Nykaa IPO Opens On Oct 28, Company Aims At Consolidation And Strengthening Customer Base

The initial public offering (IPO) of FSN E-Commerce Ventures, which runs online marketplace for beauty and wellness products Nykaa, will open for public subscription next week on Thursday, October 28. The three-day initial public offering will conclude on Monday, November 1.

The price band of the initial share sale is fixed at ₹1,085-1,125 per share.

In Aug, FSN E-Commerce Limited had filed the papers for an initial public offering (IPO).

Analysis Of Nykaa IPO

The company sells beauty, personal care and fashion products through its online platforms and its offline shops:

Online: The online channels include mobile applications, websites and mobile sites. As of 31 March 2021, FSN had cumulative downloads of 43.7 million across all their mobile applications and during the financial year 2021, 86.7 per cent of their online GMV came through FSN’s mobile applications.

Offline: The offline channel comprises of 73 physical stores across 38 cities in India over three different store formats — Nykaa Luxe, Nykaa On Trend and Nykaa Kiosks and are developed to cater to a specific consumer demographic and need of the local market.

It has also invested in logistics, distribution, marketing and technology to provide a wide range of solutions for brands, while improving the overall customer experience. The average order value stands at Rs 4,034 for the financial year 2021, which is among the highest in India according to RedSeer. FNS’ revenues have grown at a compounded annual growth rate of 48 per cent while the company remained operationally profitable over the same period. EBIDTA margins have increased from a break-even point to 6.6 per cent over the last two years.

The company has 18 warehouses, with a storage space of 582,371 sq/ft and this has been achieved with only Rs 577 crore in primary investment. This achievement is commendable because most other digital startups have not been able to manage growth and scale.

The company plans to grow through both offline and online channels while targeting the right customer base. It plans to continue investing in its own brands, while also extending the platforms' reach. The company has recently launched Nykaa PRO, a membership-based programme for beauty professionals and make-up artists, providing them access to products, offers and classes, including, educational content. It also plans to open up new segments just like it shifted from being solely a beauty product platform to a lifestyle platform.

Key Risks

Intense Competition: The sector faces intense competition with competitors in general e-commerce and other niche companies focusing on the same market as FSN. According to the company’s DRHP, the competitors include a number of online marketplaces, retailers with physical stores, and brands that take a direct-to-consumer approach, effectively removing third-party platforms like Nykaa from the distribution and sales process.

The Internet and mobile networks provide new, rapidly evolving and competitive channels for the sale of all types of goods and services. Consumers who purchase goods and services through Nykaa also have other alternatives, and sellers have other channels to reach consumers.

Retaining Customers And Maintaining Average Order Values: The company must generate a certain average order value and retain existing customers to maintain its margins and overcome its basic costs. The company has designed its platform in a manner in which customers can discover new trends and products. It has also on-boarded influencers and mainstream celebrities to grow its reach. In order to maintain high-order values, it must also target the right audience. Any shift in its customer demographic can impact it negatively.

Related Party Transactions and Remuneration: The company has several related party transactions, with promoter-run companies and directors. Total remuneration for the CEO, Falguni Nayar, has tripled in FY21, though profit and revenues grew at a lower pace. Sealink Build Proview and Golf Land Developers are promoter-run entities that are paid rent and other expenses by FSN.