Fundamental Analysis of Nykaa

In 2021 many companies came up with IPO’s and got listed in the stock market. One of the well-known startups that are ruling the e-commerce sector of cosmetics and succeed in a very short span, is none other than Nykaa. Nykaa is also coming up with an IPO and it will be India’s first women-led unicorn that is embracing itself for its Rs.4000 crore IPO.

What is so special about Nykaa?

In this article, we will do a fundamental analysis of Nykaa, Business Model, Marketing strategy, Growth, SWOT Analysis, Future Plans, Should Invest or not?

Introduction

Established in 2012 Nykaa is an E-commerce platform that has a diverse product portfolio of beauty, personal care, and fashion products, including their own in-house brands.

Nykaa not only provides an E-commerce platform for other brands, but it also has its own brands that are sold via an e-commerce platform. Within an online business, Nykaa has got both websites and mobile apps.

As of March 2021, its mobile apps have cumulative downloads of 43.7 million. Now that’s a device Nykaa is quite popular in its category. The company also has an offline store with 73 physical stores in 38 cities of India as of March 2021.

If you look at the product portfolio of Nykaa for FY 21, Nykaa has two major categories beauty and personal care and fashion. Within beauty and personal care, Nykaa offers an extensive range of nearly 2 lakh SKUs from close to 2500 brands, across your makeup, skincare, healthcare, Bath and Body, fragrance, grooming appliances, personal care, health & wellness category, etc.

It includes both domestic and international brands. Apart from this Nykaa also has its own set of brands like your Nykaa cosmetics, Nykaa naturals, Kay beauty that is manufactured by third-party contracts. Apart from its own platform, its brands are also available on other third-party platforms.

Now within the fashion category, Nykaa has got around 18 lakh SKUs across 1350 brands that cater to men, women kits, and the home category. These products are available across divisions, like your western wear, Indian wear, footwear, bags, jewelry, accessories, athleisure, home decor, bar, bed, and kitchen. It offers a mix of brands across established national brands, international brands, luxury brands, and emerging laborers and designers. Within the fashion category, Nykaa has six in-house brands.

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Revenue Breakup

In terms of the business breakdown, Nykaa has a gross merchandise value (GMV) of 4046 crores in FY 21.
It is basically the total value of the products being sold on its platform. we will discuss the growth separately in financial parameters. But as far as the business breakup is concerned, out are these 4046 crores.
This personal and beauty care contributes 83%, in the GMV, and fashion as remaining 17% contribution, although the fashion segment is growing faster.

Fundamental Analysis of Nykaa is as follows:

Business Model

As the generation went on certain things got more attention among the new generation people.
Specifically Cosmetics among the new generation. But the new generation didn’t get much time to spend on cosmetics in their daily lifestyle.
Meanwhile, the cosmetic industry had a boom but there was no trustable e-commerce platform to buy cosmetics without reaching stores physically.
So this was noticed by the founder of Nykaa and she made her business model focus on the things that are lacking.

Convenient
Making it convenient for all to purchase where ever they are.

Trust
The products are 100% genuine sourced directly from the brand.

Price range
Affordable price range to Lux products price range.

Wide customers
The primary focus of the company was three types of customers:
*The ones who had no time.
*The ones who were experts in beauty & makeup.
*The newbies.

At last, not least customer satisfaction.

Management

The founder & CEO of Nykaa is Falguni Nayar, an IIM Ahmedabad graduate & was the Managing Director of Kotak Mahindra Capital Co.
Nayar noticed a huge gap in the Indian beauty market scenario- the demand was far more than the number of outlets in the country.
She along with her husband Sanjay Nayar started Nykaa, with $2 million. The company controlled the majority of stakes which was around 95%.
The name of the company “Nykaa” was actually derived from “Neyka”, a Bengali word that means someone in the spoilt.

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Marketing strategy:

Nykaa focused to promote their products to the new generation as to where they spend more time and to reach the correct ones.

Content Marketing:

A huge amount of marketing for the brand depends on content marketing.
Their content team is really good.
Nykaa has rightly used eye-catching content engaging for the audiences & alluring customers to buy their products.
They have a great blog, focusing on beauty, makeup & wellness.

It has its own youtube channel “Nykaa TV” to provide the best guidance for makeup or campaign launch.
Janhvi Kapoor became the first brand ambassador of Nykaa’s business under Nykaa cosmetics.
And they released several “how-to” videos with her.
This attracts the young crowd which Nykaa is targeting.
Janhvi Kapoor plays an active role in social media campaigns through her Instagram handle.
High-quality content to showcase global trends, along with influencer marketing & social media promotions solidify Nykaa as a key player in the industry.
Their remarketing game is also quite strong which they use social media mainly.

Other promotions:

Nykaa also collaborated with Femina to host the ‘Nykaa.com Femina Beauty Awards’ in 2015 and 2016 to create brand awareness.
The best thing about Nykaa is their discount & offers which go on nearly the whole year.
They have regular ongoing discount waivers from awesome makeup brands, skincare products to attract customers.

Growth Prospects

The company says that its valuation has grown more than 60x over the last eight years.
The company’s focus on authenticity and commitment to customer experience has drawn over 8 million customers, and 16 million unique visitors a month.
In the year 2019, the company had a growth rate of 78%. The online BPC retailer’s growth rate has considerably got decreased over the years.
However, the company obtained funding of net worth 14 million, to compensate. The Mumbai-based company says publicly that it’s the consumers who have helped the company to build its empire.
It was a 12-year journey for them in 2018 when it said that growth came to them slowly, as they started building stores, which were around 35 all over India.
In fact, it touched 93% of the business as usual benchmarking against February 2020.
The company was in the black in FY20, having generated a revenue of ₹1,983 crores; it posted a profit of ₹78 lakh as against a loss of ₹21 crores in FY19.
The revenue of Nykaa in the FY2020 was $249.81 Million.

