As Nykaa IPO opens tomorrow, analysts say think long, not short

E-commerce beauty giant Nykaa will open its initial public offering (IPO) to subscribers on Thursday, aiming for a total valuation of over $7 billion. Founded by former investment banker Falguni Nayar, the woman-led unicorn offers 4,000 beauty, personal care and fashion brands through its website, app and 80-odd brick-and-mortar stores.

The IPO will open for subscription on October 28 and conclude on November 1. It comprises of equity shares aggregating up to ₹630 crore (fresh issue) and an offer for sale (OFS) of up to 41,972,660 equity shares by promoters or existing shareholders.

“The rise of digital-only brands and the direct-to-customer online channel has introduced innovative and effective ways for brands to sell. Local emerging brands have also witnessed increased popularity and following in recent times. Considering the future prospect for the company and it being placed at a sweet spot as the first mover advantage we assign “Subscribe-Long Term” Rating to this IPO,” said brokerage house Anand Rathi.

The price band of the public issue is fixed at ₹1,085-1,125 per share. Promoters, including founder and CEO Falguni Nayar, currently own more than 50 per cent share in the company.

Nykaa could be an attractive option, as per analysts, for listing gains as well as investors can look at it for long-term as well.

“Looking after scale of operations, strong management team, profitable concern & high growth prospectsin industry due to large underpenetration, we believe that company has created an industry itself. Therefore, we recommend “Subscribe” on issue for listing gain as well as long term,” suggested Hem Securities.

Founded in 2012 by former investment banker Falguni Nayar, as of August 31, 2021, Nykaa had cumulative downloads of 55.8 million across all their mobile applications. During the financial Year 2021, 88.2% of their online GMV came through their app. Nykaa had posted a net profit of ₹61.9 crore in FY21 compared to a loss of ₹16.3 crore in FY20. Nykaa opened their first physical store in 2014, and has 80 physical stores across 40 cities as of August 31, 2021. 

Brokerage firm Prabhuas Lilladher has recommended a ‘Subscribe’ Rating to IPO of FSN E-Commerce Ventures which operates Nykaa. “We believe Nykaa’s entry into fashion segment holds promise with focus on premium customers, curated and managed marketplace offering over 1.8 million SKUs, private labels like NYKD, Pippa Bella, 20 dresses and industry leading AOV of ₹3977 and ~25% contribution to GMV in 5MFY22,” the note stated.

Earlier this year, food-delivery firm Zomato Ltd made a stellar stock market debut. Other Indian startups expected to enter the market this year include fintech firm Paytm, hospitality company Oyo Hotels and ride-hailing firm Ola.