Nykaa off to a great start on exchanges, listed at 79% premium

The only profitable unicorn to be listed on stock exchanges, Nykaa has attractive valuations, analysts had said ahead of the issue. As the primary markets heat up after the pandemic, the other unicorns that have been listed recently are CarTrade and Zomato.

NS Nykaa’s Rs 5,350 crore initial public offering (IPO) was subscribed 82 times during its share sale that ended on November 1.

Nykaa’s Gross Merchandise Value (GMV) has grown at 57% Compound Annual Growth Rate (CAGR) during FY19-21. GMV, or the total value of goods sold in a period, measures the use of the Site to sell goods owned by others. Its revenue and EBITDA grew 48% and 181% CAGR in FY19-21, while it turned profitable in FY21. Ebitda margin increased to 6.6% in FY2011, with free cash flow (FCF) being positive. It has a capital efficient business model with an asset turnover of 3 times in FY 2011.

Analysts say the company’s asset-light model and strong propensity among millennials to buy the brand in the beauty and personal care segments, make the share sale a favorable bet for investors. He added that Nykaa, which is owned by FSN E-commerce Ventures Ltd, has the potential to grow in the lifestyle e-commerce space with its scalable business model.

“Valuation of this issue is 16.1x FY22 EV/post-sales issue and yearly basis, which appears to be similar to other Indian unicorns. We believe that Nykaa is at the right place to harness the high growth digital/online penetration in the Beauty & Personal Care (BPC)/Fashion market,” said Motilal Oswal Financial Services.

The promoter’s stake will come down from 54.2% to 52.6% after the listing. The funds raised will be used for setting up of new retail stores/warehouses, loan repayment and marketing.

Analysts at Elara Capital believe that successful execution in the fashion segment is the key to re-rating of Nykaa’s valuations in the medium to long term as the company does not enjoy first-mover advantage in the fashion segment, which Ajio currently enjoys. , Myntra dominates. , Amazon and Flipkart among others.

“While valuations on a value-to-earnings (PE) basis may sound expensive, Nykaa is one of the very few profitable unicorns in India, and we believe the company is well-positioned to benefit from the exponential growth in online beauty and fashion retailing business in the next decade,” said Jyoti Roy, an analyst at Angel One.