Nykaa IPO Financial Analysis (Subscribe for Listing Gain)

Key Business Highlights of Nykaa (FSN E-Commerce Ventures Limited)

Nykaa, as a brand, consists of a diverse portfolio of beauty, personal care, and fashion products. It has partnerships with various national and international brands and also includes owned brand products manufactured through third parties.
The Issuer operates through both online and offline channels. The business verticals include Beauty and personal care and Nykaa Fashion (apparel and accessories).
Nykaa mobile application and website have grown rapidly over the years to attain a significant market share of the online beauty and personal care market in 2021.
Nykaa cosmetics, Nykaa naturals, Kay Beauty, Twenty dresses, Nykd by Nykaa, and Pipa Bella are some of its owned brands.
The Issuer has acquired a majority stake (51%) in Dot and Key wellness private limited in Sep 2021.

Financial Review of Nykaa

The total revenues increased by 38% to Rs 2452.64 crore in FY21 from Rs 1777.85 crore during FY20. This was due to an increase in the sale of products and sale of services as a result of increasing online shopping by consumers in the beauty and personal care vertical as well as the launch of multiple product categories and brands as part of a fashion offering.

The Issuer reported PAT of Rs 61.95 crore for FY21 against losses of Rs (16.34) crore and Rs (24.54) crore for FY20 and FY19 respectively. However, the EBITDA has been positive throughout all the last three fiscals. A growing trend can be seen in the EBITDA margins over the last three fiscals from the financial table.

Return on net worth is 12.62%, (5.16%) and (10.63%) respectively for FY19, FY20, and FY21. RoNW was 0.5% for Q1FY22.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title	Q1FY22	FY2021	FY2020	FY2019
Total Revenue	821.71	2,452.64	1,777.85	1,116.38
Revenue from operations	816.99	2,440.89	1,767.53	1,111.39
PAT	3.52	61.95	-16.34	-24.54
EBITDA	26.94	161.43	81.05	20.51
Total Assets	1,631.48	1,301.99	1,124.48	775.66
EBITDA Margin (%)	3.30%	6.61%	4.59%	1.85%
Net profit margin(%)	0.43%	2.53%	-0.92%	-2.20%

Valuation and Peer comparison

With an EPS of 1.39 as of 31^st March 2021, the Issue is priced 809 times at the upper price band of Rs 1125 per share. The Issue appears to be highly overvalued. The market cap of the IPO amounts to Rs 53000 crore. Price to book value is 72.72 at NAV of Rs 15.47 as of 31^st Mar 2021.

There are no listed peers of the company as per the RHP. In the BPC Market and Fashion Market in India, Nykaa competes with organized multi-brand and exclusive retailers, unorganized merchants, horizontal online platforms like Amazon, Flipkart, and Paytm Mall among others, and vertical online platforms such as Myntra, Purplle, and Myglamm among others.

Conclusion and Investment Strategy

India would continue to grow across the digital use-case funnel, as there is significant headroom for growth in both BPC and fashion segments. This growth is expected to be driven by the affordability of the internet, increased adoption from Tier 2+ cities, the rising popularity of social media, competitively priced online offerings, and the adoption of online payment platforms.

In unlisted space and among the online channels it faces competition from Amazon, Flipkart, and Myntra among others. The financial performance of the company shows a growing trend in its revenues and profitability margins. Investors should also consider that e-commerce companies have to spend considerably in marketing to create its space. Looking at the frenzy in the market and the strong grey market premiums, one may invest in the IPO for listing gains. Listing gains are affected by the market conditions prevailing at the time of listing.

Reviewer recommends Subscribe for Listing Gain to the issue.

Review By CA Priyanka Choudhary on 14th Oct 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.