Homeshop18 files for confidential IPO at Nasdaq [Game changing move to raise $100 million]

In a move that could change the game for Indian e-commerce, Homeshop18, the e-commerce & television shopping arm of India’s Network18 group has filed for a “confidential” Initial Public Offering (IPO) at the Nasdaq, according to a source with knowledge of the development.

The company is planning to raise $ 100 million by the end of the year from the stock exchange, it was reported earlier. If the IPO is a success it will be a major shot in the arm for India’s $ 10 billion e-commerce industry which is constantly in need of fresh capital.

An e-mail sent to Network18′s Chief Financial Officer RDS Bawa earlier did not elicit any response. In an e-mail response, Mr. Sundeep Malhotra, Founder & CEO, HomeShop18.com said:

TV18 Home Shopping Network Holdings is a growing business and is continually assessing financing alternatives and the needs of its operations.  We do not make these assessments public.

A confidential IPO is a new mode of raising capital at the US Stock Exchanges. Under this, the company does not have to disclose that it is raising money ahead of its IPO roadshow (more on this below).

E-commerce companies need large amounts of cash to sustain operations in the Indian consumer market which is slated to grow to $ 3.6 trillion in 2020. With the Indian government saying that e-commerce companies backed by foreign direct investment are not permissible, foreign Venture Capitalists and Private Equity players are also in a wait and watch mode.

The e-commerce industry in India, is about $ 10 billion in size and is growing rapidly with many fledgeling companies. High burn rate forces many to shut shop or merge with larger competitors in mid stride.

In April this year, news agency Reuters reported that the Homeshop 18 is in talks with institutional investors, including private equity firms for pre-IPO placement. Its Chief Executive Officer, Sundeep Malhotra told the agency

“We have ambitions to get listed and are open to it but it is premature to talk about it now. We cannot give any timeframe on that at the moment.”

Homeshop 18 is owned by BSE listed Network 18 group headed by Raghav Bahl. They had raised Rs 100 crore ($18.6 million) from existing investors including SAIF partners in July last year. South Korean company- GS Home Shopping, had invested $ 18.5 million along with $ 5 million from Network 18 in the previous round in 2009.

Financials

For the year ending 31 March 2012, the company is targeting a revenue of over Rs 160 crore. In the first quarter of FY13, Homeshop 18′s revenues grew 85 % compared the the same quarter last year. It also said that orders went up by over 80 % year on year. During the quarter, it ventured into mobile commerce as well. In 2011-12, Homeshop18′s revenue was at Rs 89.6 crore, up 25.5 % from the previous year.

Source: Network18, Annual Report 2012

For the year 2011-12, the Rs 1943 crore Network18′s digital content and e-commerce business (Homeshop18 is part of this) clocked revenues of Rs 233.8 crore, up 18 % from the previous year. The group’s digital content and e-commerce business made a loss of 126.3 crore in 2011-12. The division clocked an operating loss of Rs 32.2 crore in the first quarter of 2013.

Confidential IPO

The new mode of filing for an IPO without having to publicly disclose the fact that a company is doing so, is the in thing in the US since the Jumpstart Our Business Startups (JOBS) Act  was passed by President Barack Obama in April 2012. According to the act, companies with less than $ 1 billion revenues, do not have to make public the IPO plans until 21 days before its roadshow begins. The number of Public IPOs since the JOBS act have come down while “secret” or “confidential” IPOs have been on the rise.

These companies are categorized as emerging or growth companies and require less paperwork. Pointing out the advantages of such an IPO, the Inc. says

This allows companies with less than $1 billion in revenue to test the waters for an IPO by getting feedback from the SEC and certain investors; it also makes it easier for a company to quietly back away from an IPO if the response isn’t sunny.

There has been a lot of criticism about this practice as well. Besides bringing down the accuracy of financial analysis, the secrecy around the IPO puts small and retail investors at a disadvantage, is one of the main criticism.