Nykaa IPO: first profitable unicorn, led by women, to tap public markets

India’s first women led profitable unicorn startup is going in for its initial public offering. Nykaa, the online beauty aggregator is looking to raise Rs 525 crore via fresh equity issuance. According to media reports the company intends to raise a total of Rs 4,000 crore.

According to the company’s draft red herring proposal (DRHP) filed with Sebi, both promoters and investors will make partial exit through offer of sale of shares up to 43.1 million.

Those opting to sell via OFS include promoters Sanjay Nayar Family Trust (4.8 million shares), and investors such as TPG Growth IV, Lighthouse India Fund III, Lighthouse India III Employee Trust, JM Financial and Investment Consultancy, Sunil Kant Munjal and others.

Founded by Falguni Nayar, an erstwhile investment banker who took several businesses to road shows as they tapped the public market, Nykaa’s IPO is sort of a déjà vu. Having created a profitable unicorn, unlike several startups that are loss making. Nykaa is also different from several other startups as even after being a unicorn the promoter share in the company is the highest. According to the DRHP, pre-IPO the promoter and promoter group hold a total of 54.25 per cent.

According to the DRHP, Nykaa’s revenue from operations for FY 2021 was at Rs 2,440.89 crore, which grew 38.10 per cent from FY2020. Its stated profit for the year in the financial year 2021 was Rs 61.94 crore, as compared to a restated loss of Rs 16.34 crore for the financial year 2020. It reported EBITDA of Rs 1,614.26 million and an EBITDA margin of 6.61 per cent in the Financial Year 2021.

“Nykaa is a truly category-defining company. It has done this through very efficient use of capital, which is quite different from many of the other startups which have come or are intending to IPO. Nykaa is an example of a startup that is profitable, capital efficient and with a robust business model.

It shows that not all startups need to be cash-burn machines to achieve scaling and market leadership. We think that's a great message to investors who are lapping up startup IPOs at the moment and augurs well for the medium term strength of this segment of the IPO market,” said Deepak Gupta, founding partner WEH ventures.

In terms of the use of funds raised via the IPO, the company stated it will use it to make investments in its subsidiaries such as FSN Brands and/or Nykaa Fashion for funding the set-up of new retail stores; for capital expenditure of Nykaa E-Retail, for funding the set-up of new warehouses; repayment or prepayment, in full or in part, of certain borrowings availed by the company; for expenditure to enhance the visibility and awareness of our brands; and general corporate purposes.

Experts are of the opinion that since Nykaa is a profitable company the size of the IPO signifies what they need in terms of investment. Ankur Bansal, co-founder and director, Blacksoil, a venture debt platform said: “IPO size is driven by many factors ranging from the company's valuation, how much capital company needs for its future business plan, their burn, the secondary component from selling existing shareholders. All the above factors will be different for all startups and cannot be compared like to like. Nykaa is more capital efficient as its profitable doesn’t need that much capital v/s other cash guzzling startups. Also its one of the few startups where the founder’s continue to have a significant stake despite multiple rounds of equity who wouldn’t want to dilute beyond a certain point.”

Nykaa’s offline channel comprises of 73 physical stores across 38 cities in India over three different store formats as of March 31, 2021. The company’s physical stores offer a select offering of products as well as a seamless experience across the physical and digital worlds, said the company in its DRHP.

As of March 31, 2021, Nykaa offered approximately 2 million SKUs from 3,826 national and international brands consumers across business verticals. In the Financial Year 2021, its total GMV was Rs 40,459.8 million, which grew by 50.7 per cent over the Financial Year 2020.