Razorpay Reportedly Gets SEBI Approval for IPO: Sales Are Up 65%, But Can Profits Keep Up?

Razorpay has reportedly received approval from the Securities and Exchange Board of India (SEBI) for its proposed IPO. Media reports suggest the company could raise around ₹5,000-6,500 crore at a valuation of approximately $5 billion (₹49,000-50,000 crore). The final issue size and valuation are yet to be confirmed.

This is lower than the $7.5 billion valuation Razorpay received in 2021. But does that make the IPO attractive?

There is a more important question to answer first. Razorpay's revenue grew 65% in FY25, but its gross profit grew only 41%. Is the company making enough money from its rapid growth?

How Razorpay built its business

Founded in 2014 by Harshil Mathur and Shashank Kumar, Razorpay started as a payment gateway. Think of it as a digital cashier that helps businesses collect money from customers making online payments.

Over time, it expanded into other services. RazorpayX helps businesses manage payments such as salaries and vendor bills. Razorpay Capital offers lending solutions, while its acquisition of Ezetap helped it enter the offline payments market through card machines.

It also expanded overseas through its acquisition of Malaysia-based Curlec and its subsequent entry into other markets.

The idea is to become a single financial services platform for businesses. A merchant could use Razorpay to collect payments, manage money and accept payments at physical stores.

But expanding into more businesses makes one question important: Is this expansion improving the company's financial performance?

Revenue is growing faster than gross profit

Razorpay's FY25 numbers show a noticeable gap between revenue growth and gross profit growth.

Source: Media reports

Gross profit is the money left after deducting the direct costs of providing a service. Think of a shop selling ₹100 worth of products. If it spends ₹60 buying those products, it keeps ₹40 as gross profit.

By the same calculation, Razorpay kept around ₹34 from every ₹100 of revenue in FY25, compared with approximately ₹39 in FY24. In other words, its sales increased rapidly, but the share left after direct costs became smaller.

Its direct costs, calculated as revenue minus gross profit, increased approximately 80% to ₹2,506 crore.

Why did this happen? One possible explanation is a change in business mix. Revenue from card machines and prepaid cards reportedly increased from ₹21 crore to ₹442 crore.

However, until the company files the FY26 numbers publicaly, we do not have enough information about the profitability of this segment to establish that it caused the decline in gross margin. It is an area investors should examine when detailed financial disclosures become available.

Understanding Razorpay's reported loss

Razorpay reported a loss of approximately ₹1,209 crore in FY25, despite its strong revenue growth. However, this number needs context.

The company attributed the loss primarily to restructuring and tax costs associated with shifting its parent company's domicile from the US to India in 2025. This process is called a reverse flip.

Razorpay also incurred employee stock ownership plan (ESOP) expenses. These are accounting costs associated with shares given to employees.

There is another encouraging sign. Razorpay's management said its core online payments business had become EBITDA-profitable and was generating strong cash flows.

This suggests that the established business is performing better than the consolidated loss might indicate. However, investors still need to understand how much the newer businesses contribute to the overall costs and profits.

Can expansion beyond payments improve profitability?

Razorpay's expansion makes business sense. A merchant already using its payment gateway may also need card machines, payroll services or business banking solutions.

If Razorpay can provide all these services, it could earn more from the same customer and make it harder for that customer to switch to another provider.

But there are challenges.

Each new business requires investment, technology and people. Lending also brings the risk that borrowers may not repay their loans.

Competition is another concern. Razorpay faces rivals such as PayU, Cashfree, PhonePe and Paytm. If competitors reduce their fees to attract merchants, Razorpay may also face pressure on its earnings. Therefore, the real test is whether its newer businesses can grow without putting too much pressure on the profitability of the overall company.

Is the expected $5 billion valuation justified?

At an expected valuation of approximately ₹49,000–50,000 crore, Razorpay would be valued at roughly 13 times its FY25 revenue.

It would also be valued at approximately 39 times its FY25 gross profit.

These are rough calculations based on the reported expected valuation, not the final IPO pricing.

The valuation is lower than its previous $7.5 billion private-market valuation in 2021. But a lower price than an earlier funding round does not automatically make a company inexpensive.

Investors must consider how much profit the company can generate in the future, not just how quickly its revenue is growing.

For a broader framework on evaluating a company's financial performance, business quality and valuation, see our guide on how to analyse an IPO.

What should investors watch next?

Razorpay has demonstrated that it can grow its business. But the bigger question is whether it can turn that growth into consistent profits and cash flows.

When its updated offer documents become available, investors should examine:

• Whether revenue and gross profit growth remain aligned.
• Which business segments generate the most profit.
• How much of the reported loss comes from exceptional costs.
• Whether the company generates positive cash flow from its overall operations.

How much money it will receive through a fresh issue and how much existing shareholders will sell through an offer for sale.

Razorpay's IPO could offer investors an opportunity to participate in India's growing digital payments industry. But its long-term investment case will depend on more than revenue growth. The real test is whether the company can turn its growing scale into sustainable profits.

Explore more upcoming and open IPOs on INDmoney.