Unlisted shares offer a unique investment opportunity, representing companies that are not listed on formal stock exchanges. These companies may choose to remain unlisted to avoid regulatory requirements or the public market. While investing in unlisted shares involves higher risks due to limited liquidity and transparency, they often provide more stable valuations. Savvy investors who identify unlisted shares with strong growth potential and listing prospects can reap significant rewards.
This article explores the Indian unlisted shareslandscape, highlighting their unique investment potential and associated risks. We delve into the operations and financial performance of prominent unlisted companies such as Swiggy, NSE, boAt, Cochin International Airport, and HDB Financial Services.
Additionally, we examine the impact of market trends, regulatory changes, and upcoming IPOs on these companies valuations and growth prospects. The article also addresses the challenges and opportunities investors face when navigating the dynamic world of unlisted shares in India’s evolving financial market.
How are unlisted shares traded?
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Unlisted shares trade over-the-counter (OTC), connecting buyers and sellers directly through intermediaries. While this unregulated market poses credit risks, reputable participants like large companies, brokerages, and institutional clients help mitigate these concerns. The primary risk lies in the investment choice itself—will the company go public, increase in value, or fail?
How do unlisted shares differ from delisted shares?
Don’t confuse unlisted shares with delisted ones. Unlisted shares have never been listed, while delisted shares were removed from exchanges. You can trade unlisted shares OTC, but delisted shares aren’t available on any platform.
How are unlisted shares valued?
Valuing unlisted shares typically involves the Fair Market Value (FMV) method or Discounted Cash Flow (DCF) analysis. FMV calculates the difference between a company’s assets and liabilities, adjusted for share value. DCF estimates future cash flows and discounts them to present value.
What are the tax implications for unlisted shares?
Tax implications differ for unlisted shares. If sold within 24 months, profits face short-term capital gains tax at the marginal rate. After 24 months, long-term capital gains tax applies at 20% with indexation benefits. Once listed, the tax treatment aligns with listed equity shares 10% long-term capital gains tax on profits exceeding ₹1 lakh without indexation.
What should investors consider before buying unlisted shares?
Investors should thoroughly research companies and choose reliable intermediaries before venturing into unlisted shares. While risky, they offer potential for substantial returns if approached strategically.
Top 5 unlisted shares that have created a buzz in the market
Swiggy
Swiggy, founded in 2013, has become a major player in India’s food delivery industry. The company provides an online platform for customers to order food from local restaurants, offering features like real-time order tracking and no minimum order policy. These innovations have significantly impacted India’s food delivery landscape.
Swiggy demonstrated impressive growth in FY23, with revenue surging 44% to ₹8.2k Cr, driven by a 58% increase in revenue from traded goods sales. The company’s valuation also saw a substantial rise, reaching $9.43 billion in 2023, about 80% higher than its 2021 valuation. However, these positive developments were tempered by widening losses, which increased by 15.2% to ₹4179 Cr in FY23. Additionally, Swiggy faces strong competition from Zomato, which boasts a larger restaurant network and reported lower losses in the same fiscal year.
Swiggy’s financial performance from FY2021 to FY2023 presents a mixed picture, with revenue from operations skyrocketing by 224.49% to ₹8,264.60 Cr, while losses simultaneously deepened to ₹4,179.2 Cr. Despite this growth, the company’s operating profit margin remained deeply negative at -51.74% in FY23.
Key Metrics
National Stock Exchange of India
The National Stock Exchange of India(NSE) is India’s leading stock exchange and the world’s second-largest by number of equity trades from January to June 2018, according to the World Federation of Exchanges (WFE) report. Founded in 1992, NSE has pioneered electronic screen-based trading, derivatives trading, and internet trading in India, revolutionising the country’s financial markets.
The National Stock Exchange (NSE) of India stands as a market leader, renowned for its technological innovation in electronic trading and diverse service offerings. It consistently demonstrates strong financial performance and maintains a debt-free status, indicating robust financial health.
However, NSE faces challenges, including intense regulatory scrutiny, limited international presence, and its unlisted status, which may affect valuation discovery and public investment opportunities. Despite these weaknesses, NSE’s strengths in market leadership, technological advancement, and financial stability position it as a dominant player in India’s financial landscape and a globally significant exchange.
NSE’s financial performance has been impressive, with revenue more than doubling from ₹5,624 Cr in 2021 to ₹11,856 Cr in 2023 and projections indicating further growth to ₹14,780 Cr in 2024. Profit After Tax (PAT) has shown similar growth, rising from ₹35,73 Cr to ₹7501 Cr in the same period, with expectations of reaching ₹8,406 Cr in 2024. The company maintains high profitability, with net profit margins consistently above 56%.
Key Metrics
Imagine Marketing(Boat)
Imagine Marketing, founded by Aman Gupta and Sameer Mehta in 2013, launched the boAt brand the following year. The company quickly established itself in the electronics market with a diverse product range that includes earphones, headphones, smartwatches, stereos, travel chargers, and premium rugged cables. Today, boAt is a leading name in wearable technology, holding a significant 26% market share as of 2023, according to IDC India Monthly Wearable Device Tracker. The brand’s rapid growth and innovative products have made it a prominent player in the industry.
boAt has established itself as a market leader in the wearable tech sector, commanding a 26% market share with its affordable, stylishly designed products available through various online and offline channels. The company has made significant strides in local manufacturing, producing 70% of its products in India with plans to increase this to 90%.
