FSN E-commerce ventures
incorporated in 2012, is a digitally native consumer technology platform,
delivering a content-led, lifestyle retail experience to consumers. Company has
a diverse portfolio of beauty, personal care, and fashion products, including
owned brand products manufactured by it.
Company operates in two business
verticals, (1) Nykaa: Beauty and personal care and (2) Nykaa Fashion: Apparel
and accessories.
In beauty and personal care segment,
company offers 256,149 SKUs (stock-keeping unit) from 2,644 brands primarily
across make-up, skincare, haircare, bath and body, fragrance, grooming
appliances, personal care, and health and wellness categories as of August 31,
2021. In the Financial Year 2021, 1.71 crore Orders were placed on its platform
for beauty and personal care products with a total GMV (Gross merchandise
volume) of Rs 3380.41 crore, a 35.3% increase over theFY 2020.
In Fashion segment, company offers 1,434
brands and 2.8 million SKUs (stock-keeping unit) with fashion products across
four consumer divisions: women, men, kids and home as of August 31, 2021. The average
value of orders on Nykaa Fashion mobile application and website was Rs 3,977
for the five months ended August 31, 2021. Further in the FY 2021, 24 lakhorders
were placed for fashion products with a total GMV (Gross merchandise volume) of
Rs 665.57 crore.
As of August 31, 2021, company
offered total of approximately 31 lakh SKUs (stock-keeping unit) from 4078
national and international brands to its consumers across both business
verticals. In the FY 2021, total GMV (Gross merchandise volume) was Rs 4045.98
crore, which grew by 50.7% over the FY 2020 and for the three months ended June
30, 2021, company’s total GMV was Rs 1469.61 crore, which grew 238.8% from the
three months ended June 30, 2020.
Company has established itself not
only as a lifestyle retail platform, but also as a popular consumer brand. In
the BPC Market and Fashion Market in India, 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.
Company offers consumers an
Omnichannel experience with an endeavor to cater to the consumers’ preferences
and convenience. The company’s online channels include mobile applications,
websites, and mobile sites. As of August 31, 2021, company had cumulative
downloads of 5.58 crore across all its mobile applications and during the five
months ended August 31, 2021, 88.2% of its online GMV (Gross merchandise
volume) came through mobile applications. Company’s offline channel comprises
of 80 physical stores across 40 cities in India over three different store
formats as of August 31, 2021.
Compared to other mature e-commerce
categories, beauty and personal care and fashion have lower online penetration.
At approximately 8-10% penetration in Financial Year 2021 and five months ended
August 31, 2021. Beauty and personal care is one of the more underpenetrated
e-commerce categories in India, indicating large headroom for disruption in
future. Online penetration in fashion in India is slightly higher at
approximately 12% in FY 2021 and five months ended August 2021, but is still
quite low compared to mature e-tailing categories such as mobiles and
electronics.
Company launched the Nykaa Man
mobile application and website, thereby customizing its model and experience
for men, along with increasing education and awareness among men on the use of
grooming and personal care products.
On September 28, 2021, Company acquired
51% of the outstanding equity shares of Dot & Key Wellness which is a skin
care brand. This is the first D2C (direct to consumer) beauty brand
acquired by the platform and following this investment by the brand, Dot &
Key will join Nykaa`s stable of owned brands.
As of August 31, 2021, company had
an integrated supply chain comprising of 20 warehouses (of which two are
outsourced) across India, with a total capacity of 665,371 square feet,
supported by 80 physical stores.
Company’s strategy
includes continuous acquisition of new consumers by providing an engaging
shopping experience. It also plans to deepen existing consumer relationships to
enhance its revenues by increasing wallet share from such consumers.
Company aims to invest further towards expansion of physical
store network to serve more consumers across the country with its Omnichannel
experience. At the same time, company seeks to further leverage the synergies
between the offline and online channels to create a seamless journey across
touchpoints.
As of August 31, 2021, Company had the largest influencer
network in the online beauty and personal care sector in India.
Offer and its objects
The IPO comprise of fresh issue of equity
shares worth up to Rs 630 crore and an offer for sale of Rs 4721 crore by
existing shareholders.
