Nykaa IPO set to hit the street next week, key things you must know

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The much-awaited initial public offering (IPO) of online retailer of cosmetics and personal care products, Nykaa, is all set to open for subscription on October 28 to raise as much as Rs 5,200 crore.

Here are 9 key things you must know about the IPO before applying for it

About the company

Nykaa was founded in 2012 by investment banker Falguni Nayar. The firm is a new age digital retail platform delivering a content-led, lifestyle retail experience to consumers. It has a diverse portfolio of authentic beauty brands from across the globe, personal care, and fashion products, including brand products manufactured by it.

Talking about its popularity, as of March 2021, the company had cumulative downloads of 43.7 million across all mobile applications and 86.7% of its online gross merchandise value came through its mobile applications.

IPO Dates

The IPO is likely to be open for subscription between October 28 -November 1. The allotment of shares is likely to be finalised on November 8 and the tentative listing date is November 11.

Issue details

The Rs 5,200-crore Nykaa IPO will include a primary issue of stocks worth Rs 630 crore and an offer for sale for 43.11 million shares, as per the company’s draft red herring prospectus (DRHP) Under the Offer-For-Sale, some of the investors who are likely to sell stake include TPG, Light House India Fund, JM Financial, Sunil Kant Munjal and Promoter Sanjay Nayar Family Trust will sell 4.8 million shares.

Founder Falguni Nayar and her family will still continue to own a majority stake after the IPO. They currently hold more than 53% FSN E-Commerce Ventures, the parent firm of Nykaa.

Issue price

The tentative price band for the issue is Rs 1,120-Rs 1,125 and the lot size is 13, according to chittorgarh.com, a website that only tracks IPOs in the country. The company has not yet officially confirmed the price band.

Anchor funds

Meanwhile, anchor investors will be able to bid for the company’s shares for Rs 2,340 crore just a day before the public issue goes live for a subscription.

Objective

Nykaa has said that the company will allocate Rs 35 crore from the issue to investment in its arms FSN Brands or Nykaa Fashions for funding the establishment of new retail stores.

Another Rs 35 crore and Rs 130 crore will be used for capital expenditure and repayment of debt. Nykaa will also use Rs 200 crore to enhance the visibility and awareness of its brands.

Financials

Nykaa is among the very few profitable new-age digital startups e-tailer in India. It reported a net profit of Rs 61.96 crore in the fiscal ended March 31, compared to a net loss of Rs 16.34 crore in the year-ago period. While its revenue grew 38% year-on-year to Rs 2,453 crore in FY21.

It may be noted that the firm has increased its fresh issuance to Rs 630 crore from Rs 525 crore. The offer for sale (OFS) size has been reduced to 41.97 million shares from 43.11 million shares.

The lead book-running managers for the issue are Kotak Mahindra Capital, Morgan Stanley India, BofA Securities, Citigroup Global Markets India, ICICI Securities and JM Financial.

Grey market premium

As per Abhay Doshi, Founder, Unlisted Arena, “Grey markets seem to be excited as even before the announcement of the price band, punters in the grey market are trading the shares at a premium of Rs 700. The price band is expected to be around Rs 1150 apiece”.

Key strengths

The company is one of India’s leading specialty beauty and personal care companies. It has experienced and strong management and has a capital-efficient business with strong topline and bottom line and growth and expansion visibility.

Unlike the cash-burning and loss-making startups, Nykaa is a profitable one. Its revenue grew over 38% in FY2021 as compared to FY2020.

“With approximately 8% penetration, beauty and personal care segment in the E-commerce category is one of the most under-penetrated segments compared to matured e-tailing categories providing huge scope for start-ups like Nykaa. Nykaa has a quite different business model as compared to other e-commerce giants, in terms of distribution and marketing which helps them stand out of crowd”, said Doshi.