Yesterday’s Market Performance

Nifty: 18211.00 I 57.40 (0.31%)
FII Sell Net: INR 1913.36 Cr
DAX: 15,711.83 I 45.23 (0.29%)

Sensex: 61143.33 I 206.93 (0.34%)
DII Buy Net: INR 472.48 Cr
FTSE: 7,254.65 I 22.97 (0.32%)

Howdy Toasters!

In today’s issue of the Morning Toast, we discuss:

• Nykaa gets ready to IPO- detailed analysis.
• Titan’s strong recovery- recorded a 66% growth in sales to INR 71.7 Bn
• Results Preview
• An education concept to keep you chugging along

Nykaa gets ready to IPO, bringing glitter to the public markets (:PP); What’s up and what do we know? 🧐

Company Overview

• Nykaa is a digitally native consumer technology platform, delivering content-led, lifestyle retail experiences through a diverse portfolio of beauty, personal care and fashion products, including private labels (phews!!)

• The company follows an omni-channel approach, with an online-offline combination designed to cater to the diverse needs of its target group-

  • Online- Mobile, Website & Mobile Sites, ~55.8 Million downloads across all its mobile applications, between April – Aug 31, 2021

  • Offline: 80 physical stores across 40 cities in India, over three store forms

  • Physical stores offers a select offering of products, and enable a seamless experience across the physical & digital worlds

• Nykaa has a diverse portfolio of products, spanning beauty, personal care & fashion –

  • Beauty & Personal Care – the original business, started in 2012, has a portfolio of 256,149 SKUs (items listed to order) from 2,644 brands across make-up, skin care, hair user, bath & body, fragrances, & more

  • Fashion- newly launched vertical in 2018, the company offers 2.3 Mn SKUs across 1,434 brands across apparel & accessories (women, men, children & home), with an average order value of ~ INR 4,000 (highest amongst leading online fashion retail platforms)

Key Highlights

• The company is the largest speciality beauty & personal care platform in India in terms of value of products sold in FY21 & five months ended Aug 31, 2021 of current financial year, with GMVs of INR 40,459 & INR 14,686 Million respectively

• In order to aid & assist new / relatively new users and acquaint a target market that is fresh to beauty & personal care, the company has formed the largest network of influencers (3,055) across products & age groups, developing an approach that aims to educate before purchase

• This content led approach is constant theme across the company’s Go To Market approach, reflective in their social media footprint –

  • Nykaa TV, YouTube based content platform has a watch time of 1.3 & 1.5 Million hours over FY21 & 5 months ended Aug 31, 2021

  • Most followed influential lifestyle platform in India, with >13.4 Million followers across different social platforms

• The company has a diverse portfolio of 15 owned brands, created to drive margins, increase recall for the platform and plug gaps in consumer need & price points; think Cosmetics, Twenty Dresses, Lingerie, Jewelry, Dress & JumpSuits, Kurta Suits & Ethnic Dresses

• The company’s recorded phenomenal growth (to say the least); over the longer term (3 years), the company’s recorded a CAGR of ~57% & ~48% in GMV & Revenue terms

• In the pandemic infused year, GMV for the first quarter of FY22 was INR 1,469 Crores, which was up a whopping 239% on a YoY comparison (huge!!); likewise, revenue from operations during the similar period comparison grew ~183%

• From a bottom line perspective, the company is one of the few listed Tech Plays to deliver PAT (however minute that may be); EBITDA % have consistently improved over the last 3 years, with the company recording a 6% margin for FY21

Valuations & Use of Proceeds?

• Expensive bro (why you even surprised); at the higher end of the price band, the company is expected to list at a market capitalisation of INR 53,205 Crore (~USD 7.4 Billion), which translates into a earnings multiple of ~840x and sales multiple of 21x (FY 21 Nos for both)

• The IPO (size: INR 5,350 Crores, at upper end of price band) is mix of Offer for Sale (providing exit to incumbent shareholders, including Promoter Group) and Primary Issue (INR 630 Crore)

• The company aims to utilise proceeds primarily as growth capital for subsidiary businesses including Nykaa Fashion (to set-up new retail stores), for Nykaa Retail (to set-up warehouses) and as repayment / prepayment of outstanding borrowings (at sub. Level)

