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Leading specialty Beauty and Personal Care (BPC) platform in India: Nykaa is the largest Specialty BPC Platform in India and enjoys the highest Average Order Value (AOV) among its peers. It has the largest luxury BPC platform. It is one of the fastest growing fashion platforms in India based on GMV (Gross Merchandise Value) growth. Fashion started in 2018 and now contributes ~16% to GMV, up from 10% in FY20.

Large market opportunity: The Indian BPC/Fashion market is expected to grow at 12.7%/18% p.a. over CY20-25. The online BPC/Fashion markets are growing at an even faster pace of 60%/25% CAGR over CY16–20. Nykaa enjoys ~35% of the online BPC market. With online BPC/Fashion penetration at just 8%/12% in India, Nykaa is well-placed to lead the online market growth with a proven business model. The company expects contribution of tier 2/3 cities (currently 64%) to go up significantly

Inventory based business model with omni-channel approach: Nykaa’s key strengths lies in its inventory-led business model for BPC segment, which allows it to offer authentication for all its products and ensures availability and efficient distribution. Apart from the online channels, Nykaa also has 80 physical stores across 40 cities which helps in more robust distribution network and seamless experience. As per RedSeer, since FY21, Nykaa has one of the highest shares of mobile application-led transactions among the leading online retail platforms in India. Nykaa has a proprietary technology stack, through which it offers hyper personalized consumer experience.

Financials: Nykaa’s GMV/revenue/EBITDA has grown at a 57%/48%/ 181% CAGR over FY19-21, while it turned PAT positive in FY21. EBITDA margins too improved to 6.6% in FY21 with FCF turning positive. It has a capital efficient business model with asset turnover of 3x in FY21.

Issue Size: The INR53.5bn IPO consists of fresh issue of INR6.3bn and OFS of INR47.2bn (from promoters and other investors) which would result in promoter’s stake reducing from 54.2% pre-IPO to 52.6% post-IPO. The funds raised will be utilized for setting up new retail stores/warehouses, debt repayment and marketing.

Valuation & View: We like Nykaa given its leadership position in online BPC market, customer centric approach, profitable tech platform and 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. We believe Nykaa is rightly placed to tap the high growth digital/online penetration in BPC/Fashion market. We recommend Subscribe. Investors with high risk appetite can Subscribe for Listing Gains given fancy for unique and first of its kind listing in the e-commerce space.

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