Nykaa files for IPO, plans to raise $500 million: Five things to know

Nykaa plans to use proceeds of the IPO to set up new retail stores, to enhance brand visibility and awareness, for capital expenditure and repayment of debt.
Nykaa kiosk
Nykaa kiosk
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Online beauty and fashion retailer Nykaa plans to raise $500 million through an initial public offering. It filed its Draft Red Herring Prospectus (DRHP) with capital markets regulator Securities & Exchange Board of India (SEBI) on Monday in this regard. Nykaa sells cosmetics, clothes and grooming products, records 55 million monthly visits and lists over 1,200 brands ranging from skincare to health supplements. Apart from selling online, Nykaa has 73 physical stores across 38 cities in India.

According to the DRHP, the company’s IPO will comprise a fresh issue of shares of up to Rs 525 crore ($70.63 million) and an offer for sale (OFS) of up to 43.1 million shares. As part of the company’s OFS, investors including TPG Growth IV SF Pte Ltd, Lighthouse India Fund III, Limited, Lighthouse India III Employee Trust, Yogesh Agencies and Investments, J M Financial and Investment Consultancy Services and Sanjay Nayar Family Trust will be selling shares.

The company is likely to go public at a valuation of over $4 billion and is aiming to raise $500 million through the IPO. It plans to sell more than 10% of equity in total. Nykaa owns six brands — Nykaa Cosmetics, Nykaa Naturals, Kay Beauty, Nykd by Nyka, Twenty Dresses and Pipa Bella. Five things to know:

> From the proceeds of the fresh issue, Nykaa plans to use Rs 35 crore to invest in its arms FSN brands (or Nykaa Fashions) to set up new retail stores. Nykaa plans to use Rs 35 crore for capital expenditure, and Rs 130 crore for repayment of debt. In addition, Nykaa plans to use Rs 200 crore to enhance brand visibility and awareness.

> Nykaa reported a profit of Rs 619.45 million in FY21, as compared to a loss of Rs 163.40 million in FY20. This is despite the COVID-19 pandemic hitting non-essential spending in the past year.  Nykaa’s revenue from operations in FY21 came in at Rs 24,408 million, up 38.1% over FY20. The company saw 17.1 million orders being placed, an increase of 35.3% over FY20.

> Among its risk factors, the company lists the new e-commerce draft rules as a possible deterrent. The rules ban most flash sales, as well as restrict the sale of private labels. Nykaa, in its DRHP, said that the draft rules expands the scope of duties and liabilities of marketplace and inventory e-commerce entities.

"There is no assurance that the final proposal will be similar to this or have other changes which may be challenging for us to implement. Such and other new compliance requirements could substantially increase our costs or otherwise adversely affect our business, financial condition, cash flows and results of operations. Further, the manner in which new requirements will be enforced or interpreted can lead to uncertainty in our operations, require significant changes in technology solutions and could also adversely affect our operations," the company said.

> Nykaa has seen spending on beauty and personal care go up, especially in non-metro cities. A majority (64%) of Nykaa’s Gross Merchandise Value (GMV) sales came in from tier 2 and tier 3 cities, up from 56.9% in FY20.

"There has been an increase in aspirational spending on BPC products especially in non-metro cities enabled by rising disposable income, aided by increasing female workforce participation, increasing popularity and the growing influence of social media, and lifestyle changes. BPC spending from tier 2+ cities are projected to grow faster than the metro and tier 1 cities as a large population base increases their per capita BPC spend," Nykaa said.

> Overall, Nykaa sees a massive opportunity in India’s beauty and personal care industry. Nykaa stated in its DRHP that as per a Redseer report, the Indian beauty and personal care market is estimated to double to around Rs 2 lakh crore by 2025 and of this, Nykaa is estimated to have a market opportunity of around Rs 1.9 lakh crore.

Nykaa joins a diverse list of companies going public this year. Food delivery platform Zomato launched its IPO last month, while online insurance firm Policybazaar also recently filed its IPO. Some of the other companies who have filed for an IPO include Paytm, Pharmeasy, Life Insurance Corporation, Mobikwik, Go Air, Aditya Birla Sun Life AMC.

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