucial, it might not be adequate to facilitate mergers and acquisitions or expansion. Sustainability can be impacted in the long run by lack of proper governance and public opinion.

Meanwhile on the other hand, listed businesses enjoy the advantages of improved brand awareness, more stringent corporate governance policies, and easier access to capital markets. They can adopt aggressive growth strategies by raising funds through debt, equity and other capital market instruments.

Moreover, listed businesses frequently have a solid track record and well-established brand image. This gives them a competitive edge over unlisted business to acquire clients. This also showcases the trust of investors in the listed companies.

The competitive landscape between listed companies and unlisted businesses is not a zero-sum game. They often coexist and even collaborate when required. This happens in a way where unlisted companies act as suppliers, partners, or possible acquisition targets for listed companies. This win-win partnership facilitates innovation and economic growth.

Considering the revolutionary shift, unlisted companies, however, are posing a great threat to their listed counterparts in few industries. Fintech and e-commerce are excellent instances of industries where unlisted startups are establishing business models and gaining a sizable market share. They have been able to out-impact well-known listed companies. All credit goes to their agility, creative solutions, and access to private funding.

Unlisted businesses are also becoming more prevalent in the sectors of infrastructure and real estate. These organizations can take on projects that listed companies might find too risky or capital-intensive because they frequently have the advantage of private funding and specialized skills and expertise. Unlisted businesses are also rapidly increasing in the pharmaceutical and healthcare industries. These industries are characterized by quick advancements in medical technology and drug development and since unlisted companies have better access to research and development, the sudden surge in these sectors is justifiable. These organizations are gaining a sizable market share which may have an impact on the investment plans and valuations of the listed pharmaceutical companies. The reason behind this being frequent concentration on specialized markets with specialized solutions. This pattern showcases how important it is for investors to keep an eye on the unlisted market for new investment opportunities.

The aviation industry, for example, displays this trend, with unlisted businesses showing an extraordinary 58% increase in fixed assets due to rising travel demand. Consumer goods and real estate, where unlisted businesses are making significant investments, indicate similar growth trends. While Sun Pharma and Dr. Reddy's are prominent listed companies in the pharmaceutical sector, unlisted businesses that specialize in niche therapies or specialized drug development are also gradually becoming more popular and might have an impact on the market share and valuations of their listed counterparts. Another strong example is e-commerce. Unlisted companies with creative business strategies or a regional focus are gaining a substantial share of the market, even though listed players like Flipkart (now owned by Walmart) and Amazon India dominate.

India's capital markets are significantly impacted by the dynamic and complex nature of listed and unlisted companies. Both classes of organizations hold great prominence in promoting innovation and value creation in economy. However, their success in raising money and attracting investors will depend highly on their ability to innovate, adapt, and capitalize on their USPs. The gradual rise of unlisted companies is boon as well as a bane for the capital market. High risk is associated with these organizations due to their limited transparent policies and liquidity even though they might have more opportunities to grow in disruptive industries. Thorough due diligence must be performed by the investors while, evaluating the unlisted companies.

The regulatory environment is also changing in recognition of the increasing power of unlisted businesses. To maintain fair market practices and protect the interests of the investors, regulatory bodies like Competition Commission of India was established in 2002. CCI helps in ensuring that no business is indulging in any unfair trade practices which creates an appreciable adverse effect on the competition in India.

CONCLUSION

As unlisted businesses increasingly oppose the dominant position of their listed counterparts, the Indian corporate landscape is undergoing a significant power shift. Their focus on niche markets, agility, and access to private funding are shaking up established business models and altering the dynamics of the industry. The growth of unlisted companies, especially in industries like e-commerce, fintech, and healthcare, calls for a reconsideration of investment strategies even though listed companies continue to have advantages in terms of capital access and brand recognition. Investors must perform thorough due diligence, balancing the risks of restricted disclosure and liquidity against the possibility of rapid growth. The need for greater transparency from unlisted companies is highlighted by the way that changing regulatory frameworks are adjusting to guarantee fair competition. The performance of listed companies and the overall condition of the capital markets are frequently correlated with capital inflows into unlisted businesses. For example, investor interest in unlisted companies with possible IPO plans was driven up by the firm IPO market in FY24, which saw 76 mainboard IPOs, a 110% increase from the year before. On the contrary, a slump in the IPO market or a decline in the performance of listed companies could negatively impact the flow of capital to unlisted businesses. These two forces will ultimately influence the future of India's capital markets by necessitating a thorough understanding of their individual advantages and disadvantages to negotiate the changing investment environment.