Nkyaa is one of the very few profitable startups in India. It’s also the first women-led unicorn in India.

The initial public offering (IPO) of FSN E-Commerce Ventures Ltd, will open for subscription on Thursday, October 28, 2021, at a price band of Rs 1,085-1,125 per share. The offer will be available till Monday, November 1, 2021.

Let’s analyse the company and the IPO in detail:

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, skincare, 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 specialty beauty & personal care platform in India in terms of the 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 a constant theme across the company’s Go To Market approach, reflective in their social media footprint – 
  • Nykaa TV, a 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

About the IPO

The parent company for Nykaa is FSN E-commerce Ventures. 

The IPO is valued at Rs. 5352 crore. This comprises of a fresh issue of shares worth Rs. 630 crore and an offer for sale of up to 4,18,72,660 shares worth Rs 4,721.92 crore. At the upper end of the price band, the issue size stands at Rs 5,351.92 crore.

The quota reserved for retail investors is 10% of the net offer. QIB quota is fixed at 75 percent while for NII, the quota is reserved at 15 percent. 2.5 lakh equity shares have been reserved for employees. Kotak Mahindra Capital Company, Morgan Stanley India Company, BofA Securities India, Citigroup Global Markets India, ICICI Securities, and JM Financial are the merchant bankers to the issue.

The price band has been fixed at Rs. 1085-Rs. 1125 per equity share. These funds will be used to invest in two subsidiaries – Nykaa Fashion and/or FSN Brands as well as for setting up new retail stores. There is also some debt on the company’s balance sheet to the tune of Rs. 156 crore which will be cleared up. The remaining will be used to increase brand awareness and visibility. 

What are the existing investors doing?

Promoters and investors will be selling approximately 4.19 crore equity shares via an offer for sale. Those opting to sell via OFS include promoters Sanjay Nayar Family Trust (who will sell 48 lakh equity shares), and investors such as TPG Growth IV will sell 54.21 lakh shares, Lighthouse India Fund III will sell 48.44 lakh shares, Lighthouse India III Employee Trust, JM Financial and Investment Consultancy, Sunil Kant Munjal and others.

Financials

Nykaa is a leading player in the e-commerce market for beauty and wellness products. 

Its revenue from operations for FY21 was around Rs. 2440 Crore which was a 38% increase from fiscal year 2020. The DRHP noted that the company’s restated profit for the year in FY21 was Rs 61.94 crore as compared to a restored loss of Rs 16.34 crore for the financial year 2020. Its total GMV (Gross Merchandise Value) was approximately Rs. 4000 crore in the financial year 2021 which was a 50% increase since the last year. This includes around 2 million SKUs from 3000+ national and international brands. 

For the quarter ended June 2021, it recorded revenues of Rs. 816 crore with a bottom line of Rs. 3.5 crore. 

In terms of business, Nykaa has been on a roll with a cumulative 43.7 million downloads across mobile apps. (86.7% of its online GMV came through mobile applications.) Their online presence is much stronger, but it has been growing its brick-and-mortar business steadily too. There are currently 73 offline stores across 38 cities in India. Both their curated product selection as well as the seamless buying experience offered is working in their favor. 

What’s the market opportunity like?

India has a growing beauty market. It is projected to be around Rs. 1981 billion opportunities in terms of beauty and personal care by only 2025. Currently, it is at Rs. 1.1 lakh crore. The CAGR for the industry as a whole has been 13% in the last three years. Even Covid-19 had a smaller impact than expected. 

Other key risks

There is a chance of new entrants to the market or focus on this segment by existing e-commerce giants like Amazon which also have a much more established global presence. Their deeper pockets may also enable them to achieve a higher bargaining power over suppliers There is also stiff competition from other horizontal and vertical players. 

What are your views on this IPO?