IPO Analysis : FSN E-Commerce Ventures Ltd. ( Nykaa)

IPO Analysis : FSN E-Commerce Ventures Ltd.( Nykaa)

Incorporated in 2012, Nykaa is a digitally native consumer technology platform, delivering a content-led, life style retail experience to consumers. It has a diverse portfolio of beauty, personal care and fashion products, including own-brand products manufactured by the company. 

Its business verticals include, 

(a) Nykaa: Beauty and Personal Care and 
(b) Nykaa Fashion: Apparel and Accessories.

As of 31st August 2021, Nykaa had ~3.1m SKU offerings from 4,078 national and international brands across business verticals. Its total GMV for FY21 grew at 50.7% YoY and stood at INR40.5b/USD550m, while its revenue grew at 38.1% YoY to INR24.4b/USD334m.

Its online channels include mobile applications, websites, and mobile sites. According to the RedSeer, Nykaa had one of the highest share of mobile application-led transactions, among the leading online retail platforms in India during FY21 and 5MFY22. As of August 31, 2021, cumulative downloads stood at of 55.8 million across all mobile applications and during 5MFY22, 88.2% of online GMV came through mobile applications. The offline channel comprised 80 physical stores across 40 cities in India over three different store formats as of 31st August 2021. Physical stores offer a select offering of products as well as a seamless experience across the physical and digital worlds.

Nykaa has a portfolio of 13 owned brands, which play a key role in increasing the assortment of products for consumers. The owned brand portfolio is executed by identifying the gaps in the market – across both the requirements of diverse consumers and multiple price points – and building brands to suit these needs, with a focus on high-quality products. 

Some of these owned brands include, 

(a) Nykaa Cosmetics: a comprehensive make-up and beauty accessories brand, (b) Nykaa Naturals: a naturally derived ingredients focused brand for skincare products, 

(c) Kay Beauty: offers premium-range beauty products, 

(d) Twenty Dresses: This Apparel product line includes western wear as well as footwear, bags, and accessories categories, 

(e) Nykd by Nykaa: offers lingerie and 

(f) Pipa Bella: offers on-trend aesthetic jewellery.

Competitive Strengths:

•     One of India's leading specialty beauty and personal care companies.
•     Major brands offering their products on Nykaa's platform for sale
•     Capital efficient business with strong growth and profitability
•     Company's advanced technology platform
•     Founder-led company with an experienced management team

Financial and Valuation:

Peer Comparison with Listed Digital platforms: 

Business Model: 

Risk & Concerns:

• The competitive advantage for Nykaa’s strategies to venture into fashion and other adjacent businesses is unclear, particularly amid the intense competition from other players and horizontal marketplaces. The move is especially puzzling given the massive opportunity in the BPC space and Nykaa’s dominant position.
• As Nykaa’s BPC business grows, its strategy of working with an inventory model could possibly become a hindrance given the large investment in inventory that will be needed.
• Given Nykaa’s success, new entrants could pursue the opportunity and enter the market using a similar inventory-led business model, thus eating into the company’s market share.
• With a multi-faceted reliance on its technological ability to offer better product discovery and a unique customer journey, Nykaa will be challenged by competition to continually build upon and improve its technology stack to maintain its lead.
• Nykaa’s store expansion strategy will play a crucial role in strengthening its pole position in a rapidly growing market. It will have to deal with various aspects including identifying optimal locations, negotiating with landlords, ramping up inventory, and identifying the right partners, among others – any of which could act as hurdle to its ambitious scale up plans.

Important Dates to Remember:

Conclusion: 

It is recommended to apply in this IPO for listing gains only. Because this company has reported profit after tax during last FY only, before that it was incurring losses. But margins are improving, due to which we may see increase in profitability. 

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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