SEBI Implements Stricter Disclosure Rules for IPO-Ready Companies

The Securities and Exchange Board of India (SEBI) has implemented stricter disclosure requirements for Key Performance Indicators (KPIs) in initial public offerings (IPOs).

Developed in collaboration with industry associations, these updated standards aim to enhance transparency and provide investors with a clearer perspective on a company’s valuation and overall business performance of the IPOs.

Issued by the Industry Standards Forum, and SEBI, the new guidelines require precise definitions of KPIs, inclusion of relevant non-traditional financial metrics, and strengthened oversight by both the audit committee and board of directors.

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Starting April 1, issuer companies and investment bankers must adhere to these standards, ensuring proper disclosure of KPIs in draft and final offer documents.

KPIs play a crucial role in helping investors evaluate a company’s performance, assess potential risks, and compare it with industry peers.

To ensure that only relevant and verifiable metrics are disclosed, the new standards exclude business-sensitive data, unverifiable information, and forward-looking projections.

Under these guidelines, KPIs identified or certified by a company’s management must receive approval from the audit committee before being included in the offer document.

Additionally, companies will be required to disclose “operational measures”—non-financial data points that offer insights into valuation and business models. These must be included under the “basis for offer price” section of the offer document.

Furthermore, companies must provide details on key information shared with investors who were allocated securities through any primary issuance within three years prior to filing the offer document. This requirement excludes employee stock ownership plans (ESOPs) but includes disclosures made during secondary sales and any rights granted to such investors.

KPIs must also incorporate data from private placements or rights issue offer letters issued within the same three-year timeframe.

Gokul Rajan, partner and regional co-head (Capital Markets – North) at Cyril Amarchand Mangaldas, noted that while the new standards emphasize disclosures made by comparable peers, some ambiguity remains regarding global peers. He highlighted that the requirement for clear KPI definitions and greater audit committee oversight will enhance investor confidence in these metrics.

The guidelines further mandate that KPIs included in the offer document must be certified by a professional.

Post-listing, companies will be required to disclose these KPIs periodically—either annually or until the full utilization of issue proceeds.

Kunal Sharma, partner at Singhania & Co, stated that while the audit committee’s role in KPI approval strengthens governance, it may also lead to greater scrutiny of internal financial reporting, potentially slowing down IPO preparations. However, he emphasized that requiring the disclosure of all KPIs previously shared with investors ensures retail investors have access to the same information as institutional players, fostering a more equitable investment landscape.

Sharma added that these standards would help minimize discrepancies between issuers and their industry peers, allowing investors to make more informed comparisons of relative performance.