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Nykaa IPO: A deep dive into the beauty, personal care, and fashion retailer

All you need to know about the first woman-led Indian unicorn to go public; including the key policies that affect Nykaa.

FSN E-Commerce Ventures, the company which owns the Nykaa brand, opened its initial public offering (IPO) today. Nykaa, the go-to e-commerce platform for cosmetics and fashion products, is one of the few profitable online startups in India. The Falguni Nayar-founded company is also the first woman-led Indian unicorn to launch an IPO.

Yesterday, the anchor offering received bids 40 times the number of shares the company planned to sell to anchor investors, indicating strong interest in the company. Here’s a deep dive into the beauty, personal care, and fashion retailer based on details shared in the company’s red herring prospectus (RHP).

Details of the IPO

  • Dates: 28 Oct 2021 – 01 Nov 2021
  • Price range: Rs. 1,085 – 1,125
  • Minimum order quantity: 12
  • Expected to raise: As much as Rs 5,352 crore (~$700 million) at a valuation of $7.1 billion
  • Fresh issue: Up to Rs 630 crore
  • Offer for sale: Up to 41.9 million shares worth around Rs 4721 crore
  • Allocated to anchor investors: 21,296,397 equity shares at ₹1,125 a share, aggregating to ₹2,396 crore
  • Investors selling stake: TPG, Light House India Fund, Yogesh Agencies, JM Financial, Sunil Kant Munjal, Harindarpal Singh Banga, Narotam Sekhsaria, and Mala Gaonkar, among others.
  • Promoters selling stake: The promoters, which include Sanjay and Falguni Nayar as well as their children Advaita and Anchit Nayar, currently hold a 54 percent stake. Sanjay and Falguni Nayar will sell 4.8 million shares held by a trust in their name. Falguni Nayar and her family will continue to own a majority stake even after the IPO as well as hold strong control over the majority of the board appointments.
  • Book-running lead managers: Kotak Mahindra Capital, BofA Securities, ICICI Securities, Citibank, Morgan Stanley, and JM Financial
  • Expected data of listing: November 11 on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

About the company

Overview: Incorporated in 2012, Nykaa describes itself as a “digitally native consumer technology platform, delivering a content-led, lifestyle retail experience to consumers.” The company’s engaged in selling beauty, personal care, and fashion products, including its own-brand products through omnichannel retail.

Business verticals:

  • Beauty and personal care (Nykaa) – The company offers beauty and personal care products from 2,644 brands primarily across make-up, skincare, haircare, bath and body, fragrance, grooming appliances, personal care, and health and wellness categories. The current catalog has 256,149 SKUs. In the Financial Year 2021, 17.1 million Orders were placed on the Nykaa platform for beauty and personal care products with a total gross merchandise value (GMV) of ₹33,804.1 million, Nykaa said.
  • Apparel and accessories (Nykaa Fashion) – Launched in 2018, Nykaa Fashion houses 1,434 brands and over 2.8 million SKUs with fashion products across four consumer divisions: women, men, kids, and home. “Within these consumer divisions, we merchandise across several categories including western wear, Indian wear, lingerie, footwear, bags, jewelry, accessories, athleisure, home décor, bath, bed, and kitchen in order to cater to the diverse consumers’ journeys across our platform,” Nykaa stated. In the Financial Year 2021, 2.4 million orders were placed for fashion products with a total GMV of ₹6,655.7 million, Nykaa said.

Sales channels: 

  • Online: Nykaa’s online channels include mobile applications, websites, and mobile sites. The apps had cumulative downloads of 55.8 million as of August this year and during the Financial Year 2021, 86.7% of the company’s online GMV came through mobile applications.
  • Offline: Nykaa runs 80 physical stores across 40 cities in India over three different store formats as of August this year. Before the pandemic, offline channels contributed to 8-10 percent of the gross merchandising but it is now less than 5 percent.
    • Nykaa Luxe – Offers a luxury beauty experience by showcasing prestige and luxury international and domestic brands.
    • Nykaa On Trend – Offers current best-selling products chosen across beauty and personal care brands based on online sales, reviews, and ratings.
    • Nykaa Kiosks – Free-standing units usually in the atriums of shopping malls predominantly selling Nykaa’s own-brand products.