Price band for the IPO is Rs 1085
to Rs 1125 per equity share of face value Re1 each.
Objectives for the fresh issue areInvestment
of Rs 42 crore in Subsidiaries(namely, FSN Brands/Nykaa Fashion) for funding
the set-up of new retail stores,investment of Rs 42 crore in Subsidiaries
namely(Nykaa E-Retail, FSN Brands and Nykaa Fashion) for funding the set-up of
new warehouses, Rs 156 crore for repayment or prepayment of outstanding
borrowings,Rs 234 crore for enhancing the visibility and awareness of brands and
remaining amount will be used for general corporate purposes.
Promoters of the CompanyareFalguni
Nayar, Sanjay Nayar, Falguni Nayar Family Trust and Sanjay Nayar Family Trust.Promoters
and promoter groupholds an aggregate of 253,354,830 equity Shares, aggregating to
54.22% of the pre-Offer issued and paid-up Equity Share capital.The post-IPO
shareholding for the same is expected to be around 52.55%.
The issue, through the book-building process, will open on 28
October 2021 and will close on 1November 2021.
Strengths
Company has a large market opportunity aggregating to Rs 10,60,000
crore in the growing beauty, personal care, and fashion industry by the
calendar year 2025 in India.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.
Company is one
of India’s leading lifestyle focused consumer technology platforms and the
largest Specialty Beauty and Personal Care Platform in India in terms of value
of products sold in the Financial Year 2021 and the five months ended August
31, 2021.
Company has a Resilient,
capital efficient business with a combination of strong growth and
profitability. India has the largest population
base of Generation Z and Millennials in the world. These next-generation
consumers aspire to express their individuality through in-trend beauty, personal
care, and fashion products, largely inspired by their friends, family,
celebrities, and influencers on social media. Company is well positioned to
cater to this need.
Company has a track record of delivering strong financial
performance, its consolidated revenue from operations for the FY 2021, 2020 and
2019 was Rs 2440.896 crore, Rs 1767.533 crore and Rs 1111.394 crore,
respectively. Revenue grew at a CAGR rate of 48.2% from FY2019 to FY2021.
Company’s
GMV(Gross
merchandise volume)for the FY2021,
2020 and 2019 was Rs 4045.98 crore, Rs 2684.92 crore and Rs 1650.08 crore,
respectively. GMV grew at a CAGR rate of 56.6% from FY19 to FY21. Also,total
GMV was Rs 1469.61 crore in Q1 FY22, which grew 238.8% from the three months
ended June 30, 2020.
Company’s EBITDA margin improved from 1.85% in FY19 to 6.61%
in FY21. Going forward management expects margins to further improve.
Company has strong social media presence, Nykaa runs
marketing campaigns on a regular basis. This has played a vital role in
boosting sales and acquiring customers.
Company’s strong balance sheet provides it with scope of
expansion. It can utilize funds to finance new projects, which can diversify
its revenue stream. This will have positive impact on its key financial metrics
such as Return on Equity (ROE), Return on sales and more.
Company has developed systems and processes to ensure that
the products sold on its platform are authentic and build trust among consumers
and brands.Due to its strong commitment to authenticity, the company is
preferred destination for luxury and prestige products in India for consumers
and brands.
Company has a diverse portfolio of 15 owned brands.Many of the
owned brands have a high recall and function as independent brands.
Company’s capital turnover ratio has improved from 3.1 times
in the FY 2019 to 4.2 times in the Financial Year 2021. Company has focused on
capital efficiency and unit economics, while simultaneously building for scale
and growth.
Weaknesses
Rules and regulations governing e-commerce are still evolving. Government
is increasingly becoming strict to restrict the ability of online players to
offer unfair competition to offline players.
If company fails to acquire new consumers, in a cost-effective
manner, it may not be able to increase or maintain profitability.
The products merchandised on platforms such as Nykaa.com,
Nykaafashion.com, Nykaaman.com and others, are subject to rapidly changing
beauty and fashion trends and constantly evolving consumer tastes and demands.
These trends may also cause fluctuations in results of operations between
different periods.
