Nykaa IPO gets Sebi nod, eyes $7-billion valuation; bids open on October 28

The company, however, mentioned that its growth rates and profitability could be impacted if it fails to acquire new customers in a cost-effective manner.

FSN E-Commerce, the parent firm of online cosmetics and personal care retailer, Nykaa has received approval from the Securities and Exchange Board of India (Sebi) to raise Rs 5,200-crore through an initial share sale.

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The firm’s red herring prospectus published with Sebi on Friday said that it would open for bids from October 28 to November 1. The price band has been fixed at Rs 1,085-1,125 a share. FSN E-Commerce is promoted by Falguni Nayar and backed by private equity firm TPG. The company is seeking a valuation of $7 billion (Rs 52,315.55 crore).

Nykaa had filed a draft prospectus for its IPO in August this year. The upcoming IPO includes a fresh issue of shares worth Rs 630 crore and an offer for sale (OFS) which will see existing investors offload up to 4.197 crore equity shares, according to the final prospectus.

Around 16 existing investors such as TPG Growth IV SF Pte, Lighthouse India Fund, Yogesh Agencies & Investments, JM Financial and others are expected to offload their shares in the IPO.

Existing employees who hold stock options at Nykaa also have an option to offload a total of 250,000 equity shares in the upcoming IPO. The company also plans to offer a discount of up to 10% of the offer price to the eligible employees bidding in the employee reservation portion.

The majority of the proceeds from the IPO will be used to acquire and retain customers by enhancing the visibility and awareness of the brands. It also plans to use the proceed for repayment or prepayment of outstanding borrowings and for future capital expenditures.

Promoters, including founder and chief executive officer Falguni Nayar, currently own more than 50% share in the company, making it one of the few start-ups to go public where promoters held the majority share.

The company claimed in its prospectus that there are no listed companies in India that engage in a business similar to that of Nykaa.

Founded in 2012 by former investment banker Nayar, Nykaa has emerged as one of the top-rated beauty and personal care retailer in the country with an online presence. Although there are very few vertical competitors in the segment, it does face substantial competition from exiting e-commerce firms like Amazon, Myntra, Flipkart and others.

Nykaa is also a profitable company, a feat that only a handful of venture capital-funded start-ups have achieved to date.

The online retailer posted a net profit of Rs 62 crore in FY21 compared to a loss of Rs 16.3 crore in FY20. Nykaa’s total income stood at Rs 2,452.6 crore in FY21, a 37.9% growth from Rs 1,777.8 crore in FY20. Its expenses stood at Rs 2,377.2 crore in FY21, a 32.7% increase from Rs 1,790.2 crore in FY20.

The company, however, mentioned that its growth rates and profitability could be impacted if it fails to acquire new customers in a cost-effective manner.

“We cannot assure you that our historical growth rates will be sustainable or achieved at all in the future. If we fail to acquire new consumers, or fail to do so in a cost-effective manner, we may not be able to increase our review or maintain profitability,” Nykaa said in its final prospectus published on Friday.

Nykaa’s businesses primarily include arrangements with beauty, personal care and fashion brands, delivery companies, manufacturers, distributors and other vendors, including suppliers of packaging material.

As of August 31, 2021, Nykaa operated 80 physical stores (comprising 79 stores for beauty and personal care products and one store for fashion products) in 40 cities of India across three formats (Nykaa Luxe, Nykaa On-Trend, and Nykaa Kiosks).