SEBI Plans Stricter Rules for KPI Disclosures by Companies

The Securities and Exchange Board of India (SEBI) is set to revisit the Key Performance Indicators (KPI) framework established two years ago for public offerings by new-age companies. According to sources familiar with the matter, the objective is to enhance the KPI disclosure standards, which are particularly crucial for IPOs of digital companies and start-ups that often lack a proven profitability record.

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This move is significant as it comes over two years after SEBI first introduced the KPI framework to address concerns surrounding IPOs by companies like Zomato, Nykaa, and Paytm. These companies, characterized by unproven profitability, have raised questions about transparency and pricing during their public listings.

"SEBI intends to refine the rules based on insights gained over the past two years. Feedback has already been sought from select industry bodies," a source noted. The regulator reportedly believes current disclosures are insufficient and is aiming to provide investors with more robust information, especially as more digital companies prepare to go public. Declines in valuations and profitability challenges among high-profile start-ups have further emphasized the need for more comprehensive disclosures.

Introduced in 2022, the KPI framework mandates IPO-bound firms to disclose historical transactions and fundraising details, including share prices from the 18 months preceding the IPO. The framework was a response to issues with IPOs in 2021, where digital firms faced steep post-listing price declines, raising concerns about overvaluation and perceived lucrative exits for PE/VC investors.

SEBI has scrutinized the KPI framework before. Earlier this year, reports indicated that SEBI had intensified its review of KPI-related disclosures, demanding justifications for any changes and their alignment with proposed valuations. For instance, the IPO of FirstCry had to be refiled after SEBI requested additional KPIs, highlighting its push for transparency.

According to insiders, the regulatory review is still in its initial stages, involving feedback from industry stakeholders and internal deliberations. The process will likely take time as SEBI seeks a balanced and effective revision of the KPI framework.