There are certain pending litigations against the Company,
Subsidiaries, and some of its directors. Any adverse decision in such
proceedings may render the company liable to liabilities and penalties and may
adversely affect its business.
Company derives a significant portion of its GMV from top
three categories. Its GMV of top 3 categories for FY21 stood at 71.3% of total,
and for the five months ended August 31, 2021, it stood at 60.3% of total GMV.Revenue
may be adversely affected if products in these categories do not perform as
well as expected.
Certain brand vendors account for a significant portion of
company’s total GMV of online sales and accordingly, any adverse changes in
relationships with such brand vendors may adversely affect its business,
financial condition, and cash flows. In FYs 2019, 2020, 2021 and the five
months ended August 31, 2021, GMV from these top five vendors accounted for
38.1%, 30.8%, 27.9% and 21.5% of total GMV, respectively.
If company, fails to retain its relationships with key brands
and social network influencers, or attract new relationships, its reputation,
and business may suffer.
The sale of its owned brand products heightens certain risks
such as- potential product liability towards consumer risks for any production
defects, challenges during import registrations of ingredients/intermediaries
in the process of manufacturing and potential infringement risk etc.
Company operates in a highly competitive industry,
competitors include many online marketplaces, retailers with physical stores,
and brands that take a direct-to-consumer approach. Any failure to compete
effectively could have a negative impact on the success of business.
As of August 31, 2021, company had total working capital borrowings
of Rs 31.36 crore. Certain of its financing agreements include conditions and
restrictive covenants, may limit its ability to pursue business and limit
flexibility.
Company’s Promoter, Falguni Nayar Family Trust, has pledged 20,311,800
Equity Shares(aggregating to 4.35% of Company’s pre-offer Equity Share capital)
in favor ofInfina Finance Private Limited. Any exercise of such pledge by the
lender could dilute the shareholding of Promoters, which may adversely affect
business and prospects.
Factors such as inflation, increased labor, and employee
benefit costs, increased rental costs, and increased energy costs may increase
operating costs, which could adversely affect results of operations.
Valuation
In Q1 FY2022, consolidated sales were up by 183.05% to Rs
816.99 crore compared to Q1 FY2021. OPM increased by 1901 bps to 3.30% which
led operating profit of Rs 26.94 crore compared to loss of Rs 45.35 crore. Other
income increased 96.06% to Rs 4.72 crore, while interest cost rose 3.37% to Rs
9.01 crore and depreciation increased 33.81% to Rs 19.50 crore.PBT after
EOstood at Rs 3.15 crore compared to loss of Rs 66.23 crore. Tax credit for Q1
FY2022 was of Rs 0.37 crore compared to tax credit of Rs 11.72 crore in Q1
FY2021. Net profit stood at Rs 3.41 crore compared to loss of Rs 54.14 crore.
For FY 2021, consolidated
sales were up by 38.10% to Rs 2440.90 crore compared to FY 2020. OPM increased
by 202 bps to 6.61% which led to 99.16% increase in operating profit to Rs
161.43 crore. Other income increased 13.80% to Rs 11.74 crore, while interest
cost fell 30.69% to Rs 30.70 crore and depreciation increased 12.80% to Rs
67.13 crore. The PBT after EO stood at Rs 75.34 crore compared to loss of Rs
12.43crore. The tax expenses for FY2021 were Rs 13.39 crore compared to tax
expense of Rs 3.91 crore in FY2020.Net profit stood at Rs 61.85 crore compared
to loss of Rs 16.61 crore.
The annualized EPS
(excluding extraordinary items and relevant tax) on post-issue equity works out
to Rs 1.3 for FY2021. On the upper price band of Rs 1125, P/E works out to 865.38
for FY2021.There are no listed companies in India that engage in a similar business.
At the higher price band of Rs 1125, the offer is made at
around 21.71 times pre-IPO EV/FY2021 sales.