Nykaa’s own brands: In addition to selling other brands, Nykaa manufactures and sells its own line-up of products in its own stores as well as through third-party merchants. In total, there are 15 such owned brands. Here is a list of some of these brands:

  • Nykaa Cosmetics: Lips, face, nails, eyes, and beauty tools.
  • Nykaa Naturals: Skincare products such as bath and body offerings, masks, and haircare from naturally derived ingredients.
  • Kay Beauty: Premium range beauty products across lips, eyes, face, and nails categories.
  • Twenty Dresses: Western wear apparel product line that Nykaa acquired in May 2019
  • Nykd by Nykaa: Lingerie, sleepwear, shapewear, and athleisure.
  • Pipa Bella: Aesthetic jewelry such as earrings, necklaces, bracelets, rings, and hair accessories.
  • RSVP: RSVP offers a wide and premium collection of dresses, jumpsuits, tops, and skirts as well as footwear and bags.

Market Opportunity: According to data shared by Nykaa in its prospectus, India’s retail market is expected to grow from ₹54.8 trillion in the calendar year 2020 to reach approximately ₹91.2 trillion by the calendar year 2025. Out of this, the beauty, personal care, and fashion industry present an opportunity aggregating ₹10.6 trillion (US$152 billion), with the bulk of it constituting the fashion market, the company stated. “The growth is projected to be primarily driven by market shift towards the organized sector, high growth of e-commerce due to increased internet penetration, growing wallet share for beauty, personal care and fashion products and increased spending leading to subsequent premiumization across categories,” Nykaa stated. Also, beauty and personal care, and fashion have low online penetration, presenting plenty of room for growth, the company added.

Competitors: “Nykaa competes with organized multi-brand and exclusive retailers, unorganized merchants, horizontal online platforms like Amazon, Flipkart, Paytm Mall among others and vertical online platforms such as Myntra, Purplle, Myglamm among others,” the company stated.

Company strengths: Here are the strengths of the company as stated in the prospectus:

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  • One of India’s leading lifestyle-focused consumer technology platform
  • Preferred destination for luxury and prestige products in India for consumers and brands
  • Resilient, capital-efficient business with a combination of strong growth and profitability
  • Proprietary technology stack
  • A founder-led company supported by a professional management team

Subsidiaries: Nykaa currently has eight subsidiaries:

  • Direct Subsidiaries
    1.  Nykaa E-Retail Private Limited
    2.  FSN Brands Marketing Private Limited
    3. Nykaa Fashion Private Limited
    4. Nykaa–KK Beauty Private Limited
    5. FSN International Private Limited
    6. FSN Distribution Private Limited.
  • Step-down Subsidiaries
    1. FSN Global FZE
    2. Nykaa International UK Limited

Nykaa’s value proposition

Source: Nykaa DRHP

Out of the seven value propositions stated by the company, a notable one is Nykaa’s:

Content-first approach to retailing: Nykaa places a strong emphasis on providing educational content about its products. It does this through influencer-led campaigns across video and written formats. “Our content captures the latest trends, helps ideate and create beauty regimes and outfits and provides insights on various brands available on our platform,” Nykaa said. The company has a team of in-house content creators and also leverages influencers on a large scale through the Nykaa Affiliate Program. “As of August 31, 2021, we had a network of 3,055 influencers, including Generation Z trend setters, mommy bloggers, beauty, fashion and lifestyle bloggers, makeup artists and celebrities,” Nykaa stated. Nykaa’s YouTube Channel “had a watch time of 1.3 million hours, and content posted on Instagram and Facebook (including videos, reels, posts and stories) was 39,498 posts” in the last financial year, the company stated. Nykaa also runs blogs, a peer-to-peer social community called the Nykaa Network, and a content aggregation hub within the app called Explore.

Let’s talk numbers

Key financial numbers for FY 2021 (values for 2020 are in brackets):

  • Average Order Value (AOV) 
    • Beauty and Personal Care: ₹1,963 (₹1,448)
    • Fashion: ₹2,739 (₹1,604)
  • Gross Merchandise Value (GMV): ₹40,460 million (₹26,850 million)
    • Beauty and Personal Care: ₹33,804 million (₹24,981)
    • Fashion: ₹6,655 (₹1,867)
  • Contribution to GMV from Existing Consumers: 70 percent (66 percent)
  • Revenue from Operations: ₹24,409 million (up 38 percent from ₹17,675 million)
  • Assets: ₹13,020 million (₹11,245 million)
  • Gross profit: ₹9,531 million (₹7,533 million)
  • EBITDA: ₹1,614.26 million (₹810 million)
  • Restated Profit: ₹619.45 million ( negative ₹163 million)

Key operational numbers for FY 2021 across both its business verticals (values for 2020 are in brackets):

