FSN E–Commerce Ventures Limited IPO (Nykaa)

Incorporated in 2012, Nykaa is a consumer technology platform, delivering a content-led, lifestyle retail experience to consumers. The company has a diverse portfolio of beauty, personal care, and fashion products, including their own brand products manufactured by them.

The company operates under 2 major verticals: Nykaa: Beauty and personal care and Nykaa Fashion: Apparel and accessories. They have a diverse portfolio of beauty, personal care and fashion products, including their owned brand products manufactured by them.

⮚ As of March 31, 2021, Nykaa offered approximately 3.1 million SKUs from 4,078 national and international brands to their consumers across business verticals.

For the 3 months ended June 30, 2021, the total GMV was ₹1,469.61 crore, which grew 238.8% from the 3 months ended June 30, 2020.

⮚ The beauty and personal care offering is extensive with 256,149 SKUs from 2,644 brands primarily across make-up, skincare, haircare, bath and body, fragrance, grooming appliances, personal care, and health and wellness categories as of August 31, 2021

⮚ The company manufactures owned brand beauty and personal care which are sold under their owned brands such as “Nykaa Cosmetics”, “Nykaa Naturals” and “Kay Beauty”.

⮚ The company provides an omnichannel shopping experience to its customers by providing both online and offline shopping channels. Online channels include mobile apps, websites, and mobile sites while in the offline channel Nykaa opened their first physical store in 2014, and has 80 physical stores across 40 cities as of August 31, 2021. Their physical stores currently exist in 3 formats, Nykaa Luxe, Nykaa On Trend and Nykaa Kiosks.

KEY MANAGERIAL PERSONNEL

⮚ Falguni Nayar is the Founder, Executive Chairperson & Managing Director and Chief Executive Officer of the company. She has over 26 years of experience in e-commerce, investment banking and broking. Prior to founding the company, she was associated with Kotak Mahindra Capital Co Ltd for 18 years where she also served as a managing director.

⮚ Sanjay Nayar is an Additional Non-Executive Director of the company. He has over 35 years of experience in banking and private equity. He was associated with Citibank N.A. for over 23 years, where he also served as the chief executive officer of the bank in India for over 6 years. He was chief executive officer of KKR India Advisors Pvt Ltd from 2009 to 2020.

⮚ Adwaita Nayar is the Executive Director of the company, since July 1, 2021. She also serves as the chairperson and chief executive officer of Nykaa Fashion. She co-founded the company and has been involved in the areas of marketing, operations and product development.

⮚ Anchit Nayar is the Executive Director of the company, since July 1, 2021. He also serves as the chairman and chief executive officer of Nykaa E-Retail. He has previously served as the vice president of the Investment Banking Division at Morgan Stanley, New York. He is currently responsible for the beauty business and also serves as a member of the investor relations team

⮚ Arvind Agarwal is the Chief Financial Officer of the company. He has been associated with the company since June 1, 2020. He has over 21 years of experience in various fields, including accounting, finance, regulatory and strategic planning. Previously, he was associated with Amazon Seller Service Pvt Ltd, Vodafone India Ltd, Tata Teleservices Ltd, YOU Telecom and Adani Port Ltd.

⮚ Rajendra Punde is the Head - Company Secretary & Legal and Compliance Officer of the company. He has been associated with the company since October 22, 2020. He has more than 17 years of experience in legal, compliance and company secretarial.

Issue Break-up (%)QIB Portion 75NIB Portion 15Retail Portion 10Shareholding (No. of Shares)Pre Issue 467,036,850Post Issue 472,924,550Indicative TimetableFinalisation of Basis of Allotment 08-11-2021Refunds/Unblocking ASBA Fund 09-11-2021Credit of equity shares to DP A/c 10-11-2021Trading commences 11-11-2021

COMPETITIVE STRENGTHS

⮚ Continue to acquire new consumers and increase consumer loyalty

⮚ Deepen and broaden the brand relationships

⮚ Leveraging on the art of retailing to expand into lifestyle adjacencies and launch new channels

⮚ One of India's leading speciality beauty and personal care companies.

⮚ Major brands offering their products on Nykaa's platform for sale

⮚ Capital efficient business with strong growth and profitability

⮚ Company's advanced technology platform

KEY CONCERNS

⮚ They may not be able to boost revenue if they are unable to attract new customers or do it in a cost-effective manner.

⮚ Any damage to their brand or reputation could have a negative impact on their business.

⮚ The sale of their own items exposes them to new risks and increases the severity of others.

⮚ They operate in an extremely competitive sector, and their inability to compete successfully could affect their bottom line.

⮚ Their business’ seasonality has an impact on their quarterly performance and puts a burden on their operations.

Issue OfferIssue Opens on Oct 28, 2021Issue Close on Nov 01, 2021Total IPO size (cr) 5,351.92Fresh issue (cr) 630Offer For Sale (cr) 4,721.92Price Band (INR) 1085 – 1125Market Lot 12Face Value (INR) 1Retail Allocation 10%Listing On NSE, BSE

FSN E–Commerce Ventures Limited IPO (Nykaa)

FINANCIALS (RESTATED CONSOLIDATED)

Particulars (Rs. In Millions) FY 2021 FY 2020 FY 2019Equity Share Capital 150.58 145.50 142.43Other Equity 4,748.81 3,075.99 2,163.15Net Worth 4,899.39 3,221.49 2,305.58Total Borrowings 1,874.65 2,675.49 2,256.43Revenue from Operations 24,408.96 17,675.33 11,113.94EBITDA 1,614.26 810.55 205.10Profit Before Tax 753.38 (124.30) (317.20)Net Profit for the year 619.45 (163.40) (245.39)

COMPARISON WITH LISTED INDUSTRY PEERS

There are no listed companies in India that engage in a business similar to that of the Company. Accordingly, it is not possible to provide an industry comparison in relation to the Company.

Outlook & Valuation

Nykaa redefined the art of e-retailing beauty and personal care in India. Nykaa's revenue for FY 2021 was at Rs 2,452 crore VS Rs 1,777 cr while profit for the year in the FY 2021 was Rs 61.9 cr, as compared to a restated loss of Rs 16.3 cr for 2020.

Q1FY22 financials also looked better than previous years, but need to see how it grows further. The beauty and personal care market have a large market opportunity especially in India where millennials are more into buying brands and look for easy buying options such as e-commerce.

At the upper price band of Rs 1125, the PE works out to be 839x and the price to sales comes at 21.6x to its FY21 earnings. The valuation of the IPO is pretty high however eyeing the higher valuations of other unicorns we may expect some listing gain.

Thus, we assign a “SUBSCRIBE” rating to the IPO only for listing gains.