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Nykaa IPO opens: Should you subscribe?

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Nykaa's fresh issue of shares is worth Rs 630 crore and the offer for sale (OFS) is worth Rs 4,721 crore.

Nykaa IPO opens: Should you subscribe?
Nykaa owner FSN E-Commerce Ventures' public issue hit the primary market on Thursday to raise over Rs 5,350 crore. The initial public offer (IPO) of the firm that runs Nykaa and Nykaa Fashion comprises a fresh issue and an offer for sale.
The fresh issue of shares is worth Rs 630 crore and the offer for sale (OFS) is worth Rs 4,721 crore. The offer, which closes on November 1, 2021, is worth over Rs 5,351.92 crore at the upper end of the price band.
The offer for sale will be carried out by the company's promoter group and key shareholders. However, it will not receive any proceeds from OFS. Promoter Sanjay Nayar Family Trust is selling about 48 lakh equity shares and investors like TPG Growth, Lighthouse India Fund, Yogesh Agencies, and JP Financials are offloading 54 lakh, 48 lakh, 25 lakh, and 9 lakh equity shares, respectively.


FSN E-Commerce Ventures is a digital consumer fashion technology platform that specialises in content-led, retail lifestyle experience. Its portfolio includes fashion, beauty, and personal care products. It serves clients through both offline and online stores. It has over 80 stores in 40 cities across the country.
The company aims to utilise the proceeds from the issue to set up new retail stores, invest in Nykaa Fashion, establish warehouses and other capital expenditure investments.
Brokerages recommend 'subscribing' to the issue as Nykaa has a first-mover advantage and bright future prospects.
Anand Rathi 
The brokerage recommends subscribing to the issue for the long term. It says Nykaa is the largest speciality beauty and personal care platform in India, in terms of products sold in FY21. And with India's smartphone market growth, consumer spending on health and wellness products is on the rise. BPC products and appliances for at-home grooming are also seeing higher demand, Anand Rathi FS said.
Plus, "the rise of digital-only brands and direct-to-consumer online channels has introduced innovative and effective ways for brands to sell," it said.
The brokerage said the company has rich valuations, demanding a market cap of Rs 532,040 million. Its upper band is offered at 21 times the price to sales for FY21. Moreover, there are no listed companies in India with a similar business as Nykaa. This combined with its aspirational brand image augurs well for the company in long term, it said.
"Considering the future prospect for the company and it being placed at a sweet spot as the first-mover advantage, we assign a "subscribe-long term" rating to this IPO," Anand Rathi said.
Motilal Oswal
Motilal Oswal recommended subscribing to the IPO for listing gains. It said the company has a leadership position in the online BPC market, a customer-centric approach, and a profitable tech platform with a capital-efficient business model.
"The issue is valued at 16.1x FY22 EV/Sales on a post-issue and annualized basis, which seems to be similar to other Indian unicorns," Motilal Oswal said.
It said the company is rightly placed to tap the high growth digital/online penetration in the fashion market. "Investors with a high-risk appetite can subscribe for listing gains given fancy for unique and first of its kind listing in the e-commerce space," it said.


 
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