Final thoughts? 🤔

• An omni-channel approach, through a product portfolio is that geared across the spectrum of skin care, body care, fashion and more, via multiple price points makes the company ever present within the Beauty & Fashion landscape (expected to touch ~USD 72 billion in size by 2025)
• A management profile that is a mix of Promoter Group + Professionals, coupled with marquee early / late stage investors augurs well from an execution & corporate governance perspective
• Unlike other techplays, that have listed in the recent past, Nykaa has always had one eye on running a sustainable ship, with likelihood of capital shortage being low in the near term
• A valuation premium is always going to be likely, especially taking into consideration the Promoter Group profile & Investor roster; Is there something on the table for retail shareholders or has everything been priced in the interim is the question to be asked

Keep a track?

Like our news coverages?😍 Become a part of our fam, subscribe to our newsletter. Subscribe here

Robust demand recovery and solid EBITDA & PAT numbers continue the positive theme for TITAN Company 🧐

• Riding on a strong recovery in demand across its consumer businesses, the company recorded a 66% growth in sales to INR 71.7 Bn (including bullion sales); all segments, including Jewellery, Watches & Wearables and Eyewear clocked >70% growth on a YoY basis

• EBITDA & PAT grew 3x YoY (albeit on a low base), with gross margins expansion across business segments aiding; the company recorded its highest-ever PAT at INR 6.4 Bn (beating Bloomberg estimates by 17%)

• The company accelerated its store additions (ease of movement & reducing Covid-19 cases helping) opening 60 stores (net) YTD FY22; the company now has a store network of 1,969 stores, spread over 308 towns, covering 2.6 Mn sq.ft. (Huge!)

We covered the company via a mid-quarter business update, check it here.

Nice!! Tell me more? Key business updates, valuations? 🤔

• Wedding sales for Q2FY22 are higher when compared to corresponding levels of FY21 & FY20, indicating a return of pre-pandemic level demand; division witnessed the growth of 77%, post-second wave

• Watches & Wearables recorded a 72% growth for the quarter, with E-commerce contribution now ~25% of overall sales, compared to 18% of pre-pandemic levels; walk-ins in malls are at 65% of pre-pandemic levels

• Eyewear has recovered to surpass pre-pandemic levels (in revenue terms), while also recording the best ever quarter revenue; the segment also delivered a highest-ever EBIT margin of 23% for the quarter

Valuations? Stock Perspective?

• The stock currently trades at 70x FY23 and 56x FY24 on an earnings basis, with a fair run-up in the stock price (+16% in the last month) pre & post the company released a business update during the quarter

• Demand scenario, coupled with margin improvements (through economies of scale & COVID-19 induced measures) are likely to stay intact in the near term, with the company guiding for a similar business environment to persist

What else caught our eye? 👀

Adani to go green in Sri Lanka

• The Adani group is looking to invest in the nation’s energy and wind sector
• They have recently sealed a deal to develop and manage the Colombo Port’s Western Container Terminal
• They are receiving strong support from the local gov who are pushing for investments rather than loans for economic development

RBI to roll back stimulus?

• Traders are expecting the RBI to roll back the monetary stimulus quicker than planned, as shown by the surging swap rates
• The spread with five year bond yields is approaching zero from almost 80 basis points earlier this year
• The main reason is said to be the pandemic-era inflation with a further price rise due to a surge in global energy prices

Thursday, 28th October: Adani Green, Adani Total Gas, AU Small Finance Bank, Bajaj Finserv, Bajaj Holdings, Blue Star, Coromandel International, DLF, Edelweiss Financial Services, Gujarat Gas, Indian Bank, Interglobe Aviation, Marico, NTPC, RBL Bank, SBI Cards, Tata Power, V-Guard Industries, Westlife Development

Friday, 29th October: Adani Power, Adani Transmission, Ajanta Pharma, Apollo Tyres, Atul ltd, Bandhan Bank, Bharat Electron, BPCL, Cadila Healthcare, Castrol India, Cholamandalam Finance, Dixon Technologies, Dr Reddy’s Labs, Emami, Equitas Small Finance Bank, Escorts, Exide Industries, Gail, JSW Energy, Oberoi Realty, SAIL, Shree Cements, Shriram Transport, UPL, Varun Beverages, Vedanta, Voltas