Nykaa makes stellar debut on exchanges, lists at 79% premium

Market


Shares of Nykaa’s parent company, FSN E-Commerce Ventures Ltd, made a stellar stock markets debut on Wednesday. The stock was listed at 2018, a 79.37% premium over its issue price of 1125 apiece.

The only profitable unicorn to be listed on stock exchanges, Nykaa’s valuations are attractive, analysts had said ahead of the issue. As the primary markets have heated up post-pandemic, other recently listed unicorns are CarTrade and Zomato.

The 5,350 crore initial public offering (IPO) of Nykaa was subscribed 82 times during its share sale that ended on 1 November.

Nykaa’s gross merchandise value (GMV) has grown at 57% compound annual growth rate (CAGR) over FY19-21. GMV, or the total value of merchandise sold over a period, measures the use of the site to sell merchandise owned by others. Its revenue and Ebitda increased 48% and 181% CAGR over FY19-21, while it turned profitable in FY21. Ebitda margins improved to 6.6% in FY21 with free cash flow (FCF) turning positive. It has a capital efficient business model with asset turnover of 3 times in FY21.

The company’s asset-light model and the strong penchant among millennials to buy brands in the beauty and personal care segment makes the share sale a favourable bet for investors, according to analysts. They said Nykaa, owned by FSN E-Commerce Ventures Ltd, has the potential to grow in the lifestyle e-commerce space with its scalable business model.

“The issue is valued at 16.1 times 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 beauty and personal care (BPC)/fashion market,” Motilal Oswal Financial Services said.

Post the listing, promoter’s stake will reduce to 52.6% from 54.2%. The funds raised will be utilised for setting up new retail stores/warehouses, debt repayment and marketing.

Analysts at Elara Capital feel that successful execution in the fashion segment is key to Nykaa’s valuation re-rating in the medium to long term as the company does not enjoy the first-mover advantage in the fashion segment, which is currently dominated by Ajio, Myntra, Amazon and Flipkart among others.

“While valuations may appear to be expensive on a price to earnings (PE) basis, Nykaa is one of the very few profitable unicorns in India, and we believe that the company is well-positioned to benefit from the exponential growth in the online beauty and fashion retailing business over the next decade,” said Jyoti Roy, an analyst at Angel One.

 

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