Nykaa gets Sebi nod for IPO, may launch Rs 5,300-cr offer by month-end

Market regulator Securities and Exchange Board of India (Sebi) has granted approval for the initial public offering (IPO) of FSN E-Commerce Ventures, the company that operates online beauty store Nykaa.

Sources said the Falguni and Sanjay Nayar-promoted company is looking to launch its maiden offering by the end of this month at valuations of more than Rs 45,000 crore ($6 billion).

The total issue size, including the fresh issue component, could be revised upwards to over Rs 5,300 crore, a source added. However, the final call on valuations will be taken closer to the launch date.

Nykaa had filed its draft red herring prospectus (DRHP) with Sebi on August 2. The initial IPO size was estimated to be RS 4,000 crore, of which Rs 525 crore was fresh fund raise. Those selling in the IPO include promoter Sanjay Nayar Family Trust, private equity firms TPG and Lighthouse and over a dozen other entities.

The fresh issue component of the IPO has been increased to Rs 630 crore, sources said. Nykaa plans to use the IPO proceeds towards enhancing brand visibility and for debt repayment. The company also plans to expand its offline presence by spending Rs 35 crore on setting up of new stores.

Nykaa’s IPO will be keenly eyed as it comes close on heels of the first successful startup IPO by online food delivery company Zomato in July.

Nykaa’s IPO will require compulsory 75 per cent qualified institutional buyer (QIB) participation as it has incurred losses in two of the previous three financial years. The retail quota for the IPO will be 10 per cent as against 35 per cent in IPOs that meet the profitability criteria.

Broking firm Jefferies in a recent note said Nykaa has demonstrated growth and profitability don’t have to be mutually exclusive.

“The online opportunity in India is attracting players across categories and growth in most cases is at the cost of profitability. This, by itself, is a huge differentiator for Nykaa, a vertical e-commerce powerhouse in the beauty space. Product assortment, discovery and authenticity drive high repeats and the content ecosystem is engaging,” the note said.

Unlike other startups which still have a long road ahead for turning profitable, Nykaa had reported a bottomline of Rs 62 crore in FY21 on revenues of Rs 2,440 crore and gross merchandising value (GMV) of $540 million.

“Another area, where Nykaa sets itself apart from other e-commerce majors is its focus on unit economics and profitability. Nykaa achieved EBITDA break-even in FY19, and since then, EBITDA margin expanded to 6.6 per cent in FY21. With growing scale, Nykaa also achieved PAT break-even in FY21. Given limited cash burn and asset-light balance sheet, promoter shareholding (54% currently) is higher as dilution has been lower than what is typically seen in other consumer internet plays,” Jefferies had noted.

Nykaa was set up in 2012 by Falguni Nayar, former managing director at Kotak Mahindra Capital Company. She along with husband Sanjay Nayar, former CEO of PE major KKR, hold 54 per cent stake in the company, which will be valued in excess of Rs 20,000 crore at the IPO price.

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