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Shares of Nykaa’s parent company, FSN E-Commerce Ventures Ltd, made a stellar stock markets debut on Wednesday. The stock was listed at ₹2018, a 79.37% premium over its issue price of ₹1125 a piece. The stock closed at ₹2205.80 on the NSE, gaining 96%. During the day, it touched high of ₹2248 and low of ₹2000.
The robust listing day gains have catapulted market capitalisation of Nykaa to over ₹1 lakh crore, surpassing other stocks in the Nifty such as Hero MotoCorp, Bharat Petroleum Corporation Limited (BPCL), Indusind Bank, Britannia, Dr Reddy’s, Tata Consumer, Eicher Motors, Cipla and UPL.
The only profitable unicorn to be listed on stock exchanges, Nykaa’s valuations is attractive, analysts had said ahead of the issue. Post pandemic as the primary markets have got attractive, two other unicorn, CarTrade and Zomato, recently were listed on the stock exchanages.
“It is one of the very few profitable new-age company and is the first women led unicorn which also attracted lot of investor interest. Apart from leadership in online beauty and personal care (BPC) in India, Nykaa is also one of the fastest growing fashion platforms in India based on gross merchandise value. Nykaa’s key strengths lies in its inventory-led business model for BPC segment, which allows it to offer authentication for all its products and ensures availability and efficient distribution," Sneha Poddar, analyst, Motilal Oswal Financial Services said.
Given 35% market share of Nykaa in online BPC, she believe Nykaa is rightly placed to tap the high growth digital/online penetration in BPC an fashion market.
The ₹5,350 crore initial public offering (IPO) of Nykaa was subscribed 82 times during its share sale that ended on 1 November.
Nykaa’s gross merchandise value (GMV) has grown at 57% compound annual growth rate (CAGR) over FY19-21. GMV, or the total value of merchandise sold over a period, measures the use of the site to sell merchandise owned by others. Its revenue and Ebitda increased 48% and 181% CAGR over FY19-21, while it turned profitable in FY21. Ebitda margins improved to 6.6% in FY21 with free cash flow (FCF) turning positive. It has a capital efficient business model with asset turnover of 3 times in FY21.
The company’s asset-light model and the strong penchant among millennials to buy brands in the beauty and personal care segment makes the share sale a favourable bet for investors, according to analysts. They said Nykaa, owned by FSN E-Commerce Ventures Ltd, has the potential to grow in the lifestyle e-commerce space with its scalable business model.
Post the listing, promoter’s stake will reduce to 52.6% from 54.2%. The funds raised will be utilised for setting up new retail stores/warehouses, debt repayment and marketing.
Analysts at Elara Capital feel that successful execution in the fashion segment is key to Nykaa’s valuation re-rating in the medium to long term as the company does not enjoy the first-mover advantage in the fashion segment, which is currently dominated by Ajio, Myntra, Amazon and Flipkart among others.
“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," said Jyoti Roy, an analyst at Angel One.
Nykaa has a portfolio of 13 owned brands. As of 31 August 2021, Nykaa had 3.1 million SKU offerings from 4,078 national and international brands across business verticals.
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