Stock Analysis

The Upcoming Nykaa IPO

Nykaa (FSN E-Commerce Ventures Private Ltd.) is a cosmetics retailer that provides consumers with a content-driven and lifestyle retail experience. It offers a varied range of beauty, personal care, and fashion products, some of which are made by us. It provides an omnichannel experience to customers, with the goal of catering to their preferences and convenience.

Nykaa has filed a Draft Red Herring Prospectus (DRHP) with capital market regulator SEBI in preparation for an Initial Public Offering (IPO). The public offering would include a fresh issue of shares worth Rs 525 crore, as well as an offer for sale of up to 4.31 crore equity shares by the promoters and investors (OFS).

The following people are the company’s promoters:

1. Falguni Nayar
2. Sanjay Nayar
3. Falguni Nayar Family Trust
4. Sanjay Nayar Family Trust

Source – Money Control

Nykaa chose to do things a little differently than other e-commerce companies at the time, which liked to recruit customers through deep discounts. They were frugal with their money. When compared to their sales, their losses were never enormous. They also developed a devoted following by forming a community of influencers and leveraging content. The necessity of a motivating business objective was one insight Nayar picked up from her time dealing with entrepreneurs. She saw Nykaa help India’s women take care of themselves and move away from the country’s customary reverence to men.

They’ve gone on to open actual storefronts in several places after establishing themselves in the beauty sector. Nykaa is an online marketplace where you can purchase cosmetics from a variety of brands. People still want to test things before they buy them, so new physical storefronts bode well for the company’s omnichannel approach — a completely integrated shopping experience regardless of where the transaction is made. It could be a physical location or a mobile application.

Source – FWD Life

Nykaa has also started promoting their own line of branded products as they’ve grown. The margins are wide open here, and Nykaa is likely to keep pressing this agenda. The start-up is in a great position to benefit from a burgeoning youth population. So, there’s a lot of potential here, and given that they’ve been profitable for two years in a row, they could be able to keep building on their strengths.

The net proceeds will be used to fund investments in certain of its subsidiaries, such as FSN Brands and/or Nykaa Fashion, for the purpose of funding the establishment of new retail stores worth Rs 35 crore, repay debts, and fund capital expenditure to be incurred by the company. The IPO’s principal book-running managers include Morgan Stanley, BofA Securities, and Citigroup.

According to its report, the company generated sales and other income of 24.5 billion rupees ($330 million) in the fiscal year ending in March through its websites, applications, and 70-plus brick-and-mortar stores. Despite pandemic-related store closures and shipping issues, this figure increased by more than 35% over that time. The business is a success.

Source – Money Control

If the IPO moves forward as planned, Nykaa would be India’s first women-led unicorn to go public. Owning nearly half of the company with her husband and twin children, Nayar’s stake could be worth more than $2 billion if the start-up meets or exceeds initial predictions.

The level of competition is increasing. Amazon.com Inc. and Walmart Inc. controlled Flipkart Online Services Pvt., as well as specialty retailers like LVMH’s Sephora, are expanding in the $15 billion cosmetics market. Goldman Sachs Group Inc. has backed local rival Purplle.
Nykaa has a strategy to spend in technology, marketing, and product extensions to maintain its position. Its online offerings employ algorithms to suggest products based on previous purchases.

STRENGTHS
1. Nykaa is a prominent lifestyle-oriented consumer technology platform in India. There are no publicly traded firms in India that operate in the same industry as Nykaa.
2. For customers and brands in India, it is the favored destination for luxury and prestige goods.
3. Nykaa is a capital-efficient, resilient company with a good balance of growth and profitability.
4. It has a custom stack that was developed with today’s challenges and future adaptability in mind.
5. It is a founder-led business with an experienced management team.

RISKS
1. Dependence on India’s online commerce industry’s growth, its capacity to respond successfully to changing user behavior on digital platforms, network and mobile infrastructure security, third-party data center hosting facilities, and other third-party providers.
2. The consequences of the COVID-19 outbreak are still being felt.
3. Changing rules in India may result in new, ambiguous compliance obligations.
4. Because of the seasonality of the business, inventory was purchased in expectation of sales and failed to be managed adequately.
5. Nykaa has no control over the quality of the products sold by sellers and companies, but it may face legal liability and reputational damage because of product flaws, poor quality control, or concerns with authenticity.

Written by- Niki Shah

Edited by- Aditi Agarwal

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