The Securities and Exchange Board of India (SEBI) is set to overhaul KPI disclosure norms for IPO-bound companies, aiming to enhance transparency and prevent misleading valuations. The new framework mandates audit committee approval, extends the disclosure period to three years, and requires companies to compare KPIs with industry peers. SEBI is also introducing stricter classification of financial and operational metrics, ensuring that all disclosed KPIs are measurable and standardized. These changes, based on industry feedback, aim to boost investor confidence and create a more reliable IPO valuation process.
The Securities and Exchange Board of India (SEBI) is set to introduce stricter guidelines for Key Performance Indicator (KPI) disclosures in IPO-bound companies. This move aims to enhance transparency and ensure investors have clearer insights into a company’s financial and operational health before it goes public.
Key Changes in KPI Disclosure Rules:
- Stronger Approval Process
- All KPIs must now be approved by the company’s audit committee and a certifying professional before disclosure.
- Extended Disclosure Period
- Companies will have to provide data on past transactions for three years, up from the current 18-month requirement.
- More Comprehensive Data
- The new framework mandates the inclusion of financial metrics, ratios, and operational parameters such as business sustainability and key performance drivers.
- Standardized KPI Classification
- KPIs will now be categorized into:
- GAAP Financial Measures (based on standard accounting principles)
- Non-GAAP Financial Measures (such as financial ratios)
- Operational Measures (covering aspects beyond financial data)
- KPIs will now be categorized into:
- Measurable and Comparable Data
- SEBI wants KPI disclosures to be purely numerical, avoiding subjective descriptions.
- Companies must compare their KPIs with at least three industry peers, prioritizing Indian-listed companies. If unavailable, global comparisons can be used.
- Clearer Pricing Justifications
- Any KPIs used to determine the IPO price must be disclosed and certified by senior company officials, including the CEO, MD, Executive Director, or CFO.
Why SEBI is Making These Changes
SEBI introduced KPI disclosures nearly three years ago to bring more clarity to IPO valuations, especially for startups and new-age businesses. With sufficient industry data now available, the regulator is refining the rules to ensure fair valuations and better investor protection.
The new framework has been developed based on inputs from key industry associations, including ASSOCHAM, CII, and FICCI. Once implemented, these rules will bring more accountability and make IPO disclosures more reliable for investors.
