Looking to take the IPO route? Find the growth-profitability balance first, say business leaders at TechSparks 2018
Sanjay Katkar, MD and CTO at Quick Heal Antivirus and Manish Agarwal, CEO of Nazara Technologies talk about the Business of Giants - winning the profitability and growth war at TechSparks.
Even as the first day of the ninth edition of TechSparks 2018 progressed towards lunchtime, those hungry to know how to crack the elusive profitability-growth balance were not left high and dry. At the session 'Business of Giants- Winning the Profitability and Growth War', Sanjay Katkar, Managing Director and Chief Technology Officer, Quick Heal Antivirus and Manish Agarwal, CEO, Nazara Technologies let the audience in on how rewarding persistence and discipline prove to be in the long run.
Both the leaders took the path of struggle to success. While the session revolved around initial public offerings (IPOs), other topics - how a growth mindset is different from a profit-making one, how growth and profitability should be seen in times of volatility in the market, when is a good time to become an IPO, whether to focus on growth spending all your profits or pocket them, and why there is a need to go for IPO were the other key topics discussed.
When a growing private company or corporation wants to expand, it raises investments from public offering (IPO). Once a company files for IPO, it can exit its earlier investors.
With Quick Heal, Sanjay explained that they did not open its stock for public when markets crashed in 2013, a move that saved them from failure. It instead did it in 2016. He noted that the company's plan was to grow organically and to that end it wanted to exit its past investor. Their focus was not just on raising money and Quick Heal kept re-inventing its products.
Mobile games company Nazara, serving emerging markets such as India, the Middle East, Africa, Southeast Asia and Latin America, became the first online gaming company to file for an IPO this year. Its downloads increased from 42 million in 2016 to 44.5 million in September 2017. Investments helped the company reach Tier I and II cities using virtual reality lounges, and the company was able expand in the interactive entertainment market.
Focus on margins
With the recent Sensex crash and volatility, what does a company have to keep in mind when it seeks an IPO? Sanjay advised young entrepreneurs to focus on growing by protecting their margins.
“Investors look at how you are trying to maintain your profitability. Although growth has some risk involved, if you do have money from investors, it is a good strategy to follow,” he added.
Manish, however, brought a different perspective about the impact of markets. “Ups and downs of markets are not truly indicative of your company. Just focus on the basic key metrics and growth will follow,” he said.
As more and more companies file for IPOs, the options to explore are expanding. "The gaming market in India has a huge opportunity for growth. But do not try to achieve rocket growth just in a year of launch. Consistency is the key factor,” Manish said, adding that concentrating on unit economics, and making concerted efforts to understand customer needs will help in the company's growth.
Spend profits on growth or pocket them?
On how to manage profits, Sanjay said, “If a product or service is creative enough and drives innovation, then growth needs to be focussed on first and not an IPO. Once you have established your product, your consumers are satisfied, and then you can pocket profits. That’s what we did.”
There is room for both growth and profit. “Once a business is in its gestation period, backed by investors, it can then work on market shares and strengthening its product KPIs. That’s how successful companies run,” Manish said.
Sanjay said, “If a product or service is creative enough and drives more of innovation, then growth needs to be focused first and not going public.”
Sustainability is key
Both the panelists agreed that business models need to be sustainable.
“You just need to keep re-inventing. Do not stick to one product. Once you have the investors on your side, the company will generate revenue and later profits. A time will come when the company can exit the investors and file for an IPO,” Sanjay said.
Filling for an IPO becomes the right path to pursue when your product does not involve a lot of innovation. This is because investors are more focussed on quarterly growth. But for a creative product, that goes through a number of trials, nothing changes in a quarter. Such a product needs at least 12 months for a good response. Sanjay shared his personal experience on how difficult it was to convince Indian investors that the product will take time to create profits and stabilise.
YourStory's annual extravaganza TechSparks brings together the best and the brightest from the startup ecosystem, corporate world, policymakers and, of course, the investor community. Over the years, it has grown to become India's most loved tech and startup platform for knowledge sharing and networking. The ninth edition of TechSparks also marks YourStory's 10th anniversary. A big thank you for all your support over the years and keep reading and watching YourStory.