Nykaa IPO: The Future of Online E-Commerce

  • Market Overview
  • Editors Pick

Nykaa, the online beauty aggregator and one of India's most popular online beauty and personal care products firms, has gone for its initial public offering (IPO) on October 28, 2021. FSN E-Commerce Ventures, owning Nykaa and Nykaa Fashion, plans to raise Rs 5,352 crore from this mega IPO.

IPO Details: The objective of the issue

Nykaa intends to dedicate the funds raised in the IPO for the following purposes:
1. Rs. 42 crores will be used to set up new physical retail stores over the next 3 years
2. Rs. 42 crores will be utilized to set up new warehousing
3. Rs. 234 crores will be used for the marketing of its brand
4. Rs. 156 crores will be used for repayment of their loans
5. A maximum of 25% of net proceeds from the IPO will be used for general corporate purposes.

Who are the sellers? 
According to Nykaa's DRHP, Sanjay Nayar Family Trust will sell 48 lakh shares in the OFS. Other shareholders that will sell include TPG, Lighthouse India Fund, JM Financial (NS: JMSH ), Yogesh Agencies & Investments, Sunil Kant Munjal, Harindarpal Singh Banga and Indra Banga, and Narotam Sekhsaria. Nykaa founder Falguni Nayyar and her family will continue to own a majority stake in the firm even after the IPO. Currently, Nayar, with her husband Sanjay Nayar and two children, hold more than 53% of the parent firm of Nykaa-FSN E-Commerce Ventures.

About the company
Established in 2012, Nykaa of the FSN E-Commerce Ventures redefined how Indians used to buy beauty and personal care products. Founded by Falguni Nayar, Nykaa has been following the mission to create a world where the customers have access to a finely curated, authentic collection of products and services that satisfies the consumers. Nykaa is a lifestyle-focused digital consumer technology platform that offers a diverse range of beauty, personal care, and fashion products, including 15 of its own brands. Nykaa has become the preferred destination of consumers for the shopping of luxury and prestige products.

Business Overview

The company primarily operates under two verticals:

1. Nykaa: It works in the beauty and personal care segment comprising 197,195 SKUs from 2,476 brands primarily across makeup, skincare, haircare, bath and body, fragrance, grooming appliances, personal care, and health and wellness categories.
2. Nykaa Fashion: It powers the apparel and accessories branch of the company holding 1,350 brands and over 1.8 million SKUs with fashion products across 4 consumer divisions: women, men, kids and home.

Nykaa has been following the omnichannel model, where it delivers its services using online and offline mediums.

1. Online: Nykaa had a cumulative download of 43.7 million across all their mobile applications, and during the Financial Year 2021, 86.7% of online GMV came through mobile applications.
2. Offline: Offline channel comprises 73 physical stores across 38 cities in India over three different store formats.


1. Nykaa Luxe: The 35 Nykaa Luxe stores extend a luxury beauty experience displaying prestige and luxury international and domestic brands.
2. Nykaa On-Trend: The 30 Nykaa On-Trend stores present a differentiated experience for their customers with the existing best-selling products selected around beauty and personal care brands.
3. Nykaa Kiosks: The 7 Nykaa Kiosks are free-standing units usually in the atriums of shopping malls, predominantly selling owned brands through these kiosks.

Owned Brands

1. Nykaa Cosmetics: Nykaa Cosmetics is a thorough makeup and beauty accessories brand present across lips, face, nails, eyes, and beauty tools.
2. Nykaa Naturals: Nykaa Naturals is a naturally developed ingredient-focused brand for skincare products such as bath and body offerings, masks, and haircare.
3. Kay Beauty: Kay Beauty extends a premium range of beauty products across the lips, eyes, face, and nails.
4. Twenty Dresses: It is the apparel product line that includes western wear across dresses, jumpsuits, tops, pants skirts, footwear, bags, and accessories.
5. Nykd by Nykaa: Nykd by Nykaa presents lingerie and includes bras, panties, sleepwear, shapewear, and athleisure.
6. Pipa Bella: Pipa Bella extends on-trend aesthetic jewellery such as earrings, necklaces, bracelets, rings, and hair accessories.

Financial Analysis

According to the DRHP, Nykaa’s revenue from operations for FY 2021 was at Rs 2,440.89 crore, which grew by 38.1 per cent year-on-year.  Nykaa is among the few profitable etailers in India. It reported a net profit of Rs 61.94 crore in FY 2021 compared to a restated loss of Rs 16.34 crore for FY 2020. The company reported an EBITDA of Rs 1,614.26 million and an EBITDA margin of 6.61 per cent in the Financial Year 2021. In FY 2020-2021, the company's total GMV, at Rs 4,045.98 crore, increased by 50.7% over FY20, while, in Q1FY22, its GMV was Rs 1,469.61 crore, which grew 238.8% over a year-ago period.

Industry Overview

The Indian Retail Industry will be a substantial Rs. 91 trillion opportunities by 2025 driven by optimum macroeconomic factors like GDP growth, rising per capita income and consumption, increasing urbanization, vast young population, and growing digitization trends. India is projected to become an Rs.1,981 billion beauty and personal care opportunity by 2025. This growth is driven by the increase in BPC spending by youth, increasing BPC spending from Non-Metro cities, and rise in popularity of online content-led discovery, and the growth of Men's Segment. Further, India is projected to become Rs. 8,702 billion fashion opportunities by 2025.
Nykaa's Target Addressable Market

Nykaa has a substantial BPC market opportunity of Rs.1,120 billion, growing at 12% per annum to Rs.1,981 billion in 2025. Also, the company has a considerable fashion opportunity of Rs.3,794 billion is expected to grow at 18% per annum to Rs.8,702 billion in 2025. Therefore, Nykaa has a total addressable market of Rs.10,683 billion across beauty & personal care and fashion.
Risks Involved

Some of the key risks involved in investing in Nykaa's IPO are:
·  Tough competition and probable entry of new players
·  Acquisition of new customers in a cost-ineffective manner
·  Scaling issues with Inventory-led models
·  Building and maintaining relationships with brand vendors continuously could be a problem for Nykaa
·  Nykaa's Heavy reliance on influencer marketing
·  Regulatory changes can cause difficulty to the continued adaption of digital platforms in India
·  Adoption of Nykaa's own brand against industry leaders could be difficult

Investment Summary

Nykaa has reported a strong CAGR of 48% in its topline from FY19 to FY21. During the same period, the company’s bottom line has also increased from a loss of 32 crores in FY19 to a profit of Rs 62 crore in FY21. In fact, the company turned profitable in FY21 itself and is currently one of the few profitable e-tailers in India. At the high end of the price band, the Nykaa IPO is priced at a P/E ratio of 840 times  FY21 earnings per share (on a post-issue basis). On a price-to-sales basis, Nykaa is priced at 21.5 times the FY21 earnings per share. The company enjoys a sweet spot as it does not have any listed peers and can, thus, enjoy the first-mover advantage. Given the company's market leadership position in the BPC market, impressive topline growth, clear vision and strong promoters, investors who wish to take a bet on this under-penetrated cosmetics e-commerce business, could consider investing in this issue.

Disclaimer – This written report is only for educational purposes. Consult your financial advisor before investing.

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  • Nitin Mathur @Nitin Mathur
    General clarification - On a price-to-sales basis, Nykaa is priced at 21.5 times FY21 sales.
    Like 2

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