Last updated: 24 Aug, 2021 | 12:29 pm
Nykaa Pre IPO details
Nykaa plans for an IPO that will consist of a fresh issue of Rs 525 crores and an offer for sale of around 4.3 crore equity shares taking the total issue size to Rs 4,000 crore at a $5 billion-$5.5 billion.
Nykaa plans to use the proceeds from the IPO for
Business Model and Key Strategies
Nykaa has created a strong content engine that captures the latest trend in beauty, creates awareness among prospective consumers, and allows brands to showcase their products and generate revenue.
The company has an internal team of content creators (Nykaa Army) and has also collaborated with 1350+ external content creators (Nykaa Affiliate Program).
Other initiatives include Nykaa TV, a YouTube channel with over 1 million subscribers, and Nykaa Network, a peer-to-peer social community. In 2020, the company launched Explore, an in-app content aggregation hub, where consumers can watch content and shop for the products showcased in real-time.
Rich Content drives higher organic traffic which results in more transactions and greater engagement. It allows Nykaa to attract more brands and expand into adjacent categories, which further strengthens the content engine.
Presence across India
Nykaa has tied up with over 2500 brands for its BPC business. It has pan India reach and delivers products in 24000+ pin codes across India. They have a strong presence even in Tier 2/3/4 cities.
Strong relationships with brands
Nykaa has a team of brand managers who work closely with brands. The brand managers help them strategize and execute brand-building initiatives on the platform. The company also offers ad space to brands and supports them in marketing. The company has generated Rs 200 crore through this initiative in FY21 (8% of its total revenue). Its strong partnership in domestic markets has helped bring several international beauty brands to India.
Strong supply chain capability
Nykaa has 18 warehouses spread across India. Nykaa runs an allocation engine that optimizes fulfillment to ensure low shipment cost, faster delivery, and better inventory management. 72% of fashion orders and 94% of BPC orders were delivered by Nykaa within five days in Q4 FY21.
In-House Nykaa Brands:
Strong Unit economics
Most e-commerce players in India are burning cash to acquire new customers and expansion in new cities. However, Nykaa stands out with its strong focus on unit economics.
Below are different reasons that lead to the high margin for the company -
The average intake margin of 35% is one of the key factors that drive Nykaa's strong unit economics.
Nykaa's new initiatives
Nykaa Man - It was launched in 2018 and operates under a separate e-commerce app and website. Nykaa Man offers a large assortment and is present in several categories ranging from personal care, fashion, and accessories to even health & nutrition, gadgets, and tech accessories.
Nykaa PRO - It is a membership-based program for makeup artists and beauty professionals. Under this program, they can order from Nykaa with access to special offers and products from 'Professional Only' brands. Nykaa would also provide expert training as educational content to artists to help them in their profession.
The Global Store - It is an online platform that allows Indian customers to buy selected BPC products from prominent foreign brands and accredited overseas retailers.
SuperStore - It is a B2B online channel with its separate mobile application, for standalone local retailers to order select BPC products to offer to their consumers (currently under trial).
Nykaa pre-IPO review
Nykaa would be the fourth major internet-based startup to be listed on the exchanges after Zomato, Nazara and Cartrade Tech. The online opportunity in India is attracting players across categories. While the company has not yet come out with their IPO details, there are certain positives for the company.
Nykaa ended FY21 with an overall GMV of Rs 4,000 crore in FY21, with BPC (Beauty and Personal Care) contributing 84% and rest largely coming-in from fashion. Unit economics in BPC remain robust. According to estimates by Jefferies, the contribution margins at around 20-25%. Nykaa ended FY21 with a positive EBITDA margin, a rarity in the e-tailing industry. Balance sheet is asset-light and cash burn has been moderate. Nykaa has seen a strong improvement in profitability in the last three years, led by growing scale and hence better operating leverage. It has also successfully achieved PAT breakeven in the previous year. It achieved Ebitda break-even in FY19 and achieved 6.6% Ebitda margin in FY21.
However, there are challenges in terms of competition, counterfeit products in the market and supply chain inefficiencies. Further, the industry has higher working capital requirements and unfavourable trade terms with distributors. This could impact the company’s profitability going forward. We shall share our view on the IPO after the price band and other details are released.