Nykaa IPO Analysis: Expensive valuation, should you still subscribe?

Nykaa IPO Analysis: Expensive valuation, should you still subscribe?

Last updated: 25 Oct, 2021 | 03:18 pm

Nykaa IPO Review: IPO Opens on 28.10.2021, Price Band, Lot Size & Latest News

FSN E-Commerce Ventures Limited (Nykaa) IPO opens for subscription on 28th October. The company is looking to raise up to Rs 5,350 crore through the public issue. Here are the details:

About the IPO

Nykaa IPO Date: 28 October - 1 November 2021

Nykaa IPO Price band: Rs 1085 - Rs 1125

Issue Size: Rs 5,182 - 5,350 crore (Fresh Issue of Equity shares aggregating up to Rs 630 crore and Offer for sale of 41,972,660 Equity shares)

Post Issue Implied Market Cap: Rs 51,335 – 53,204 crore

Reservation: QIB 75%, Retail - 10%, NII 15%

Employee Discount: Rs 100 per share

Bid lot: 12 shares, and in multiples of 12 shares

Objective of the issue

  • Nykaa plans to invest around Rs 42 crore in some of its subsidiaries like FSN Brands and/or Nykaa Fashion for funding the set-up of new retail stores.
  • Nykaa plans to use Rs 156 crore towards repayment or prepayment of outstanding borrowings availed by the company and one of their subsidiaries - Nykaa E-Retail.
  • Nykaa will spend Rs 234 crore to acquire and retain customers by enhancing the visibility and awareness of its various brands.
  • For general corporate purposes.

About Nykaa 

  • Nykaa is a leading multi-brand Beauty and Personal Care (BPC) platform in India founded by Falguni Nayar in 2012.
  • It has 80 offline stores as of 31 August 2021 in 40 different cities and over three different store formats. 
  • The online channel includes traffic from websites, mobile sites, and mobile applications. As of 31st August 2021, they had 5.58 crore downloads of their various mobile applications. In FY21, 88.2% of their online GMV came through its mobile application.
  • Products on the platform include makeup, skincare, haircare, fragrances, personal care, luxury, and wellness products for men and women.
  • The company manufactures owned brand beauty and personal care that are sold under their owned brands such as Nykaa Cosmetics, Nykaa Naturals, and Kay Beauty.

Peer comparison 

There are no listed companies in India that engage in a business similar to that of Nykaa. Hence, it is not possible to provide an industry comparison of Nykaa.


  • The revenue from operations has more than doubled from Rs 1,111.39 in FY19 to Rs 2.440.90 crore. The CAGR from FY19 to FY21 was 48.2%.
  • The Gross Merchandise Value (GMV) stood at Rs 4045 cr in FY21. It grew at a CAGR 
  • The company turned profitable at the operating profit level in FY 2020 and margin further increased to 3.9% in FY 2021. However, the increase in margin in 2021 was supported by 20% reduction in advertisement expenses (~4% of sales). Company cut down on advertisement spending in H1 in response to lockdown and muted business activity. As per management, advertisement expenses will rise again in coming years as the company will focus on consumer acquisition and engagement.
  • Numbers for the last 3 years show profit at net level for the online beauty and personal care business. But the fashion segment continues to incur losses.
  • Sales growth from online channels has been ~37% from 2019 whereas sales growth of stores since 2019 has been 20%.

Operational Metrics


India's leading lifestyle-focused consumer technology platform - The company understands the latest trends in beauty, grooming, and fashion in India. As a result, they are leading the market, and they have been able to and will continue to add more lifestyle verticals and adjacencies on their platform which is expected to further increase their customer base. They are also the largest luxury personal and beauty care platform with a high Average Order Value (AOV) in India. Because of its excellent services, many global luxury brands such as Huda Beauty, Charlotte Tilbury, Mario Badescu, Pixi, and Tangle Teezer have chosen Nykaa to import, launch and sell their products to consumers in India. 

Resilient and capital-efficient business - The company has built a scaled business with strong profitability and growth. The capital turnover ratio has improved from 3.1 times in FY19 to 4.2 times in FY21. They have focused on capital efficiency and unit economics, while simultaneously building for scale and growth.

Technology platform - Since inception, the company has invested in building their proprietary platform. It has enabled them to support multiple business models, execute new initiatives, and make operational efficiency gains across offerings, new and existing. Their online platform has various differentiated technology-driven features such as virtual try-on of make-up products, in-app personalized content feed, in-app store-in-store concepts, live streaming, and time-bound commercial offerings that prompt consumers to explore and purchase.

Professional management team - The company achieved growth through its founder-led management team that comes with relevant experience and complementary skill sets.

Growth Potential

Focus on acquiring new customers - The company aims to deepen its existing consumer relationships to increase revenue. They are increasing engagement with every new visit to their platform through its technology capabilities. It increases their ability to acquire new customers.

Broaden and deepen the brand - The company will continue to enter into new brand relationships to offer a curated assortment of brands and products to customers.

Expand omnichannel capabilities - Nykaa aims to invest further towards the expansion of their physical store network to serve more customers with their Omni-channel experience. They are conducting trials of SuperStore, an online channel with a separate mobile application for standalone local retailers in India to offer them select beauty and personal care products.

Focused international expansion and acquisition - Other than growing their customer base in India, Nykaa plans to explore expansion selectively and prudently into the international markets. Their experience in acquisitions and joint ventures has provided them insights and faster growth opportunities.


Fail to acquire customers or cost-effectively acquire them - If the company is not able to acquire new customers or if they were able to do so by spending more money, the revenue of the company may not increase and it may also not be able to maintain profitability.

Fails to effectively respond to changing user behavior - Its future business depends on the growth of the online commerce industry in India and its ability to respond to changing user behavior on the digital platform. If the online commerce industry in India and in particular the online market for beauty and fashion products does not develop and grow, the financials of the company will be impacted.

Impact on brand value - Over the years, the brand recognition and reputation of Nykaa have contributed to the success and growth of its business. If there is any harm to its brand because of any reason, it may adversely affect business, financial condition, cash flows, and results of operations.

Nykaa also has an interesting business model, to read that click here

Nykaa IPO: INDmoney Analysis

Nykaa has reported a strong 48% CAGR growth in its topline from FY19 to FY21. During the same period, the company’s bottomline has also increased from a loss of 32 crore in FY19 to a profit of Rs 62 crore in FY21. The company has turned in a profit in FY21 as compared to losses in the previous years. It is currently one of the few profitable e-tailer in India. 

At the higher end of the price band, Nykaa IPO is expensively priced at a PE ratio of 840 times FY21 earnings per share (on a post-issue basis). The valuation appears to be high, given that the company turned in a marginal profit in FY21. On a price-to-sales basis, Nykaa is priced at 21.5 times FY21 earnings per share. There are no immediate listed peers for the company, and hence, it could enjoy a scarcity premium in India. 

Given the company’s market leadership status, strong topline growth, robust outlook, positive sentiment due to marquee investors and promoter group, investors who wish to take exposure to an under-penetrated online cosmetics e-tailing business could consider investing in this issue.