Despite these strengths and strategic partnerships with major brands and events, boAt faced challenges in FY23, including a loss of ₹129 Cr due to rising costs and a decrease in market share from 32% to 26%. The company also faces intense competition from both premium brands and emerging players like Noise, leading to price wars that could further pressure profitability.
Between FY19 and FY23, boAt experienced rapid revenue growth from ₹239.4 crores to ₹3,376.8 crores but struggled with profitability, shifting from a profit of ₹8.7 crores to a loss of ₹295 crores. The company’s operational efficiency declined significantly, with operating profit margin dropping from 21.3% to -2.6%, while debt increased substantially from ₹14.5 crores to ₹733 crores.
Key Metrics
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Cochin International Airport
Cochin International Airport(COK), managed by Cochin International Airport Limited (CIAL), began operations on May 25, 1999, as India’s first Public-Private Partnership (PPP) model airport. It has gained international recognition as the world’s first fully solar-powered airport and ranks as the 8th busiest in India. The airport’s success is largely credited to its founding chairman, Sri. K. Karunakaran, who was also Kerala’s Chief Minister. Remarkably, CIAL was the only Indian airport to turn a profit in the year following the pandemic.
Cochin International Airport stands out as a pioneering facility in India, being the first to operate under a Public-Private Partnership model and the first to be fully powered by solar energy. Operational since 1999, it has demonstrated longevity and stability. The airport’s premium pricing strategy, coupled with cost efficiency, contributes to its financial strength.
It has shown remarkable resilience in passenger recovery, reaching pre-COVID levels by early FY2024. However, the airport faces regional competition from four other international airports within 300 km and is still working to consistently surpass its pre-pandemic peak performance. Despite these challenges, Cochin International Airport’s innovative approach to sustainability and its established market position underscore its competitive advantages in India’s aviation sector.
Between FY19 and FY23, Cochin International Airport’s net revenue grew from ₹748.2 crores to ₹939.6 crores, with profit after tax (PAT) fluctuating to ₹292.8 crores in FY23 from ₹188.5 crores in FY19. The operating profit margin showed volatility, ending at 49.92% in FY23 from 50.17% in FY19. Finance costs decreased slightly, while depreciation and amortisation expenses increased.
Key Metrics
HDB Financial Services
HDB Financial Services, established in 2007, is a leading Non-Banking Financial Company (NBFC) serving both individual and business clients across India. With a strong financial foundation, HDBFS offers a diverse range of loan options, including secured and unsecured loans.
The company has built an extensive network of over 1680 branches spread across 27 states and Union Territories, making their services accessible to a wide audience. HDBFS operates with a clear vision and mission, upholding core company values of Integrity, Collaboration, Agility, Respect, Excellence & Simplicity.
HDBFS demonstrates numerous strengths, including a top-tier ‘CRISIL AAA/Stable’ credit rating, strong backing from parent company HDFC Bank, an extensive network of 1682 branches across 1144 cities serving 15.5 million customers, and impressive AUM growth at a 29% CAGR to ₹90,235 Cr in FY24. The company maintains a balanced loan portfolio, competitive Net Interest Margin of 7.9%, and strong profitability with a 19.6% ROE and 3% ROA.
However, HDBFS also faces challenges, such as high dependence on its parent company, with HDFC Bank holding a 94.64% stake, increased regulatory scrutiny as a large NBFC, and operation in a highly competitive financial services sector. The mandatory listing requirement by September 2025 presents both an opportunity to unlock shareholder value and potential short-term strategic challenges.
Between FY19 and FY24, HDB Financial Services demonstrated strong financial growth, with revenue from operations increasing from ₹8,724.81 crores to ₹14,171.12 crores. Profit after tax (PAT) saw significant improvement, rising from ₹1,153.2 crores to ₹2,460.7 crores. The operating profit margin showed resilience, recovering to 58.67% in FY24 after a dip in FY21. Finance costs and depreciation expenses both increased over the period.
Key Metrics
These are some of the unlisted shares that are also in the process of filling their DRHP.
- Oravel Stays Ltd. (OYO)
- SBI Fund Management Ltd.
- Chennai Super Kings Cricket Ltd.
- Indian potash
- Waaree Energies
Conclusion
Unlisted shares present a unique investment frontier, offering potential high rewards alongside increased risks. While these shares trade over-the-counter, savvy investors can navigate this market with thorough research and reliable intermediaries. Notably, companies like Swiggy, NSE, and boAt showcase the growth potential in this sector.
However, each unlisted company comes with its own set of strengths and challenges. As the market evolves, more firms are eyeing potential IPOs. Therefore, strategic investors who carefully evaluate these opportunities may uncover significant growth prospects in the dynamic world of unlisted shares.
How do you evaluate the risks and rewards of investing in unlisted shares? Do you think they are worth the potential gains? Share your thoughts below.
Written By Fazal Ul Vahab
By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investments.
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