Nykaa IPO: Grey market premium soars 60%; should you subscribe? Check dates, lot size, bid details, issue size

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October 25, 2021 11:38 AM

FSN E-Commerce Ventures, which runs Nykaa and Nykaa Fashion, is promoted by Falguni Nayar and backed by private equity firm TPG.

Nykaa IPO, Nykaa public issue, Nykaa share listingThe IPO of Nykaa got an overwhelming response from investors across all categories.

The Rs 5,352-crore Nykaa IPO which is scheduled to open for subscription on Thursday, 28 October, has fixed a price of Rs 1,085-1,125 a share. The public issue will close for subscription on 1 November 2021, according to the red herring prospectus (RHP). In the primary market, Nykaa shares were seen quoting at a premium of Rs 660 apiece, over the issue price. On Monday, the shares were seen trading at Rs 1,785 apiece, nearly 60 per cent premium, in the grey market, according to the people who deal in unlisted shares of the company.

FSN E-Commerce Ventures, which runs Nykaa and Nykaa Fashion, is promoted by Falguni Nayar and backed by private equity firm TPG. The bids can be made for a minimum of 12 shares and in multiples of 12 shares thereafter. Up to 75 per cent of the net issue will be reserved for Qualified Institutional Buyers (QIBs), 10 per cent for retail investors and the remaining 15 per cent for non-institutional investors. Existing employees who hold stock options at Nykaa also have an option to offload a total of 2.5 lakh equity shares in the upcoming IPO. The company has offered a discount of up to 10 per cent of the offer price to the eligible employees bidding in the employee reservation portion.

After a small pause, the primary market is set to witness mega startup IPOs. As the countdown of Nykaa IPO begins, the market looks passionate for the company as unlike the cash-burning and loss-making startups, Nykaa is a profitable one, an analyst said. “Its revenue grew over 38% in FY2021 as compared to FY2020. With approx. 8% penetration, beauty and personal care segment in E-commerce category is one of the most underpenetrated segment compared to matured e-tailing categories providing huge scope for start-ups like Nykaa,” Abhay Doshi, Founder, UnlistedArena.com, dealing in Pre-IPO & Unlisted Shares, told Financial Express Online.

Doshi added that at the upper band of Rs 1,125, its price to sales for FY21 comes around 21.6x which may look expensive but that’s how the startups are valued currently. “Promoters quality, profitability & growth and fancy for startup IPOs should ensure utmost attraction for the issue,” he said.

The weighted average return on net worth for the last three fiscals is 2.82 per cent. The Price/Earnings ratio based on diluted EPS on a restated consolidated basis for Fiscal 2021 for the company at the upper end of the price band is as high as 839.55 times. The average cost of acquisition of equity shares held by the selling shareholders ranges from Nil per equity share to Rs 117.67 per equity share and offer price at upper end of the price band is Rs 1,125. Analyst said that Nykaa’s valuations at the upper price band come out to be 839.5 times price to earnings and 21.6 times FY21 sales and 16.2 times FY22 Annualized sales. “Now, of course, looking at the above valuation metrics, it is clear that the valuations are expensive. However, unlike other startup listings this year, Nykaa has declared profits, is led by an exceptional promoter and promoter Group (Falguni Nayar and her family). They have grown in a way so as to create a sustainable business enterprise keeping profitability in mind,” Aditya Kondawar, COO, JST Investments, told Financial Express Online.

Going ahead, Kondawar expects the company to do well in the market of beauty products. “We expect operational efficiencies to kick in given how the major CAPEX has been done majorly on the company foundation side. One should just be aware that the current valuations may mean that the stock may not move anywhere for a long period of time despite good business performance. We have a ‘subscribe’ on Nykaa IPO for the very long term, the exception being if anything changes,” he added.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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