Nykaa IPO to open tomorrow- Hem Securities lists 4 things ahead of the issue

The Initial Public Offering (IPO) of FSN E-Commerce Ventures Ltd, which operates online beauty e-commerce platform Nykaa, will open for subscription on Thursday, October 28, 2021. The company has fixed a price band of Rs 1,085-1,125 per share.

The IPO will conclude on November 1. 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.

Brokerage firm Hem Securities has given its view on the public offering and here is what the firm has said:

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Positives:

Hem Securities said that FSN E-Commerce Ventures is one of India’s leading lifestyle focused consumer technology platforms in terms of valuations. The company is resilient, capital efficient business with a combination of strong growth and profitability. Also, it is a founder-led company supported by a professional management team.

FSN E-Commerce Ventures has its presence in both online and offline modes. Company’s online channels include mobile applications, websites and mobile sites. Company’s offline channel comprises of 80 physical stores across 40 cities in India over three different store formats as of August 31, 2021.

Growth and scale of Nykaa Platform:

The company has reported an increase of CAGR 56.6 percent in GMV, CAGR 48.2 percent increase in revenue from operation in Fy2021 and 6.61 percent increase in EBITDA Margin in FY2021.

Hem Securities also said that Nykaa is a preferred destination for luxury and prestige products in India for consumers and brands.

Objects of Issue:

1. Offer for Sale: Company will not receive any proceeds from the Offer for Sale.

2. Fresh Issue: Company propose to utilise the Net Proceeds towards funding the following objects:

a. Investment in certain of its Subsidiaries, namely, FSN Brands and / or Nykaa Fashion for funding the set-up of new retail stores;

b. Capital expenditure to be incurred by company and investment in certain of its subsidiaries, namely, Nykaa E-Retail, Nykaa Fashion and FSN Brands for funding the set-up of new warehouses;

c. Repayment or prepayment, in full or in part, of certain borrowings availed by company and one of its subsidiaries, namely, Nykaa ERetail;

d. Expenditure to acquire and retain customers by enhancing the visibility and awareness of company’s brands; and general corporate purpose.

Risks

As per the information provided by Hem Securities, the company’s industry is highly competitive and that competition will continue to increase. Company’s competitors include a number of online marketplaces, retailers with physical stores, and brands that take a direct-to-consumer approach, effectively removing company from the distribution and sales process.

The internet and mobile networks provide new, rapidly evolving and competitive channels for the sale of all types of goods and services. Consumers who purchase goods and services through company have other alternatives, and sellers have other channels to reach consumers. Also, competition is expected to continue to intensify.