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HomeMarket Live Updates​Nykaa IPO opens tomorrow: Should you subscribe or avoid the e-tailer?

​Nykaa IPO opens tomorrow: Should you subscribe or avoid the e-tailer?


New Delhi: The 5,352 crore IPO of FSN E-commerce Ventures, which owns Nykaa, is set to open on Thursday. The TPG-backed startup’s initial stake sale will be a mix of a fresh issue and an offer for sale (OFS).

Majority of brokerages are positive on the IPO and have given it a subscribe rating. However, Marwadi Shares and Finance has a word of caution for investors. The brokerage has given a ‘subscribe with caution’ rating to this IPO.

Considering the TTM as of June 2021, adjusted EPS of Rs 2.54 on a post-issue basis, the company is going to list at a P/E of 443.46 with a market cap of Rs 53,204 crore, it said.

“The company is one of the leading lifestyle-focused consumer technology platforms and a preferred destination for luxury and prestige products in India for consumers and brands,” the brokerage said in its IPO report. “However, valuations on an absolute basis based on past financials keep us cautious at the same time.”

The three-day stake sale of Nykaa will kick off on Thursday, October 28, and the issue can be subscribed till Monday, November 1.

The beauty-products omnichannel would raise Rs 630 crore via sale of fresh equity shares, whereas promoters and existing shareholders will offload 43.11 million shares worth Rs 4,723 crore.

Nykaa has a large opportunity in the BPC (beauty and personal care) market that is poised to grow at 12 per cent per annum by 2025 while the fashion market is expected to grow at 18 per cent per annum by 2025. Also, the company has posted strong growth without a substantial cash burn, said Hem Securities.

“Looking after the scale of operations, strong management team, profitable concern & high growth prospects in industry due to large under penetration, we believe that company has created an industry itself,” added the brokerage with a ‘subscribe’ rating on the issue for listing gain as well as for long term.

Nykaa was founded in 2012 by Falguni Nayar, a former investment banker with Kotak Mahindra Bank. The start-up is a digitally native consumer technology platform, delivering a content-led, lifestyle retail experience to consumers.

Nykaa is a multi-brand beauty and personal care platform in India and is expanding rapidly into fashion and lifestyle segments. It is also trying to woo men with the launch of Nykaa Man.

Reliance Securities, which has given a subscribe rating with a long-term view on the issue, said the IPO is valued at 21.8x FY21 EV to sales, which is about 20 per cent discount compared to the other two recently-listed unicorns, CarTrade and Zomato, despite generating superior RoE.

“The beauty and personal care market has a large addressable market opportunity, especially in India where millennials tend to prefer buying brands and look for easy buying options such as e-commerce,” it added. “Unique business model and first-movers advantage, Nykaa is likely to get a healthy traction ahead.”

Another brokerage firm, Prabhudas Lilladher, believes that Nykaa’s entry into the fashion segment holds promise with focus on premium customers, curated and managed marketplace offerings, private labels and average order value.

“We believe Nykaa can sustain a CAGR of about 35 per cent in sales, 50 per cent in EBITDA over the coming few years with double-digit margins. We assign subscribe rating to the IPO,” it said.

The company will utilize net proceeds from the fresh issue for establishing new retail stores. The remaining portion will be considered for repayment of debt and enhancing the brand visibility.

Religare Broking is also positive on the company. Nykaa is well placed to benefit from growing industry trends given its resilient, capital-efficient business with a combination of strong growth and profitability, it said in its IPO note.

“Nykaa intends to continuously acquire new customers and increase its customer loyalty. It also plans to expand into lifestyle adjacencies and launch new channels. It also aims to explore expansion selectively and prudently into international markets,” it added.

Kotak Mahindra Capital, Morgan Stanley India, BofA Securities India, Citigroup Global Markets India, JM Financial and ICICI Securities are merchant bankers to the issue.



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