FSN E-Commerce Ventures, which runs Nykaa, created an enormous wealth not only for investors but also for the founders and investors, as the stock nearly doubled on the listing day, November 10.
Most experts think that investors can hold the stock for the long term, given its leading market share in beauty and personal care segment, sticky customer base, strong financials, strong brand name and superior management team by banker-turned-businesswoman Falguni Nayar.
The stock had a debut at Rs 2,001, a 78 percent premium over issue price of Rs 1,125 on the BSE, which is way ahead of analysts’ expectations and grey market premium. It touched an intraday high of Rs 2,248.10, which is 99.8 percent higher than issue price.
The stock settled at Rs 2,206.70, up by Rs 1,081.70, or 96.15 percent.
Grey market premium was around 62-65 percent over the IPO price, while analysts were expecting it to debut with 50-70 percent gains. It is the first-of-its-kind listing in the e-commerce space and thus garnered a lot of interest, validated from an IPO subscription of 81.78 times.
Hits Rs 1 lakh crore in Market cap
Nykaa joined the club of Rs 1 lakh crore in terms of market capitalisation on its listing day itself. At the day’s high, its market cap stood at Rs 1,06,318 crore ($14.29 billion at a rupee rate of 74.4 to a dollar).
The value of promoter and promoter group’s shares (including Falguni Nayar) stood at Rs 55,879.97 crore ($7.51 billion).
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The Nykaa IPO had received great response from investors and was subscribed 81.78 times during October 28-November 1.
“At the current levels, Nykaa is trading at price-to-sale of 38.9x of FY2021 revenue which is at a discount to Zomato (54xFY2021 revenues). 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. Given the discount to Zomato, we would recommend investors to remain invested in Nykaa from a long term perspective,” said Jyoti Roy, who is DVP - Equity Strategist, at Angel One.
Santosh Meena, Head of Research at Swastika Investmart, also advised aggressive investors to hold this stock for the long term because it is one of the few stocks in new-age companies to own into a portfolio.
Profitable Entity
“It is among the few profitable new-age businesses and it is a high-growth company and into the right business where it may continue to grow in double digits for many years. We are expecting that an upside momentum may continue for at least 1-2 days then it may be stabilised for some time because valuation could be a concern after a big listing gain,” Santosh said.
FSN E-Commerce Fashion is a multi-brand beauty, personal care and fashion platform, which is founded and promoted by Falguni Nayar, a former managing director at Kotak Mahindra Capital Company. The company operates its beauty and personal care business under the Nykaa brand, which enjoys a leading position in the segment, and apparel and accessories business under Nykaa Fashion.
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Nykaa had reported a 38.10 percent growth in revenue at Rs 2,440.89 crore for the financial year FY21, compared to the previous year. It clocked a profit of Rs 61.95 crore against a loss of Rs 16.34 crore in the same period. During the quarter that ended in June 2021, it posted revenues of Rs 816.99 crore (a growth of 183.05 percent YoY) and profit of Rs 3.52 crore (against a loss of Rs 54.5 crore in Q1FY21).
Going forward, Nykaa has plans to foray into international markets and expand its presence in the Middle East and Europe. Nykaa also plans to open more retail stores, setting up warehouses and reduce its borrowings, which augurs well for the company in the long term, says KR Choksey Research.
India’s retail market is expected to grow from Rs 54.8 lakh crore in 2020 to reach approximately Rs 91.2 lakh crore by 2025. The company also has a large market opportunity of Rs 10.6 lakh crore in the growing beauty, personal care and fashion industry by 2025 in India.
The Indian beauty and personal care (BPC) market is estimated to grow at approximately Rs 2 lakh crore by 2025 from Rs 1.1 lakh crore in 2020, and the Indian fashion market is expected to grow to approximately Rs 8.7 lakh crore by 2025 from Rs 3.8 lakh crore in 2020.
Analysts Bullish On Nykaa
“We like Nykaa, given its leadership position in online BPC market, customer-centric approach, profitable tech platform and capital-efficient business model,” said Sneha Poddar, AVP Retail Research at Motilal Oswal Financial Services.
“It is one of the very few profitable new-age company and is the first women-led unicorn which also attracted a lot of investor interest. Apart from leadership in online BPC in India, Nykaa is also one of the fastest growing fashion platforms in India based on its GMV (gross merchandise value). Nykaa’s key strength lies in its inventory-led business model for BPC segment, which allows it to offer authentication for all its products and ensures availability and efficient distribution,” Poddar said.
The online BPC market is highly underpenetrated at just 8 percent in India and is growing at a very fast pace of 60 percent per annum over 2016-20. “Given a 35 percent market share of Nykaa in online BPC, we believe that Nykaa is rightly placed to tap the high-growth digital/online penetration in BPC/fashion market,” Poddar said.
As of August 2021, Nykaa offered approximately 3.1 million SKUs (stock-keeping units) from 4,078 national and international brands to consumers across business verticals. In FY21, its total GMV at Rs 4,045.98 crore grew 50.7 percent from FY20. Its GMV in Q1FY22 at Rs 1,469.61 crore registered 238.8 percent growth over Q1FY21.
Along with online, the company also operates offline channel which comprises 80 physical stores across 40 cities in India over
three different formats as of August 2021.
Ankur Saraswat, Research Analyst at Trustline Securities said investors bullish on India’s online beauty and personal care and fashion story can hold this share for the long term and can even accumulate more shares on dips in the markets, while Astha Jain, Senior Research Analyst at Hem Securities, recommended booking partial profit and hold remaining allotment for long term as Nykaa has a large BPC market opportunity growing at 12 percent per annum by 2025 and fashion opportunity is expected to grow at 18 percent per annum by 2025.
“Also the company has posted strong growth without a substantial cash burn and has posted profits along with strong improvement in capital turnover ratio from 3.1 times in FY19 to 4.2 times in FY21. This shows that the company has focused on capital efficiency and unit economics, while simultaneously building for scale and growth. Looking after the scale of operations, strong management team, profitable concern and high growth prospects in the industry due to large underpenetration, we believe that the company has created an industry itself,” Jain said.
Nykaa raised Rs 5,352 crore through its public issue, including fresh issue of Rs 630 crore. The net proceeds from fresh issue will be utilised for expansion of stores and warehouses, repaying of debt and brand awareness.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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