  • Number of online visits: 831 million (612 million)
  • Monthly average unique visitors: 19.3 million (13.9 million)
  • Annual unique transacting consumers: 6.2 million (5.4 million)
  • Orders: 19.5 million in FY 2021  (18.1 million)
    • Beauty and Personal Care: 17.1 million (17 million)
    • Fashion: 2.4 million (1.1 million)

Other notable operational numbers as of August 31, 2021, across both business verticals:

  • Number of brands: 4,078 national and international brands
  • Number of SKUs: 3.1 million
  • Number of physical stores: 80 physical stores across 40 cities
  • Number of  beauty and personal care advisors at physical stores: 319
  • Number of  beauty and personal care advisors online: 31
  • Number of employees: 2,295 employees
  • Mobile app downloads: Cumulative downloads of 55.8 million across all apps
  • Intellectual property: 465 trademark registrations in India and 8 overseas
  • Serviceable pincodes: 26,727 pin codes, covering 89.2% of the serviceable pin codes across the country
  • Warehouses: 20 warehouses
  • Nykaa Prive customer loyalty program: 2.1 million members

Key regulations and policies affecting Nykaa

Among the many regulations and policies that affect Nykaa and the industries it operates in, here are a few notable ones:

  • Consumer Protection (E-Commerce) Rules, 2020 and proposed amendments to these rules notified in June 2021: Nykaa outlines changes to the E-Commerce Rules as a potential risk factor. Among other things, the proposed changes prohibit flash sales, require registration of online retailers, restrict promotions on own-brand products, introduce fall-back liability, etc. “Such and other new compliance requirements could substantially increase our costs or otherwise adversely affect our business, financial condition, cash flows, and results of operations. Further, the manner in which new requirements will be enforced or interpreted can lead to uncertainty in our operations, require significant changes in technology solutions, and could also adversely affect our operations,” Nykaa stated in its prospectus. Notably, Nykaa’s beauty and personal care vertical will escape many of the consequences of the proposed amendments since it runs an inventory-based model rather than a marketplace-based model because the proposed changes include new rules to limit who can sell on marketplace platforms. For example, the proposed rules disallow an e-commerce marketplace’s “related parties” and “associated enterprises” from being enlisted as sellers for sale to consumers directly. However, Nykaa’s fashion vertical is a managed marketplace model and will likely be impacted by the proposed rules.
  • Legal Metrology (Packaged Commodities) Rules, 2011: As per these rules, e-commerce entities are required to display “country of origin” on all imported products along with other details like address of importer and date of expiry. “Due to the large scale listing of products, there is a risk of potential gaps in the required disclosure caused by incomplete/incorrect information from vendors/ sellers or on account of interim technical glitch. Further, as Nykaa uploads the product information or the promotional content on its platform on the basis of information received from brands, vendors, influencers, etc., this may dilute the protection as an intermediary under the IT Act,” Nykaa stated.
  • Code on Social Security, 2020: This code aims to provide uniformity in providing social security benefits by bringing in gig workers under its ambit and requiring the registration of such workers. Additionally, the code will require platforms employing such workers to fund schemes offered by the code. While the rules for implementation under this code is not been notified, Nykaa expects such laws “to increase our employee and labour costs, thereby adversely impacting our results of operations, cash flows, business and financial performance.”
  • Personal Data Protection Bill, 2019: “The proposed enactment of the Personal Data Protection Bill, 2019 (“PDP Bill”), and the ongoing discussions in India regarding the regulation and governance regime for non-personal data, will lead to potential additional compliance requirements in relation to obtaining consents, putting in place privacy policies and aligning data collection practices which comply with the ‘privacy by design’ principle, data protection impact assessments, registration requirements for a significant data fiduciary, reporting requirements for data breaches, data localization requirements etc,” Nykaa stated.
  • Foreign investment regulations: The various regulations governing foreign investment such as the FDI Policy and FEMA will affect Nykaa’s ability to raise foreign capital because some of its subsidiaries are engaged in business sectors that require approval from the government and do not qualify for the automatic route.
  • Various laws pertaining to internet advertising: Various laws pertaining to internet advertising such as Guidelines for Influencer Advertising on Digital Media, 2021 require considerable resources and time and could significantly affect Nykaa’s operation and increase its liability, the company said.

How will IPO proceeds be used?

