Analyzing Nykaa before it goes public

Imagine this - A 50-year-old woman starting a beauty and cosmetic business, which will become a unicorn and the first women-led startup to get listed on the Indian Stock exchange. Sounds too good to be true, right? Well, Falguni Nayar, with its Startup Nykaa, has made this possible, with its company all set for IPO in a bull market. Let's look at the company from every angle in today's pill.

It all dates back to 2012 when Falguni Nayar left her job as Managing Director of Kotak bank to look for business opportunities. At this point, she realized that India's beauty and cosmetics sector is still untapped, with women needing to rely on local shops for their cosmetics need. Hence started Nykaa with an inventory-led model business, which means it sourced products from a third party, keeping them in their inventory and then listing them on their website. In the initial stages, it only focused on the cosmetics business and slowly venturing into women's fashion and men's fashion.

Business Model
Remember how we mentioned their inventory-led model? this gave them two main benefits, one - they were able to deliver the products to customers with a minimal delay since they held the goods at the time of sale, and two - they were able to get the products at a lower price from the seller since they ordered in bulk which in turn gave them higher margin. In addition to third-party products, the company launched its in-house line of products across cosmetics and fashion. The company also has 76 brick-and-mortar stores across the country. All in all, the company has a strong foothold in the Indian Cosmetics sector with a future proof model given its presence in e-commerce as well.

Surprisingly given the kind of growth Nykaa has experienced and the pace at which it has achieved it, the company has been profitable (Silent reference of Zomato and Swiggy hope you noticed..!!!!). In FY21, the company reported total revenue of INR 2,452.6 cr, up 38.10% from FY20, where it was INR 1,777.8 cr. Its profit for 2021 was reported at INR 61.9 cr against losses of INR 16 cr and INR 24 cr in FY20 and FY21. Another interesting fact is that the company's purchase of traded goods cost has gone down from 68% in FY19 to 62% in FY21. The main reason this happened is the company's increasing dependency on in-house products, ultimately increasing their profits in the long run.

IPO Details
Now that we are done with the company analysis let's look at the IPO details. It is set to open on October 28 with a price band of Rs 1,085 to Rs 1,125. Of the IPO size of Rs 5,351.92 cr, Rs 630 cr is a fresh issue, and the rest being an offer for sale providing initial investors either a full or partial exit. A retail investor can bid in a lot of 12 shares or a minimum of Rs 13,500 for one lot and a maximum of Rs 1,89,000 for 14 lots. Share allotment is expected to take place on November 8, and trading is to be commenced on November 11. Some investors selling their stake include Sanjay Nayar Family Trust, TPG Growth IV SF Pvt Ltd, and Lighthouse India Fund III. The book-running lead managers are Kotak Mahindra Capital Company, Morgan Stanley India Company, BofA Securities India, Citigroup Global Markets India, ICICI Securities, and JM Financial.

Whether this IPO will succeed or not is a different matter, but what Falguni Nayar has done in such a short period is an act that will inspire an entire generation of women entrepreneurs and give them the motivation to go out there explore a world full of opportunities. With that being said Nykaa as of now stands very strong in the beauty and cosmetics sector but increasing competition expected from Flipkart and Amazon in near future can be a threat to the company. Will you apply for the IPO?

Do let us know your thoughts on the above topic in the comment section and let a healthy conversation start.

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The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.

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