Nykaa's Nayar Family and Trust to nominate 50% of board directors

Falguni Nayar, founder and CEO of Nykaa.

FSN E-Commerce Ventures, the parent company of Nykaa, stated that promoters Falguni Nayar, Sanjay Nayar, Falguni Nayar Family Trust and Sanjay Nayar Family Trust would have the right to nominate 50 percent of the number of directors to the board. The company has received the approval for this, and additionally, as long as they remain the promoters, they will have the right to nominate one-third of the number of directors to the board. 

Experts say that this is being done so that the founder and the promoter family have tighter control over the company. It has been commonly seen that with more fundraise, the shareholding of the founders especially in the new-age internet companies is diluted, which becomes an easy way to remove them in case a certain situation arises. 

As per the filing, “With effect from the date of receipt of final listing and trading approvals from the stock exchanges on which the equity shares of the Company are proposed to be listed, following an initial public offering of the equity shares of the Company and, subject to the approval of the Shareholders through a special resolution passed in the first general meeting held after receipt of such listing and trading approvals”

It added, “(i) as long as Ms. Falguni Nayar, Mr. Sanjay Nayar, the Falguni Nayar Family Trust and the Sanjay Nayar Family Trust and their respective promoter group continue to hold at least in excess of 25% of the paidup equity share capital of the Company, Ms. Falguni Nayar, Mr. Sanjay Nayar, the Falguni Nayar Family Trust and the Sanjay Nayar Family Trust shall, collectively, have the right to nominate up to 50% of the number of Directors to the Board subject, to compliance with applicable law”

The filing continued, “As long as any of Ms. Falguni Nayar, Mr. Sanjay Nayar, the Falguni Nayar Family Trust and the Sanjay Nayar Family Trust continue to be classified as promoters of the Company, such promoters shall, collectively, have the right to nominate up to 1/3rd of the number of Directors to the Board (rounded up to the higher integer), subject to compliance with applicable law.”

This will be in effect from the date of receipt of final listing and trading approvals from the stock exchanges which was followed by the company's IPO. 

79.4% of Nykaa's institutional investors voted against the resolution, as per the results of the postal ballot published by the company. However, the resolution was passed as promoters and public non-institutional shareholders voted in favour who hold over 50% stake in the listed company.

Moneycontrol e-mailed queries to Nykaa but the company did not respond.

"Special rights to promoters in a listed company is detrimental to the interests of minority shareholders. This should be voted against by shareholders. Also, this should not be a precedent for other companies," said Shriram Subramanian, founder of corporate governance advisory firm, InGovern Research.

Falguni Nayar, Sanjay Nayar, Falguni Nayar Family Trust and Sanjay Nayar Family Trust are the key promoters of Nykaa. They have a 45.99 percent shareholding in the company. The total shareholding, including that of the promoter group, is 54.22 percent. This is a rare case among the new-age internet companies. For instance, Paytm founder Vijay Shekhar Sharma holds a 14 percent stake in the business, Zomato founder Deepinder Goyal holds a 4.7 percent stake in the company. 

This comes on the back of the quarterly results, wherein the company reported a 59.5 percent year-on-year decline in its consolidated net profit at Rs 27.9 crore. In an interview with Moneycontrol, Nykaa founder and CEO Falguni Nayar said she is focused on building a long-term sustainable business with an eye on profitability. The company’s shares fell by over 4 percent on February 10 as investors were disappointed with its third-quarter results.