Companies to soon face tighter KPI disclosure norms as SEBI mulls review of rules

The Securities and Exchange Board of India (SEBI) is planning a review of the KPI – Key Performance Indicators – a framework that was put in place two years back for public issues of new-age companies.

Sources familiar with the development say that the aim of the capital market watchdog is to strengthen the KPI disclosure framework that plays an important role especially in the initial public offers (IPOs) of digital majors and start-ups that typically do not have a proven track record in terms of profitability.

This assumes significance as the regulatory initiative comes a little over two years after the capital markets watchdog introduced the KPI framework. The KPI disclosure framework was in response to a slew of IPO of digital majors or start-ups like Zomato, Nykaa and Paytm among others.

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“It has been two years since the KPI disclosure framework was introduced and based on the experience and learnings, SEBI wants to review and strengthen the rules. It has already reached out to a few industry bodies for feedback and suggestions,” said a person familiar with the development.

“SEBI is not happy with the current level of disclosures and wants investors to get access to better disclosures especially since many digital companies are looking to list. The absence of profitability and a huge fall in valuations of many marquee start-ups has also necessitated a review to ensure proper disclosures are made,” he added.

In 2022, SEBI introduced the KPI framework that made it mandatory for IPO-bound companies to disclose details of past transactions and fundraising, including the price at which shares were sold 18 months prior to the IPO.

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It was necessitated by the IPOs of digital majors like Zomato, Paytm, Nykaa and Policybazaar that were launched in 2021 and saw a steep fall in the share prices post-listing. Many in the market questioned the pricing of the issues and said that the IPOs were expensively priced to give a lucrative exit to the PE/VC investors.

This is not the first time that the KPI framework has caught the attention of the capital markets regulator. In May, Moneycontrol had reported that SEBI has started taking a strict view on the KPI-related disclosures while seeking detailed explanations related to the change in KPIs and whether the change justifies the valuation being sought during the public issue.

Incidentally, the IPO of FirstCry grabbed the headlines when it had to withdraw the draft document papers for its $500-million IPO in April, only to refile with additional KPIs. Moneycontrol had earlier reported that SEBI had initially sought 25 KPIs of which FirstCry provided only 5-6 in its first set of filings.

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Meanwhile, the source quoted above further said that the regulatory review will take time as the process has been initiated recently and discussions at various levels – SEBI committee, industry feedback, internal deliberations etc – need to be conclusive before a consensus can be arrived at.

An email query sent to SEBI remained unanswered till the time of publishing this story.