The IPO of Nykaa, an e-commerce company that sells beauty products and fashion accessories, could be the most highly valued public offering in the start-up space so far after Zomato.

In terms of price to earnings (PE) ratio, which is considered as a key global benchmark for valuing the company, Nyakaa has a score of between 809 and 839 and earnings per share of 1.39 depending on the IPO price band. By a wide margin, Nykaa’s PE trumps even some of the world’s biggest listed beauty brands and fashion clothing and accessories companies, analysts told BusinessLine .

 

But, still Zomato and upcoming IPOs of fintech players like Policybazaar, MobiKwik and Paytm are loss making and hence nobody even knows their PE.

Zomato has a market-cap of more than ₹1- lakh crore, but analysts do not trust its roadmap for profits, which is why its stock has failed to get traction after a few days of listing. Zomato’s CFO recently said that its company was running out of cash and wanted an IPO desperately.

Norms relaxed

Market regulator SEBI has relaxed a parameter that required companies to show a three-year profitability for raising money through IPO. This has mainly favoured the start-up companies to tap the primary markets in India and analysts have started valuing them on the basis of sales rather than earnings as they are loss making. Nykaa, however, earned a net profit of over ₹62 crore for the first time during financial year 2021 compared to losses that it made in the preceding years.

At the upper end of the IPO price band of ₹1,125, the company will raise ₹5,320.4 crore. Those selling the Nykaa IPO want it to be valued at sales, which is more than ₹2,400 crore, rather than its earnings.

“New age fintech companies are all about platform creation but for that they are seeking unrealistic valuations. An investor has to consider what they would be making and how long they have to wait before they can exit with decent profits,” said Arun Kejriwal, founder of Kejriwal Research and Investment Services. “These so-called fintechs have no comparables, they claim. But eight out of ten companies are loss making and do not even have a definite roadmap to show profitability,” said Kejriwal.

Nykaa has reported a profit in FY21 and is also now projecting 32 per cent and 46 per cent growth for FY 2022 and 2023. Analysts were also surprised as the company has given growth projections for the next 20 years in its prospectus.

“Nykaa products are nothing unique that cannot be acquired elsewhere. Only difference is that it is selling them online like many other platforms. Nykaa should also be compared with online retail giants and even they do not command such valuation,” said Kishor Ostwal, MD, CNI Global Research.

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