Company Financials

Company Financials of Nykaa are as follows:

Gross Merchandise Value

Since it is an IPO, we have limited financial data of only the last 3 years.
If you look at the growth rate, Nykaa’s Gross Merchandise Value (GMV) has grown from 1650 crore in FY 19 to 4046 Crore by FY 21.
So that’s more than double in the last 2 years.

Revenue

Its revenues have grown from 1916 crore in FY 19 to 2432 growth by FY 21.

Net profit

If you look at the net profit, It was lost during FY 19 and FY 20, although it has become profitable in FY 21 and profit stood at 61.9 Crore.

Debt to Equity Ratio

The company has a debt to equity of 0.4.

ROE and ROCE

As far as profitability ratios are concerned, the company was in a loss in FY 19 and FY 20. So both ROE and ROCE were negative. For FY 21 its ROE stood at 8.34%.
Overall the revenue and GMV have grown at a very good rate, but the company was Lost till FY 20. Hence, we don’t have enough data to comment on the overall financials.

SWOT Analysis

SWOT Analysis of Nykaa is as follows:

Strengths of Nykaa:

Nykaa understands the Indian market well and acts based on trends and price range. The company’s innovative ideas have allowed them to come up with new products & enter a new market. Nykaa’s low-cost structure helps it to sell more products to its customers.

Due to its strong distribution game, the market has a wide reach to its customers making sure that products are available easily.

The dealer community is extremely strong for Nykaa that not only gives them supplies but also focuses on promoting the company’s products and training.

Weaknesses of Nykaa:

Nykaa is spending more than the average research and development expenditure within the industry.

A large amount of the company is rented rather than purchased leading to higher costs.

The company’s ability to meet its short-term financial obligations is lower than the industry average.

It hasn’t conducted market research within the market that serves for the past 2 years.

Due to its lower budget for its quality control department than competitors, the consistency may not remain the same in the future.

Opportunities for Nykaa:

The vast internet users all over the world which means there is a huge opportunity to expand their presence online; by using the internet to interact with its customers.
There has been an increase in the number of social media users worldwide.
The three social media platforms; Facebook, Twitter, and Instagram, have shown the greatest increase in monthly active users.
It has a huge opportunity to use the medium for their promotions.
Technology enables better data to be collected on customers and improves marketing efforts.
Consumers within the industry are becoming more conscious of health, and this is a segment that is growing.

Threats of Nykaa:

Consumer tastes are changing, and this puts pressure on companies to constantly change their products to meet the needs of these customers.

There has been an increase in competition within the industry putting downward pressure on prices. This could lead to reduced revenue.

Increased promotions by competitors have been a threat for Nykaa.

Nykaa – Future Growth Plans

The multi-brand beauty product company will expand its physical existence by opening more than 180+ stores all over India and also it holds a dream of growing its offline business more and more in the upcoming years. It wants to expand its offline evidence by opening 180 stores by 2024.
Nykaa is looking for IPO by the end of this year or in early 2022. The company has already turned into a public company limited by shares on July 16, 2021, and is just one step away from getting its Draft Red Herring Prospectus (DRHP) filed, which is a matter of days from now, as reported on July 26, 2021.
Nykaa has filed papers with the Securities and Exchange Board of India (SEBI) and is looking forward to raising around $539 million (Rs 4000 crores) via its upcoming IPO, as reported on August 3, 2021.

Should You Invest or not?

I think this is the question that all are been waiting for the answer to.
Personally, it’s glad to see that Indian startups are growing and not being limited with some barricades.
Always investing in something must be from our own analysis and not from getting a tip from a pro-investor. We have provided the strengths, weaknesses, opportunities, and threats.
You People take a deep look and analysis based on the info presented. Based on your Market research conclude to the question of whether to invest or not.

Nykaa IPO Details and Promoters Shareholdings

Nykaa IPO window is between 28 October to 1st November 2021, excluding the weekend on 30th and 31st October, the IPO price band is between Rs 1085-1125, the shares are available at a face value of Rs 1, and the lot size is 12 shares.
The total investment for one lot would be Rs 13,500, the issue size is Rs 5251 crores out of this there is fresh equity of Rs 630 crore and the remaining Rs 4721 crore is Offered for Sale where promoters are diluting their stakes with this promoter stake in the company will reduce from 54.22% to around 52.56%.
The majority of money from the IPO would go into the promoter’s pocket. The 630 Crore raise from the IPO would be used for setting up new retail stores, setting up warehouses, repayment of certain debt, and general corporate expenses out of this IPO.
75% of the issue size has been reserved for qualified institutional buyers, 10% for retail investors, and the remaining 15% for non-institutional investors.
In terms of market cap at a price band of rupees 1125, the company would be valued at rupees around 52,000 crores.

Conclusion

Overall if we conclude Nykaa has an excellent business and its management, strong competitive advantage, and good financial and bright growth prospect which makes it a fundamentally good company.

It is currently available at a fair valuation due to correction in the market. What is your take on the fundamental analysis of Nykaa have you invested in it do let me know in the comment box. I hope you find this analysis useful, and if yes please share it with your friends and family.

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What is so special about Nykaa?