Nykaa IPO opens tomorrow, grey market premium strong; should you subscribe or not?

Nykaa’s Rs 5,352 crore IPO is set to open tomorrow at a fixed price band of Rs 1,085-1,125 per share.

Nykaa’s Rs 5,352 crore IPO is set to open tomorrow at a fixed price band of Rs 1,085-1,125 per share. The fashion e-commerce platform, run by parent company FSN E-Commerce is promoted by Falguni Nayar and backed by private equity firm TPG. Ahead of the opening of IPO (Initial Public Offering), shares of the company were commanding a premium of Rs 670 per share in the grey market amid strong interest, said people dealing in unlisted shares. Nykaa received SEBI’s go-ahead for the IPO earlier this month, along with six other firms. 

Investors can bid for Nykaa’s IPO in a fixed price band of Rs 1,085-1,125 per share, in a bid lot of 12 shares. This translated to a minimum investment of Rs 13,500 per investor. Nykaa’s IPO includes a fresh issue of equity shares worth Rs 630 crore while the remaining Rs 4,721 crore will be an offer for sale (OFS) by existing investors of the company and the promoter. Post issue, promoter shareholding in the company will drop to 52.6% from the current 54.2%. On the other hand, public shareholding will increase to 47.4% from 45.8%. 75% of the issue is reserved for qualified institutional buyers (QIB), while 15% is for Non-Institutional investors and 10% for retail investors.

Should you subscribe?

Motilal Oswal: Subscribe

Analysts at the brokerage firm said that they like Nykaa given its leadership position in the online BPC market, customer-centric approach, profitable tech platform and capital-efficient business model. “The issue is valued at 16.1x FY22 EV/Sales on a post-issue and annualized basis, which seems to be similar to other Indian unicorns. We believe Nykaa is rightly placed to tap the high growth digital/online penetration in BPC/Fashion market,” they added while advising investors to subscribe to the issue.

Prabhudas Lilladher: Subscribe

The brokerage firm is bullish on the IPO, advising investors to subscribe to the issue. “We believe IPO at 12.6xEV/GMV on FY21 sales and ~4.7xEV/GMV on FY24 sales offers long term value,” they added. Analysts at Prabhudas Lilladher believe Nykaa can sustain a CAGR of ~35% in sales, 50% in EBIDTA over the coming few years with double-digit margins.

BP Wealth: Subscribe

BP wealth has highlighted that Nykaa is India’s leading lifestyle-focused consumer technology platform with a capital-efficient business model. Nykaa has also made itself the preferred destination for luxury and prestige products in India. “ At the upper end of the price band, the issue is valued at 21.81x EV/ Sales on FY21 financials. There is an underlying risk for high valuations but considering factors such as increasing PAT, positive cash flows, huge growth capabilities and confidence in the company’s management, we recommend a “Subscribe” rating on this issue,” they added.

Anand Rathi: Subscribe Long Term

While analysts at Anand Rathi have a subscribe rating on the IPO, they have highlighted that at the upper end of the price band the valuations are rich. “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,” they said.