In today’s Finshots, we tell you how unlisted companies are outpacing listed ones and what that means for industries and the economy.

The Story

Today’s story isn’t just about the markets, it’s also about those companies that operate away from the spotlight of the listed exchanges. The ones that don’t sell their shares in stock markets and don’t get as much attention. But it turns out they are doing some amazing things and growing fast.

The proof is in the pudding.

A study by CMIE looked at 4,231 unlisted companies and 3,575 listed ones. And it found that unlisted companies grew their revenue by about 8% in FY24, compared to just 1.7% for listed firms. In terms of profits, unlisted companies saw around 29% increase in profit after tax, while listed ones grew by 27%.

Now, the difference here might not seem massive. But it tells us how unlisted companies can be more flexible, take bigger risks and move faster because they don’t have to appease shareholders every three months. And this shows up clearly in how they’re expanding their capacity.

Unlisted companies increased their net fixed assets like machinery and equipment by 7.5%, compared to 6.4% for listed firms. They’re also investing heavily in fixed assets that will pay off in the future, like new factories or projects still under construction. This is called capital work in progress (CWIP) and unlisted companies increased their CWIP by nearly 7%, while listed firms barely grew by 0.3%. In simple terms, unlisted companies are betting big on what’s next.

Maybe they're seeing demand uptick in the coming months.

Take the aviation sector as an example. Unlisted companies there grew fixed assets by a massive 58%! Why? Because more people are traveling, and these companies are preparing for a demand boom. Similar trends are visible in consumer goods and real estate, with significant investments flowing in.

Another crucial aspect that outranked their listed peers is financial discipline. Unlisted companies have an interest coverage ratio of about 3, which is the highest in 30 years. This means they can easily pay off the interest on their loans. Their debt-to-equity ratio, which shows how much debt they use compared to their own money or equity, is also at a healthy level of 1.1.

But hold on…

Does this mean unlisted companies are inherently better?

Not exactly. And that’s what we want to focus on in this story.

You see, listed companies have their own advantages.

For starters, listed companies bring transparency. Their financial performance, corporate governance, and strategic decisions are regularly disclosed, offering investors a clear picture of what’s happening behind the scenes. This level of accountability fosters trust and attracts a broader pool of investors.

They also have the advantage of size. Listed firms are usually bigger and can survive tough times better. In times of crisis, this stability can be a lifeline, ensuring continued operations and preserving shareholder value. Plus, they can raise money more easily by selling shares or issuing bonds, which helps them grow or fund new projects quickly. Being part of major indices like Nifty or Sensex further boosts credibility and attracts institutional capital for them. And listed companies also have the power to buy unlisted ones. These acquisitions allow listed firms to let unlisted ones take risks and then step in to benefit from their success.

What about the unlisted companies though? 

They can thrive by breaking free from the quarterly-results treadmill. They can focus on long-term goals and invest in bold ideas, especially in capital-intensive sectors like semiconductors or green energy which require a lot of money upfront and patience to see results. This is where venture capital and private equity come in. They fund unlisted companies, helping them scale quickly without worrying about quarterly results.

But there’s always the risk that unlisted firms heavily rely on external funding. And if that funding dries up, trouble looms. Listed firms, with their access to public markets, provide a counterbalance. They bring stability and transparency, which are crucial for the overall economy.

It’s important to note that all the metrics we saw above, like CWIP, debt levels, interest coverage, and sales growth, might not tell the full story. These figures can be influenced by short-term factors like industry cycles, demand spikes, or even favorable credit conditions. 

What matters is how these companies maintain or improve numbers over the long haul. It’s not about who’s winning today but who can thrive across economic ups and downs.

For now though, this interplay between listed and unlisted firms could give us some broader insights. If unlisted companies continue to outpace their listed counterparts, the appeal of private investments could grow. For investors, unlisted firms offer a chance to back high-growth, innovative companies without the volatility of public markets. And this could create a cycle where more capital flows into the market, driving further growth and innovation.

But here’s what we didn’t tell you.

Capital inflows into unlisted companies can often depend on how listed companies perform in a particular year.

Let’s look back at FY24 itself as an example. It was a blockbuster year for Indian IPOs. Stock exchanges saw 76 mainboard IPOs, which was a whopping 110% jump from the previous year. On the flip side, global IPO activity showed a slow down during the same period, dipping by about 16%. And that sort of made investors go “Hey, if Indian IPOs are doing so well, why not invest in unlisted Indian companies that could go public soon?” Money started flowing into these unlisted companies. And that sort of drummed up more interest in them.

And that tells you something interesting.

Unlisted companies can attract more capital if listed companies and the IPO markets shine. Simply put, these unlisted companies can be at the mercy of the listed markets. Now think what happens if the IPO market slumps in 2025. It could slow down the capital that unlisted companies attract.

This dynamic highlights the complementary roles of listed and unlisted companies. And it tells us how the markets are always dynamic.

Listed firms bring transparency and stability, while unlisted ones drive innovation and bold bets. And together, they fuel economic growth and offer insights into emerging trends.

So yeah, unlisted companies are clearly shining right now, but instead of framing this as a competition with listed firms, we can use this to understand how private and public growth models are evolving. As India’s markets evolve, the gap between listed and unlisted firms may narrow.

For now, unlisted firms are proving that the real action is happening away from the limelight.

Until next time…

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