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How do you go from startup to an IPO oversubscribed over 81 times in under 10 years? That's what we're going to try and understand in today's blog post. Our focus is Nykaa - India's largest dedicated fashion and lifestyle portal - that was founded in 2012 and saw its IPO from October 28 to November 2, 2021.
The company witnessed what newspapers called a "blockbuster IPO" very much like other household names that also witnessed oversubscribed IPOs, such as Zomato, Ixigo and Devyani International (which franchises Pizza Hut and Costa Coffee).
In today's post we will explore a handful of key points such as Nykaa's journey so far, key figures related to the company and reasons for the headline-making dip in profits.
An introduction to Nykaa - who/what is Nykaa:
Nykaa is operated by FSN E-Ventures and owned by Falguni Nayyar, an ex-investment banker, who started the company in 2012. Actually, to be precise, Nayyar owns 54% of the company along with her husband Sanjay Nayyar and their two children Advaita and Anchit Nayyar.
Nykaa is a popular brand, known by women and men alike because it sells not only cosmetics but also bath products among other things. The company has online and offline retail options and is headquartered in Mumbai.
Number crunching - Key figures related to Nykaa
Nykaa's revenue figures are typically presented in terms of Gross Merchandise Value, or GMV, which represents total sales. It is calculated without deducting fees and expenses.
- In Q4 of FY 2020, Nykaa's GMV stood at 93 million
- In Q1 of FY 2021, the company's GMV stood at 59 million - remember this is when the pandemic broke.
- However in Q2 of FY 2021, the company's GMV climbed to 135 million.
- In Q3, GMV climbed further, to 186 million
- In Q4, GMV was 168 million
- And in Q1 of FY 2022, GMV hit 199 million
- Nykaa clocked a net profit Rs 61.96 crore in FY 2021, up from a net loss of Rs 16.34 crore in FY 2020.
- The base of transacting customers for beauty and personal care has also witnessed a steady increase from 5.3 million in FY 2020 to 5.6 million in FY 2021 and 7.1 million in FY 2022.
Nykaa's growth strategy to capture market share
Nykaa not only promises its buyers genuine quality and a wide choice but also provides knowledge and information to potential customers. In the same way that you are reading this informative post now on the Angel One blog and might feel more confident about investing, Nykaa's customers might feel better informed about buying cosmetics and wellness products thanks to their blog. This, of course, helped stimulate market demand - and create awareness about the Nykaa platform. At the other end, Nykaa ensured that demand is met by sufficient supply, across product categories, with a focus on the authenticity of products sold on its platform.
About the IPO - Nykaa's growth strategy by public funding
Falguni Nayyar told newspapers that the goals of the IPO were, "Building a more sustainable organization and offering a window of opportunity to existing shareholders to exit." The company might potentially have received a better valuation if they had gone the private funding way but clearly its CEO saw public funding as a better and more sustainable way to go.
The company was aiming at a Rs 5,352 crore IPO that would place its valuation at over 53,200 crores or USD 7.1 billion, which it succeeded to achieve.
The IPO saw a fresh issue of Rs 630 crore worth of shares and an offer for sale of 41.97 million shares
Nykaa's share price took off to a strong start rallying over 80%. The share price has held rather stable in the Rs 2,000+ range, though it has dropped from earlier highs of Rs 2,300 and Rs 2,400+ to just a little over Rs 2,000.
The drop in profits, explained: do investors have cause for worry?
After such a successful IPO, how come Nykaa was in the headlines for a 96% dip in profits? Well, if you stopped to take a closer look at the headlines, you might have noted that the headline-making dip in profits is linked to the July to September quarter, not the quarter at hand (which ends at the end of December and therefore cannot be measured yet). The dip in profits was explained, by CEO Falguni Nayyar, as the result of funds being diverted towards marketing the IPO.
Nykaa has plans for expansion that include its own house of brands (where the company would identify scalable brands and then take them to their potential scale), besides new product categories linked to lifestyle, and additional sales channels.
Before investors decide to buy shares of Nykaa or sell shares they might already own, they should observe Nykaa's profitability in the ongoing quarter, and also use tools like price-to-earnings ratio to identify whether the stock price is justified, undervalued or inflated. This can help them decide whether now is a good time to buy. Studying stock price charts and applying technical analysis can additionally help investors strategise their investments correctly. Investors should also consider their overall portfolio (if they are already holding other stocks) and decide whether this retail/ e-commerce stock fits in with their overall portfolio diversification.
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