Nykaa IPO opens on October 28 : Should you subscribe to the issue??
Being considered the third-largest IPO, so far in 2021, after Zomato and Sona Comstar, Nykaa IPO opens from 28th October to 1st November. The IPO comprises a fresh issue of Rs 630 crore and an offer for sale (OFS) of 4.19 crore equity shares by several shareholders, including the promoters and some investors. The price band is Rs 1,085-1,125 per equity share. Postulating the strengths and risks of the IPO, let’s analyze whether to subscribe to it or no
BUSINESS OPERATIONS OF THE COMPANY
Incorporated in 2012, Nykaa is a consumer technology platform, delivering a content led, lifestyle retail experience to consumers. The Company has a diverse portfolio of beauty, personal care, and fashion products, including their own brand products manufactured by them.
| Major Verticles of the Company | |||
NYKAA Beauty and Personal Care | NYKAA FASHION Apparel and accessories | ||
| SKUs | 197,195 | SKUs | Over 1.8 million |
| Brands | More than 2,450 brands primarily across make-up, skin care, haircare, bath and body, grooming appliances, and health and wellness categories | Brands | More than 1,350 brands with fashion products across four consumer divisions : women, men, kids and home |
Other Highlights
Business is mainly inventory – led
Company manufactures its owned brand beauty and personal care products through third-party manufactures and are sold under their brand name such as “Nykaa Cosmetics”, “Nykaa Naturals” and “Kay Beauty”
Provides omnichannel shopping experience to its customers by providing both online and offline shopping channels. Online channels include mobile apps, websites and mobile sites while offline channel consists of 73 physical stores spread across 38 cities in India.
FINANCES
Nykaa, founded by banker-turned-businesswoman Falguni Nayar, recorded a 38.10 percent growth in revenue from operations at Rs 2,440.89 crore in FY21, compared to the previous year. It clocked a profit of Rs 61.95 crore for FY21 against a loss of Rs 16.34 crore the previous year. It generated EBITDA (earnings before interest, tax, depreciation and amortization) of Rs 161.43 crore and margin of 6.61 percent for FY21.
During the quarter that ended in June 2021, it clocked revenues of Rs 816.99 crore – a growth of 183.05 percent YoY. Profit during the quarter was Rs 3.52 crore against a loss of Rs 54.5 crore in Q2FY21, with an EBITDA of Rs 26.94 crore and margin of 3.30 percent for the quarter.
RISKS
Investors will have to consider some key risk factors, like stiff competition and the probable entry of new entities, if any, into the same segments, before subscribing to the issue.
Arun Kejriwal, founder of Kejriwal Research and Investment Services, is of the opinion that the current market fervor favors fintech companies’ exorbitant valuations. Margins in online business look unsustainable. Further, Nykaa benefitted from the Covid – 19 pandemic and thus it should return to near- normalcy to test business model.
Increased competitive intensity, with the risk of new entrants with deep pockets entering the segment once it reaches a certain scale, and the collective bargaining power of suppliers/brands that may be threatened by Nykaa’s strategy to scale its own brands are some of other risks, said the brokerage.
ALL ABOUT THE UPCOMING IPO
The purpose of the IPO is that the net proceeds from the new offer would be used to invest in two subsidiaries: FSN Brands and/or Nykaa Fashion and for setting up new retail stores (Rs 42 crore). The Company will also utilize the proceeds for capital expenditure and investment in subsidiaries, like Nykaa E-Retail, Nykaa Fashion and FSN Brands, and for setting up warehouses (Rs 42 crore)
The Funds will also be used for repayment of debt availed by the Company and its subsidiary Nykaa E-retail (Rs 156 crore), and to enhance brand awareness and visibility (Rs 234 Crore).
The IPO will open on October 28, 2021 and close on November 1, 2021.
The IPO comprises a fresh issue of Rs. 630 Crore and an offer for sale (OFS) of 4.19 crore equity shares by several shareholders, including the promoters and some investors
The Company, in consultation with the merchant bankers, has fixed the price band at Rs 1,085-1,125 per equity share.
The Nykaa IPO market lot size is 12 shares. A retail-individual investor can apply for up to 14 lots (168 shares or ₹189,000).
Nykaa shares traded at Rs 1,775-1,805 in the grey market, a premium of Rs 650-680 or 58-60 percent over the upper price band of Rs 1,125 per share, IPO Watch and IPO Central data showed.
The company will finalize share allotment on November 8, and refunds will be given on November 9.
Equity shares will be credited to the demat accounts of eligible investors on November 10, and trading will commence from November 11.
CONCLUSION
The scale of operations, strong management team profitability and the potential to go better in the future are few of the reasons why analysts and stock brokers recommend subscribing to the issue and give Nykaa’s IPO a shot.
