Nykaa IPO: A review on Nykaa's financials and business model

Nykaa IPO: A review on Nykaa's financials and business model

Last updated: 24 Aug, 2021 | 12:29 pm

Nykaa IPO Analysis: Objectives, Business Model, Financials & More

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.

About Nykaa 

  • Nykaa is a leading multi-brand Beauty and Personal Care (BPC) platform in India founded by Falguni Nayar in 2012.
  • It has 70+ offline stores and a growing online community.
  • Products on the platform include makeup, skincare, haircare, fragrances, personal care, luxury, and wellness products for men and women.
  • Nykaa has over 1.3 crore unique visitors monthly and over 40 lakh annual transacting customers. 

IPO objective

Nykaa plans to use the proceeds from the IPO for

  • Setting up new retail stores and delivery warehouses
  • Pay off part of the debt

Business Model and Key Strategies

Content Engine

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:

  • Nykaa Naturals - Nykaa Naturals is a naturally derived ingredients focused brand for skincare products such as bath and body offerings, masks and hair care.
  • Nykaa Cosmetics - Nykaa Cosmetics is a comprehensive makeup and beauty accessories brand present across lips, face, nails, eyes and beauty tools.
  • Kay Beauty -  Kay Beauty offers premium range beauty products across lips, eyes, face and nails categories.
  • Twenty Dresses - Western wear brand acquired in 2019
  • Nykd by Nykaa - Own lingerie brand on Nykaa fashion launched in 2020
  • Pipa Bella - On-trend aesthetic jewelry such as earrings, necklaces, bracelets, rings, and hair accessories acquired in March 2021.
  • Other brands include RSVP, Mondano, Likha, 

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 - 

  • Its main source of revenue is BPC and fashion, both of which have high margins. 
  • They procure directly from brands.
  • The company focuses on luxury and premium products.

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’s Gross Merchandise Value (GMV) has increased from around Rs 1700 crore in FY19 to around Rs 4000 crore in FY21. If we annualize Q1FY22, it will be around Rs 5900 crore for FY22. The CAGR comes out to be 48% in terms of revenue for FY 19-21.
  • The company has also generated revenue from advertising and marketing support provided to brands, both in its offline stores and online platform. The revenue from this segment has grown at a CAGR of 26% between FY19 and FY21 and has reached Rs 200 crore.
  • The company also receives revenue from commission from the marketplace, which applies to the Nykaa Fashion business. Though the revenue percent is small, it has multiplied 4 times in FY21 and stands at Rs 55 crore.
  • The company was able to achieve EBITDA breakeven in FY19 and a 6.6% EBITDA margin in FY21.
  • Nykaa has limited cash burn and an asset-light balance sheet. Dilution in promoter shareholding (54% currently) has been lower than what is typically seen in other consumer internet plays.

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.

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