Market regulator Securities and Exchange Board of India (SEBI) has proposed tightening disclosure standards of technology companies planning to float initial public offerings (IPO).

According to a consultation paper tabled by SEBI, companies will have to disclose more details about their valuations based on the issuance of new shares and acquisition of shares in the past 18 months before filing draft papers. The public can share their views on SEBI’s proposal until March 5.

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The proposal aims to cover only those firms which don’t fulfil the three-year profitability record, while for others the rules remain unchanged.

The development comes as many new tech companies are tapping the IPO route to raise funds despite no record of having operating profits in the past three years. Recently, stock prices of several newly listed technology companies such as Paytm and Zomato dropped sharply after their listing over the preceding few months.

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According to the current norms, in the Basis of Issue Price section in an offer document, companies have to disclose parameters such earnings per share (EPS), price to earnings, return on net worth and net asset value of the company as well as a comparison of such accounting ratios with competitors.

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SEBI observed that “it is obvious that disclosures in the Basis of Issue Price section, particularly for a loss-making company, are required to be supplemented with non-traditional parameters like key performance indicators (KPIs) and disclosure of certain additional parameters such as valuation based on past transactions/fundraising by issuer company”. Most start-ups use various statistical methods like gross merchandise value (GMV) to make revenue projections. Private equity and venture capital investors who buy stakes in unlisted start-ups also go by such KPIs.

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According to the proposed norms, the issuer company shall disclose all material KPIs that have been shared with any pre-IPO investor at any point of time during the three years before the IPO and an explanation of how these contribute to the forming of the Basis of Issue Price. Companies might also have to provide an explanation for those KPIs that they deem non-relevant for the IPO.

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SEBI’s discussion paper added that the companies shall also disclose “Valuation of Issuer Company based on secondary sale/acquisition of shares (equity/convertible securities), excluding gifts, in the 18 months before the date of filing of the DRHP/RHP where either acquisition or sale is equal to or more than 5% of the fully diluted paid-up share capital of the issuer”.

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All KPIs would have to be auditor certified. The market regulator also suggested that comparison of KPIs with Indian or global listed peer companies (wherever available) should be disclosed in the offer document and KPI comparison over time should be explained.