The Echo-nomist

Nykaa is going to have one hell of a Diwali. A few weeks ago, Nykaa formally announced their plans to go public. We analysed their DRHP and market operations (click here to read it). But since then, there have been some major developments as they get ready to hit the markets.

Nykaa is now targetting a valuation of over $7 billion! The multi-brand e-tailer of cosmetics and apparel plans a fresh issue for ₹6.3 billion and the sale of existing shares. They have also increased their primary issue by 20%, the maximum permissible amount, from ₹525 crore ($70 million) to ₹630 crore ($84 million) (source: Captable).

So a majority of their IPO (around ₹4,700 crore) is by way of offer for sale by existing shareholders. This basically means that the owners of the company dilute their stake, by selling their shares to the public. A “floor price” is set by the company and the buyer has to provide a bid (equal to, or above the floor price), in order to acquire the shares. Once the bids are placed, the shares are allocated. The proceeds of OFS, however, aren’t enjoyed by the company, rather the shareholders. According to Nykaa’s DRHP, around 43.11 million Equity shares will be sold by shareholders.

Venture Capitalists may take the OFS route to exit a company. TPG Capital, an American investment company is offering up to 1/3rd of the total shares they own. Meanwhile, individual investors also stay winning. Harindrapal Banga, who has a 8.6% stake in the company, is selling up to 10,200,000 shares. He acquired these shares at ₹7.32 apiece, whereas the issue is pegged at over ₹1,120 per share. Which means it will fetch him returns of over 150 times😳! However, not all the investors are offering something to the public. Investors such as Steadview Capital and Fidelity own 5.5% stake in the c0mpany. But they’re choosing not to sell their shares as of now.

Apart from OFS, companies raise money through fresh issue while going public. This refers to issuance of new shares in the company and selling them those newly issued shares. The money raised is received by the company and used as per the objective stated in the IPO. Nykaa’s gross proceeds of the fresh issue are estimated to be ₹5,250 million. Nykaa plans on using these proceeds for investment in their subsidiaries (such as Nykaa Fashion), meeting capital expenditures (like- expenditure incurred on setting-up new warehouses), repayment of debt availed by the company and it’s subsidiary Nykaa e-retail, advertisement and general corporate purposes.

The real winners of this IPO are the Nayar Family and the individual investors. Sanjay Nayar Family Trust is selling 48L shares, which is merely 3.9% of the total shares owned by them. This could fetch them around ₹50 million easily. Only handful people would have made such kind of money in India start up system in such quick time. (source: Nykaa’s prospectus)

The Key

Nykaa has also been actively acquiring brands (like Pippa Bella, Twenty Dresses). The latest one to be added to their collection is Dot & Key. They acquired a 51% stake in the homegrown skincare brand for ₹97 crore and plan to acquire the remaining stake by 2025 (soruce: Business Standard). What’s so unique? Dot & Key is a new-age skincare brand with products such as serums, face masks, toners, cleansers etc. This could help them unlock a new audience. The brand recently branched into nutraceuticals, so this will pave Nykaa’s way into that space.

They have been successfully expanding their business operations as evidenced from their acquisition. Lately, they’ve shifted their focus to brand recognition and recall. With creative ads on YouTube and TV, they are enticing the retail customer by painting a positive picture of their business. Their mini brand film/ad- Tum Hi Ho Nayka- already has over 5.5 million views on YouTube.

Nykaa is almost a public company now! Their shares will be up for subscription starting 28th Oct’21. They are now targetting a $7 billion+ valuation. Given the demand, bankers pushed them to go for a valuation as high as $9 billion. IIFL securities has already pegged the company’s one year forward valuation at $9 billion (source: Captable). Keep a lookout for their shares, you might want to buy them 😉

Updates:

• Nykaa’s shares opened up for subscription on 28th October and the issue was fully subscribed within the first day!
• The IPO is subscribed 4.8 times on Day 2. Retail investors have received 6.3 times bids whereas Qualified Institutional Buyers’ (QIB) quote was subscribed 4.8 times and HNI (high net-worth Individuals) investors portion was oversubscribed 4.2 times. The experts have given a thumbs up to the public issue 👍.