By buld_online 
As India’s start-up ecosystem matures, a curious pattern has emerged that loss-making ventures are suddenly turning profitable just before their IPOs. From food delivery giants to fintech disruptors, the pre-IPO profit flip is becoming a familiar storyline—and a controversial one.
Take Zepto, for instance. The quick commerce start-up, which is eyeing a public listing by the end of 2025, has made significant shifts in its financial playbook. According to co-founder Aadit Palicha, the company has cut its cash burn by nearly 65% in just five months. “Our Ebitda has improved by 20 absolute percentage points (2,000 basis points) from January 2025 to May 2025, and is approaching single-digit territory. We’ve still grown roughly 20% in GOV over that period, an average of 4% to 5% month-on-month,” he said in a recent LinkedIn post.
Another example is Urban Company, which started operations in 2014 and recently filed its Draft Red Herring Prospectus (DRHP). The home services platform turned cash flow positive only in 2024 after multiple fiscals of negative cash flows. For the year ended March 2024, it posted revenues of ₹828 crore alongside a loss of ₹93 crore—an improvement that industry watchers say may help boost investor confidence in its upcoming IPO.
And the case of Ola Electric is well known. The company is still struggling to make profits.
These cases are not isolated. They reflect a broader trend among start-ups looking to tidy up their books and show operational discipline often just in time for the public market debut. Is it a sign of genuine business maturity or clever financial engineering?
“Sudden profitability prior to an IPO can result from improved unit economics or monetisation of earlier investments. But what’s critical is that investors get enough background to determine whether this is a sustainable trend or just a natural business cycle peak,” explains Gaurav VK Singhvi, co-founder of Avinya Ventures.
On paper, these IPO-bound companies look healthier than ever. But industry insiders warn of a paradox: rising profits before listing don’t always translate to long-term performance post-IPO.
“Artificially boosting pre-IPO profits to fetch a higher issue price isn’t a healthy trend. Discerning investors are wary of such tactics,” says Jyoti Prakash Gadia, MD at Resurgent India, a Sebi-registered merchant banker.
The playbook
Several start-ups adopt aggressive—though not necessarily illegal—accounting tactics to recast their financials. These include changing depreciation methods, capitalising operating costs, recording one-time asset sales, and adjusting revenue recognition models.
“Switching from the written-down to the straight-line method of depreciation can inflate profits in the short term,” Gadia notes. “Similarly, one-time gains from selling legacy assets may give an illusion of profitability.”
Some also rely heavily on adjusted metrics like Ebitda or non-GAAP profits, which can be more generous representations of the company’s health than standard accounting allows. While such metrics can offer clarity on core operations especially during high-growth phases, they also open the door to selective disclosures.
“As long as such procedures are transparent and rooted in sound business decisions, they form a legitimate part of preparing a company for listing,” Singhvi adds.
But transparency, both experts caution, is often in short supply.
Auditors play a pivotal role in validating a company’s financials. However, they operate within a framework that allows some degree of discretion. That means companies, especially start-ups, must be held to tighter scrutiny.
“Auditors should be extra cautious while verifying startup books. They must assess if profit margins are sustainable vis-à-vis projections,” says Gadia. “More disclosures around the assumptions behind those projections are needed — along with accountability for misreporting.”
The worry isn’t just inflated profits, but also the absence of clarity on long-term competitive advantage, unit economics, and customer retention — factors more indicative of real business health than a single year’s bottom line.
So, what should retail investors watch out for?
“We look at trends beyond just profitability,” says Singhvi. “Revenue quality, client retention, cost structure, cash flow, and whether there’s been a sudden reduction in marketing spend without matching acquisition efficiency — these are the real signals.”
Gadia echoes this with a cautionary note: “The real smell test is the integrity of the promoters. Fly-by-night founders with temporarily inflated financials are a real threat, even if they bring what seems like a profitable venture to market.”
Both experts agree that the current disclosure regime needs strengthening but with a balanced approach.
“We must demand better data on profitability assumptions, customer metrics, and financial strategies,” Gadia says. “At the same time, the system must not stifle innovation or block access to capital for genuine businesses.”
Singhvi suggests that standardising disclosures around unit economics, cohort data, and operating histories could bridge the gap without overwhelming founders.
Ultimately, the key lies in honest storytelling, not just profitable spreadsheets.
“Profitability aligned with long-term strategy, not just IPO timing, should be the benchmark,” Singhvi concludes. “That’s what builds trust — and market value — in the long run.”
As India’s IPO pipeline swells with startup names, perhaps it’s time to look beyond the profits on paper—and into the strategy behind the spreadsheets.