Profitable Indian unicorns to grow from 30 in FY22 to 55 in FY27: Report

The number of profitable Indian unicorns will grow from 30 in Financial Year 2021-22 (FY22) to an estimated 55 in FY27 as companies save costs and focus on earning money, a report has said.

The total loss made by unicorns is expected to reduce from $7.1 billion to $1.9 billion in the same period, according to an analysis of 100 such companies by Redseer Strategy Consultants. A unicorn is a privately held start-up valued at over $1 billion.

As many as 50 per cent of unicorns are expected to become profitable by FY27, as 20 per cent of them struggle due to regulatory challenges, reduced, and unclear business models.

Unicorns battling funding changes, valuation drops and slow growth will either shift to new models, get acquired, or shut down. There were 68 loss-making unicorns in FY22 and the number will likely fall to 43 in FY23, according to Redseer, a consulting firm.

Redseer analysts believe that unicorns could increase their profits five-fold by FY27, compared to their performance in FY22. Fintech and financial services, B2B, SaaS (software as a service), and e-commerce are the four sectors expected to drive the highest profits in coming years.

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There are about 100 unicorns and fewer than 400 public companies with a market capitalisation of more than $1 billion each in India. Mohit Rana, partner at Redseer, said at an event that while technology has an outsized impact on the economy, there is a tendency for over valuing it in the start-up world.

Indian start-ups have been on a roller coaster ride in the last few years. They experienced a sharp funding peak during FY22 totalling $50 billion, but then a so-called funding winter over the subsequent quarters led to a 70 per cent drop in FY23 to $15 billion.

The increasing cost of capital, rising interest rates, recession in developed markets, a decline in the value of technology stocks, and the slowdown in consumer internet growth have all been challenges for sustained funding, said the analysts.

Consequently, start-ups are now focusing on expediting their path to profitability and reducing burn rates.

“Listed tech companies have made significant improvement over the last five quarters. Paytm launched new products, expanded into new business segments, and upsold/cross-sold to existing customers to increase revenue per customer. Zomato increased take rates from restaurant partners and delivery costs from customers,” Rana said.

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“A similar path to profitability has been observed from global peers as well. Uber increased take rates to 28 per cent in 2022 – an increase from 15 per cent in 2021, reduced incentives to drivers, and expanded revenue streams. Airbnb optimized and maintained cost discipline in workforce and marketing and increased fees from guests and hosts,” he said.