Nykaa Has Listed. Now What?

For all the bravado that has been strutted across the IPO red carpet, Falguni Nayar has displayed both her entrepreneurial chops and her financial expertise.

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For Falguni Nayar, life has come full circle. As an investment banker at Kotak Mahindra Bank for close to two decades, Nayar steered many businesses into the equity market port. This time round, she brings her own labour of love – Nykaa – to the primary market, valued at a staggering $7 billion plus.

Nykaa, like many other tech unicorns entering the equity market, got a rousing response. It was subscribed 81.78 times on the last day of subscription. There was massive interest from institutional investors (subscribed 91.18 times) but retail wasn’t shabby either, at 12.24 times.

So what is Nykaa about? The story goes that Nayar was at a five-star hotel, where the salon didn’t stock the specific shade of nail polish she was looking for. The gap in choice planted the seed of the Nykaa idea in her mind.  She also spotted wide inconsistencies in the beauty items marketed in India compared to other countries. There was a hugely fragmented beauty market, lack of product availability and most importantly, nobody tapping into the robust and growing demand in non-metro cities.

Nykaa is in a fantastic space where it straddles the beauty and personal care (BPC) and fashion market, while also capitalising on a strong digital and online presence – at last count, Nykaa had over five million monthly active users, 70 stores across India and over 500 brands and 1,30,000 products available via its website, app as well as stores. Not to mention considerable social media muscle with 1.5 million followers on Instagram.

What’s the downside here ? Let’s go one by one.


Valuations for Nykaa are certainly expensive. Nykaa at IPO has been valued at a lofty 21.8 times FY21 EV to sales and 16.1 times FY22 enterprise value/sales on a post issue and annualised basis. The irony here is that even with those valuations, it is cheaper than some recent listed unicorns like CarTrade and Zomato.

What stands out is Nykaa’s bottom-line; it is one of the rare unicorns that turned net profit positive in FY21. Nykaa’s revenue have grown at a brisk 48% CAGR over FY19-21. It has also managed to keep a strong margin profile alongside – gross profit margins for the quarter was 40.6% compared to 39% for the full year FY21. By the end of its first trading session, Nykaa trades at an eye-popping 18.5x -19x FY24E sales.


While Nykaa has enjoyed first mover advantage in the BPC market, the going may not be as smooth with its fashion foray. It’s a highly populated space and one that has many existing players. As Elara Capital points out, successful execution in the fashion segment is the key to a valuation re-rating for Nykaa in the mid-to-long term as it doesn’t enjoy the first-mover advantage in the fashion segment. That’s currently dominated by incumbents like Ajio, Myntra, Amazon, Flipkart etc.

Own brand vs others

Nayar has stated that the fashion and beauty unicorn plans to enter the Middle East market initially and is also looking at the UK, which may lead its way into other countries in Europe. She has also voiced her vision of transforming the company plans from a multi-brand retailer into a ‘house of brands’ going ahead. But the trick will be maintaining brands on an “even platform” and not pushing or promoting Nykaa’s own brand, something Amazon has done quite aggressively.

The other potential downside for Nykaa is ironically its own customer base. Just like the FMCG market, the BPC space can see quite a bit of elasticity and downtrading – to put it simply, in an environment where spending and consumption drops, consumers quickly shift to a lower priced product for the same item, or as could be the case for BPC, even a knock-off lip liner or moisturiser.

So, where does Nykaa go from here?

As of August 31, 2021, Nykaa had cumulative downloads of 55.8 million across all their mobile applications. Nykaa had posted a net profit of Rs 61.9 crore in FY21 compared to a loss of Rs 16.3 crore in FY20. Nykaa opened its first physical store in 2014, and has 80 physical stores across 40 cities as of August 31, 2021.

Here’s why I believe Nykaa stands out. Nykaa has good bones. It is one of the rare unicorns that is profitable as it enters the market, unlike several others where profitability is not even on the table for conversation. Second, it has clearly stated goals that don’t point only to cash burn. Nykaa plans to use the proceeds from the IPO for expansion, to set up new retail stores and establish new warehouses. It also plans to retire some of its debt (never a bad idea), which should bring down interest costs and further shore up its profitability.

Also read: After Zomato IPO, Can We Have a More Honest Discussion on Gig Labour?

Third, management and ownership. Falguni Nayar, Sanjay Nayar, Falguni Nayar Family Trust and Sanjay Nayar Family Trust are the key promoters. They have a 45.99% shareholding in the company. The total shareholding, including that of the promoter group, is 54.22%. Nykaa’s ownership pattern suggests the promoter family is invested in the future of the business and intends to remain deeply engaged with it.

Is it expensive? Absolutely. Did the promoters sense an opportunity in the booming IPO market and price it that way? Very likely; just ahead of receiving SEBI’s approval for its IPO, Nykaa raised its fresh issue size to Rs 630 crore. However, for all the bravado that has been strutted across the IPO red carpet, Nayar has displayed both her entrepreneurial chops and her financial expertise.

The big question, is it still a buy? On this one, I’m going to stick my neck out and say despite the steep price, this is a business with a future and leadership.

An end note – I noted with amusement the boys’ club behaviour that many of the large sized IPO founders have extended to each other. Ahead of Zomato’s listing, Paytm founder Vijay Shekhar Sharma tweeted: “Happy Birthday to you, Happy birthday Dear @Zomato! May your stock market debut be super-duper. Wishing this, on behalf of every @Paytm user. As Paytm’s IPO opened, Zomato returned the favour with this tweet, “Dear @paytm, wishing you the best of luck for today! if you need some dahi shakkar for good luck, ice cream for the stress, or some sweets for celebrations (wink wink) we are right here!”

No such bonhomie was evident for Nykaa. With a market cap of Rs 1 lakh crore, looks like they don’t need it either.