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MUMBAI : As Nykaa’s ₹5350 crore IPO sets to open for public subscription on Thursday, analysts said that valuations are attractive compared to the other two recently-listed unicorns, CarTrade and Zomato. With millennials preferring to buy brands in beauty and personal care (BPC) segment and Nykaa’s asset light business model, makes it a favourable bet.
Analysts feel that as Nykaa, owned by FSN E-Commerce Ventures Ltd, resonates with the millennials, who keep updating trends, the company has a potential to grow in lifestyle e-commerce space with its scalable business model.
According to Sneha Poddar, research analyst, Motilal Oswal Financial Services the issue is valued at 16.1 times FY22 enterprise value/sales on a post issue and annualized basis. “We believe Nykaa is rightly placed to tap the high growth digital and online penetration in beauty, personal care (BPC) and fashion market. Investors with high risk appetite can subscribe for listing Gains given fancy for unique and first of its kind listing in the e-commerce space," she said.
Nykaa’s revenue has grown at a 48% CAGR over FY19-21, while it turned net profit positive in FY21.
The three-day share sale which will close on 1 November will see promoter’s stake reducing from 54.2% pre-IPO to 52.6% while the funds raised will be utilized for setting up new retail stores/warehouses, debt repayment and marketing.
“The IPO is valued at 21.8 times FY21 EV to sales, which is at 20% discount compared to the other two recently-listed unicorns, CarTrade and Zomato, despite generating superior return on equity (RoE). In our view, 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," said Vikas Jain, analyst, Reliance Securities.
Jain believes that due to first-mover advantage, Nykaa is likely to get a healthy traction ahead and thus the high earnings valuation would not be the right criteria to judge the stock. However, progress of future earnings growth and cash flow generation would be key things to watch out for.
Meanwhile, major global institutional investors including Canada’s largest pension fund manager CPPIB and Singapore’s sovereign wealth fund GIC have picked up a large chunk of shares in the anchor book allotment for the Nykaa IPO (FSN E-Commerce Ventures Ltd), said two people aware of the development.
The anchor book allotment witnessed a strong demand of 40 times from institutional investors, said the first person cited above.
“While valuations may appear to be expensive on a price to earnings (PE) basis 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," Jyoti Roy, analyst, Angel One said.
“The valuation of the IPO is rich, demanding a market cap of ₹53204 crore. There are no listed companies in India that engage in a business similar to that of the Company. Accordingly, the company has a unique business proposition amongst its customer base and also has an aspirational brand image which augurs well for the company in the long term," said Anand Rathi Share and Stock Brokers Ltd.
Analysts at Elara Capital feel that successful execution in the fashion segment is key to valuation re-rating, in mid-to-long term as Nykaa does not enjoy the first-mover advantage in the fashion segment currently, dominated by incumbents such as Ajio, Myntra, Amazon, Flipkart etc.
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