Nykaa IPO: Subscribe rating by Angel One - Check positives, investment concerns, outlook and valuations

FSN E-Commerce Ventures Ltd, which operates online beauty e-commerce platform Nykaa has fixed a price band of Rs 1,085-1,125 per share for its initial public offer (IPO) that opens for subscription on Thursday. The IPO will open for subscription on October 28 and conclude on November 1. 

Stockbroker firm Angel One in its IPO Note for FSN E-Commerce Venture (Nkyaa) has given SUBSCRIBE rating. 

Positives

Citing positives about Nykaa IPO, Angel One said, "(a) One of India's leading specialty beauty and personal care companies. (b) Major brands offering their products on Nykaa's platform for sale. (c) Company's advanced technology platform (d) Founder-led company with an experienced management team."

Concerns

On investment concerns of Nykaa IPO, Angel One said, "(a) Fail to acquire new consumers in a cost-effective manner. (b) Business depends on the growth of online commerce industry in India & company ability to leverage technology platform. (c) Business incurred losses in past which may impact value of equity shares. (d) Changing digital or business regulation in India."

Nykaa IPO: SUBSCRIBE

On Outlook & Valuation, Angel One's Nykaa IPO product note said, "The IPO is being valued at price/sales of 21.0-21.8x FY2021 revenues of Rs 2,441 crore. The company has also posted strong revenue CAGR of 48.2% between FY2019-20 despite the Covid crisis and register a profit in FY2021. While valuations may appear to be expensive on a P/E basis Nykaa is one of the very few profitable Unicorns in India and we believe that the company is well positioned to benefit from the exponential growth in the online beauty and fashion retailing business over the next decade. Hence we believe that that the valuations are justified and hence we recommend SUBSCRIBE to the issue."

Nykaa IPO

-It comprises of equity shares aggregating up to Rs 630 crore (fresh issue) and an offer for sale of up to 41,972,660 equity shares being offered by the selling shareholders (offer for sale or OFS), a statement said.

-Bids can be made for a minimum of 12 equity shares and in multiples of 12 equity shares thereafter. 

The offer includes a reservation of up to 250,000 equity shares for purchase by eligible employees.

-The company is reportedly seeking a valuation of over USD 7 billion. Existing investors like such as TPG Growth IV SF Pte, Lighthouse India Fund and others are expected to offload their shares in the IPO.

-Promoters, including founder and CEO Falguni Nayar, currently own more than 50 per cent share in the company.

Nykaa had posted a net profit of Rs 61.9 crore in FY21 compared to a loss of Rs 16.3 crore in FY20. Its total income stood at Rs 2,452.6 crore in FY21 as against Rs 1,777.8 crore in FY20.

-"We are one of India's leading consumer technology platform... (with) more than 3 million SKUs from 4,000-plus brands and 13 million cumulative transacting consumer base...We do believe that there is a significant headroom available for growth at each level across India's digital use case funnel," Nykaa Executive Chairperson, MD and CEO Falguni Nayar had said in a briefing.

-She explained that while the access to internet is very high at 660-690 million consumers, the online shopper base is still at just 150-180 million.

"This, we believe, is likely to go up over the next five years, with penetration reaching 24-28 per cent of the consumer base...Beauty (segment) which is a USD 16 billion business is likely to grow to a USD 28 billion business going forward, and fashion which is a USD 54 billion business today is likely to become USD 124 billion business by 2025," she stated.

Nykaa

-Founded in 2012, Nykaa is a digitally native consumer technology platform, delivering a content-led, lifestyle retail experience to consumers. 

-It has a diverse portfolio of beauty, personal care and fashion products, including its own brand products manufactured by third party manufacturers.

-In FY2021, 17.1 million orders were placed on Nykaa's platform for beauty and personal care products with a total GMV of Rs 33,804.1 million, a 35.3 per cent increase over FY2020.

-Apart from its online presence, the company also has 38 Luxe stores, 32 On-trend stores and 9 kiosks.