Nykaa proposed to utilize the Net Proceeds towards funding the following objects:

  1. Funding the set-up of new retail stores: Nykaa proposes to utilize₹420 million for the purpose of setting-up new retail stores, with an aggregate built-up area of approximately 87,000 square feet, to be undertaken over the course of Financial Years 2022, 2023, and 2024.
  2. Funding the set-up of new warehouses: Nykaa proposes to utilize ₹420 million for the purpose of setting up new warehouses with an aggregate built-up area of approximately 4,00,000 square feet, to be undertaken over the course of Financial Years 2022, 2023, and 2024.
  3. Repayment of borrowings: Nykaa proposes to use ₹1560 million  towards full or partial repayment or pre-payment of borrowings availed by the company and by Nykaa E-Retail
  4. Expenditure to enhance the visibility and awareness of our brands: Nykaa intends to utilize ₹ 2,340 million towards funding its future marketing initiatives including promoting its own brands. The money will also go towards funding strategic growth initiatives such as Nykaa Fashion, Nykaa Man, Nykaa Global Store, and Nykaa Super store. “We plan to continue expenditure in our branding activities on historically successful mediums, while also expanding our marketing presence to capture shifts in consumers’ media consumption habits, to increase our brands’ awareness and brand affinity to attract more consumers on our platform,” Nykaa stated.
  5. General corporate purposes: “This includes short-term working capital requirements, information technology infrastructure, improvement in the supply chain, distribution and fulfillment network, organic and/or inorganic growth, including domestic and international expansion, meeting day-to-day expenses, etc,” the company said.

Separately, Nykaa’s growth strategy as laid out in the prospectus:

  • Continue to acquire new consumers and increase consumer loyalty
  • Deepen and broaden our brand relationships
  • Leveraging on the art of retailing to expand into lifestyle adjacencies and launch new channels
  • Further expand Omnichannel capabilities
  • Invest in our owned brand portfolio
  • Focused, selective international expansion as well as acquisitions and joint ventures in India

Risk Factors

Among the 50-odd internal risk factors laid out by the company, here are a notable few:

  1. Nykaa derives a significant portion of its GMV from its top three categories: Nykaa derives 71.3 percent of its gross-merchandise value from its top three categories. Although the company does not identify these categories in its prospectus, it said that any adverse developments with respect to the sale of products within these categories could affect the company’s revenue.
  2. Certain brand vendors account for a significant portion of Nykaa’s total GMV: Nykaa depends on its partnership with some popular brands with its top three vendors accounting for 24.4 percent of its total GMV in 2021. “Any adverse changes to our relationships with such brand vendors which may be out of our control can adversely affect our business, financial condition, cash flows and results of operations,” Nykaa stated.
  3. Nykaa depends on the growth of the online commerce industry in India: Although Nykaa operates offline stores as well, Nykaa’s “revenues depend substantially on the receptiveness of Indian consumers, suppliers, sellers and advertisers to the internet as a way to conduct commerce, purchase goods and services, and carry out financial transactions.”
  4. Selling own brand products comes with many risks: Nykaa manufactures and sells its own range of products, which makes it dependent on its relationship with manufacturing partners, suppliers of raw material, and also poses other compliance and liability burdens like production defects and failure to comply with various product-related regulations and laws.
  5. Expansion into new verticals may expose Nykaa to new challenges and more risks: Nykaa is constantly expanding into new verticals and product lines such as Nykaa Fashion and Nykaa Man. This aggressive expansion carries its own challenges and risks which may affect revenues, dilute brand image, and strain resources.
  6. Security breaches, cyber-attacks, downtime of mobile applications or websites 
  7. The impact from outbreaks like Covid-19


Promoters: Currently, the promoters and promoter group, which includes Founder and CEO Falguni Nayar, with her husband Sanjay Nayar and two children, own 54 percent of FSN E-Commerce Ventures.

Source: Nykaa DRHP

Other major shareholders: 

  • Harindarpal Singh Banga (Chairman of The Caravel Group ) jointly with Indra Banga: 8.7 percent
  • Sunil Kant Munjal: 4.53 percent
  • Narotam Sekhsaria: 3.66 percent
  • TPG Growth: 3.48 percent
  • Lighthouse India: 3.14 percent
  • Mala Gaonkar: 2.44 percent
  • Yogesh Agencies & Investments: 1.19 percent
  • J M Financial and Investment Consultancy Services: 0.98 percent

Outstanding litigation

Nykaa’s outstanding litigation includes a civil proceeding filed by L’Oreal alleging trademark infringement, actions by statutory or regulatory authorities against its various brands, and claims related to direct and indirect taxes. None of these are notable or have a severe impact on the company.

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