IPO Note - FSN E-Commerce Ventures Ltd (Nykaa) By Nirmal Bang
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BACKGROUND
FSN E-Commerce Ventures (Nykaa) is a digitally native consumer technology platform, delivering a content-led, lifestyle retail experience to consumers. It has a diverse portfolio of beauty, personal care and fashion products, including its owned brand products manufactured by it on contracts. Nykaa has established itself not only as a lifestyle retail platform, but also as a consumer brand. It offers consumers an Omnichannel experience with an endeavor to cater to the consumers’ preferences and convenience.
The brand affinity that it has built with the consumers, attracts them to engage on the platform, and increase in consumer traffic, increases the number of transactions on the platform.
Objects of the Issue
The issue of Rs 5342 cr consists of Rs 4722 cr offer for sale and Rs 630 cr fresh issue to (a) invest in subsidiaries (b) capex (c) repayment of debt
Investment Rationale
* Leading Lifestyle Focused Consumer Technology Platform
* Deep Relationships with Brands along with basket of own brands
* Commitment to Authenticity
* Omni Channel Approach
* Strong scalable profitable model
Valuation and Recommendation
Nykaa has emerged as a one of the few e-commerce companies which has become profitable in such short time. As the company is getting more recognized and gained higher market share with sticky customer base (70% of GMV came from existing customers in FY21), the marketing costs and fulfillment cost as % to sales are declining which would drive the margins going forward. GMV’s/Revenues have grown at a CAGR of 56.6%/48.2% over FY19-21. We believe Nykaa is created a niche for itself in the underpenetrated segment. With the basic platform for BPC in place, we believe the company can leverage it well to expand in other verticals like Fashions, recently started Nykaa Men among others. Considering the recession proof (seen during pandemic times) industry, increasing purchasing power of working women especially and higher acceptance of online commerce, we believe Nykaa has multi-year growth opportunity. At upper band of Rs 1125, shares are offered at EV/Sales of 21.8x FY21 earnings. We recommend “Subscribe”.
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