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If you had applied for the Nykaa IPO and sold your allotted shares on listing, you would have pocketed a tidy profit. Nykaa shares listed at an impressive ₹2,018 apiece on the NSE today — a gain of 79 per cent from the issue price of ₹1,125.
Nykaa (FSN E-Commerce Ventures), a leading omnichannel beauty and personal care multi-brand retailer, came out with an IPO on October 28. The issue closed on November 1 and was subscribed 82 times overall. It received a subscription of around 91 times by qualified institutional buyers and 12 times by retail investors. Much buzz surrounded the IPO, thanks to the company’s strong presence in the online Indian beauty and personal care (BPC) market, and the fact that it is profit-making unlike many other e-commerce platforms.
Expensive valuation
At the issue price of ₹1,125, the company valuation was a bit stiff. At the time of the IPO, Nykaa was valued at an enterprise value-to-sales (EV-sales) ratio of around 22 times, based on its FY21 sales. After the bumper listing, the stock valuation has climbed further to an EV-sales ratio of almost 39 times. With the stock price shooting up to ₹2,235 intra-day on listing day, Nykaa’s market cap breached the ₹1-lakh-crore-mark. The company was valued at ₹53,200 crore at the time of the IPO.
While there are many positives on the business front, given the steep valuation the potential for further stock upside may be limited.
What’s good, what’s not
Nykaa has grown at a fast pace over the last few years, as indicated by the growth in its key performance metrics such as unique transacting customers, average order value and gross merchandise value. Nykaa reported revenue of ₹2,441 crore (up 38 per cent year-on-year), EBIT of ₹94 crore (up 338 per cent) and net profit of ₹62 crore (₹16 crore loss a year ago) in FY21.
The high growth potential of the Indian BPC market and Nykaa’s strong presence in this market, its wide product portfolio and reputation for authentic products are factors in its favour. However, one needs to watch how these translate into a more sustainable profit growth for Nykaa over time. The company turned profitable at the operating (EBIT) level in FY19 and at the PAT level in FY21. It reported revenue of ₹817 crore, EBIT of ₹7.4 crore and net profit of ₹3.5 crore in the June 2021 quarter.
Nykaa’s progress in the highly competitive online fashion space (presence of many fashion-only and diversified players), too, needs to be monitored. Moreover, while Nykaa is expanding the portfolio of its own high-margin products, these are still a small proportion (10 per cent of revenue in FY20) to make any impact right away.
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