Nykaa IPO closes today: What grey market trend & analysts are suggesting

New Delhi: The three-day stake sale by FSN E-Commerce Ventures, the parent company of Nykaa, will conclude on Monday, November 1. The Rs 5,352 crore initial public offer (IPO) had kicked off on Thursday, October 28. The beauty-products omnichannel is raising Rs 630 crore via sale of fresh equity shares, whereas promoters and existing shareholders are selling 43.11 million equity shares worth Rs 4,723 crore.

By 10.50 am, the IPO had received 5.25 times bids, thanks to strong demand from all categories of investors. The company is selling shares in the price range of Rs 1,085-1,125 apiece.

Here is a brief outlook on the various parameters of the startup IPO, including management outlook, analysts’ views and grey market premium:

Management Commentary
According to Falguni Nayar, Founder & CEO of Nykaa, the company receives almost 60 per cent of its orders from tier-2 and tier-3 cities. Tier-1 cities and metro cities constitute only 40 per cent of the sales.

Nayar added that Nykaa’s 70 per cent of the business comes from returning customers who have bought from us during earlier periods while new customers contribute to 30 per cent of the sales.

The company’s management added that just 8 per cent beauty and 12 per cent fashion market is online but is optimistic that the number can grow going ahead. Nayar said that Nykaa has started acquiring more customers. Last year’s numbers show that the first half of the year was impacted by Covid as there were restrictions on movement. However, limited penetration of digital beauty and fashion business leaves scope for more upside.

On IPO valuation
Falguni Nayar said the market believes less penetration of e-commerce companies will go up and that is why a lot of platforms that appeal to the consumers from buying online perspective are enjoying a good valuation.

The former investment banker added that enough value was left on the table for investors while fixing Nykaa IPO‘s price band. “If I get any advice from the corporate world, it is always to make sure to leave enough value on the table for the new investors who are coming in,” she said.

Analysts view
The majority of the brokerages are positive on the issue and have given it a ‘subscribe’ rating. However, Marwadi Shares and Finance has a word of caution for investors, which have given the IPO a ‘subscribe with caution’ rating Considering the TTM as of June 2021, adjusted EPS of Rs 2.54 on the post-issue basis, the company is going to list at a P/E of 443.46 with a market cap of Rs 53,204 crore, it said.

Looking after scale of operations, strong management team, profitable concern and high growth prospects in the industry due to large under penetration, we believe that company has created an industry itself, said Hem Securities, who gave a ‘subscribe’ rating on the issue from listing gains as well as long term perspective.

Meanwhile, Prabhudas Lilladher believes Nykaa can sustain a CAGR of about 35 per cent in sales, 50 per cent in EBITDA over the coming few years with double-digit margins.

Religare Broking is also positive on the company. Nykaa is well placed to benefit from growing industry trends given its resilient, capital-efficient business with a combination of strong growth and profitability, it said in its IPO note.

Grey market premium
The new-age company is commanding a solid premium of Rs 570 apiece which is more than 50 per cent of its issue price. The premium in the unofficial market fizzled out marginally from Rs 600 following the sharp decline in the secondary market, led by FII selling and disappointing Q2 earnings.

Kotak Mahindra Capital, Morgan Stanley India, BofA Securities India, Citigroup Global Markets India, JM Financial and ICICI Securities are merchant bankers to the issue.

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