New Delhi: The 5,352 crore IPO of FSN E-commerce Ventures, which owns Nykaa, is set to open on Thursday. The TPG-backed startup's initial stake sale will be a combination of a mix of a fresh issue and an offer for sale (OFS).
Most brokerages are positive regarding the Nykaa IPO and have given it a subscribe rating. However, Marwadi Shares and Finance has a word of caution for investors. The brokerage has given a "subscribe with caution" rating to this IPO.
Considering the TTM as of June 2021, an adjusted EPS of Rs 2.54 on a post-issue basis, the company will be trading at a P/E of 443.46 with a market capitalization of Rs.53,204 crore.
"The company is one of India's leading lifestyle-focused consumer technology platform and a preferred destination for luxury and prestige products in India for consumers and brands," the brokerage said in its IPO report. "However, the valuations on an absolute basis based on past financial statements at the same time make us cautious."
The three-day Nykaa share sale will begin on Thursday, October 28, and the issue can be subscribed till Monday, November 1.
The beauty-products omnichannel would raise Rs 630 crore via sale of new shares, while the existing promoters and shareholders will offload 43.11 million shares worth Rs 4,723 crore.
Nykaa has a significant opportunity in the BPC (Beauty and Personal Care) market which is expected to grow at 12% per annum by 2025, while the fashion market is expected to grow by 18% per annum by 2025. In addition, the company is said to Hem Securities Strong growth without a major cash burn.
The brokerage firm added a "subscription" rating on the issue of earnings list as well as long term.
Nykaa was founded in 2012 by Falguni Nayar, a former investment banker at Kotak Mahindra Bank. The startup is a digitally native consumer technology platform, offering consumers a content-driven retail lifestyle experience to consumers.
Nykaa is India's multi-brand beauty and personal care platform and is rapidly expanding into the fashion and lifestyle segments. It is also trying to woo men with the launch of Nykaa Man.
Reliance Securities, which gave an underwriting rating with a long-term view on the matter, said the IPO was valued at 21.8 times sales in fiscal year 21, which is about a 20% discount compared to the others two recently-listed unicorns, CarTrade and Zomato, despite generating superior RoE.
"The beauty and personal care market has a huge market opportunity to tackle, especially in India, where millennials tend to prefer buying brands and looking for easy shopping options like e-commerce," he added. “With its unique business model and ground-breaking advantage, Nykaa is likely to get a healthy traction ahead.”
Another brokerage firm, Prabhudas Lilladher, believes that Nykaa's entry into the fashion sector is promising with a focus on premium clients, select and managed market offerings, private labels, and average order value.
"We believe Nykaa can maintain a compound annual growth rate of approximately 35 percent on sales, and 50 percent on EBITDA in the coming years by double-digit margins. We assign subscribe rating to the IPO," it said.
The company will use the net proceeds of the new issue to create new retail stores. The remainder will be considered to pay debts and improve brand visibility.
Religare Broking is also beneficial to the company. Nykaa said in its IPO note that Nykaa is well positioned to benefit from growing industry trends due to its resilient business and capital efficiency with a combination of strong growth and profitability.
It added, “Nykaa intends to constantly acquire new customers and increase customer loyalty. It also plans to expand into adjacent lifestyles and launch new channels. It also aims to selectively and judiciously explore expansion into international markets.”
Kotak Mahindra Capital, Morgan Stanley India, BofA Securities India, Citigroup Global Markets India, JM Financial and ICICI Securities are the commercial bankers to the issue.
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