Online beauty and personal care (BPC) retail platforms are
effectively resolving challenges faced by both consumers and brands with the
help of superior application of technology, efficient supply chain and quality
control, access to a wider selection of products and brands including niche
luxury brands, original content and advice from experts, door-step deliveries,
and wider geographic reach. Online channel accounted for 2% of the India BPC
market in 2016. Following this, the sector grew at a strong 71% CAGR over the next
three years to penetrate 6% of the BPC market in 2019, at Rs 70 billion. The
sector further grew at 30% from 2019 to 2020 to reach Rs 91 billion. Online
channels accounted for approximately 8-10% of the overall BPC market in
Financial Year 2021 and the five months ended August 31, 2021. Growing online
shopping penetration in Tier 2+ cities, consistent investment for growth of the
sector, rising affinity for branded products that are available online with a
wide assortment, increasing need for convenient shopping experience, rising
adoption of e-commerce by Generation Zs and Millennials who are the key growth
enablers in the BPC category and higher consumer trust on products bought
online, are the key drivers of growth in the market. There is a large headroom
ahead for further penetration in India, as suggested by higher penetration in
the developed markets such as the United States (20-25%) and China (35-40%).
According to the RedSeer Report, which has been exclusively
commissioned and paid for by the company in connection with the Offer, Nykaa
has a large BPC market opportunity of Rs 1,120 billion (US$16 billion) growing
at 12% per annum to Rs 1,981 billion (US$28 billion) in 2025. Nykaa’s fashion
opportunity of Rs 3,794 billion (US$54 billion) is expected to grow at 18% per
annum to Rs 8,702 billion (US$124 billion) in 2025. Nykaa has a total
addressable market across beauty and personal care and fashion of Rs 10,683
billion (US$152 billion).
FSN E-commerce Ventures:
Issue highlights
|
For Fresh Issue Offer size (in no of shares )
|
|
- On lower price band
|
58,06,451
|
- On upper price band
|
56,00,000
|
Offer size (in Rs crore)
|
630
|
For Offer for Sale Offer size (in Rs crore)
|
|
- On lower price band
|
4554.03
|
- On upper price band
|
4721.92
|
Offer size (in no of shares )
|
4,19,72,660
|
Price band (Rs)
|
1085-1125
|
Minimum Bid Lot (in no. of shares )
|
12
|
Post issue capital (Rs crore)
|
|
- On lower price band
|
46.79
|
- On upper price band
|
47.29
|
Post-issue promoter & Group shareholding
(%)
|
52.55
|
Issue open date
|
28/10/21
|
Issue closed date
|
1/11/2021
|
Listing
|
BSE, NSE
|
Rating
|
48/100
|
FSN E-commerce Ventures:
Consolidated Financials
|
|
1903
(12)
|
2003
(12)
|
2103
(12)
|
2006
(3)
|
2106
(3)
|
Sales
|
1,111.39
|
1,767.53
|
2,440.90
|
288.64
|
816.99
|
OPM (%)
|
1.85%
|
4.59%
|
6.61%
|
-15.71%
|
3.30%
|
OP
|
20.51
|
81.05
|
161.43
|
(45.35)
|
26.94
|
Other inc.
|
4.99
|
10.32
|
11.74
|
2.41
|
4.72
|
PBIDT
|
25.50
|
91.37
|
173.17
|
(42.94)
|
31.66
|
Interest
|
26.34
|
44.29
|
30.70
|
8.72
|
9.01
|
PBDT
|
(0.84)
|
47.08
|
142.47
|
(51.66)
|
22.65
|
Dep.
|
30.88
|
59.51
|
67.13
|
14.57
|
19.50
|
PBT
|
(31.72)
|
(12.43)
|
75.34
|
(66.23)
|
3.15
|
Share of Profit/(Loss) from
Associates/JV
|
-
|
-
|
-
|
-
|
-
|
PBT before EO
|
(31.72)
|
(12.43)
|
75.34
|
(66.23)
|
3.15
|
Exceptional items
|
-
|
-
|
-
|
-
|
-
|
PBT after EO
|
(31.72)
|
(12.43)
|
75.34
|
(66.23)
|
3.15
|
Taxation
|
(7.18)
|
3.91
|
13.39
|
(11.72)
|
(0.37)
|
PAT
|
(24.54)
|
(16.34)
|
61.95
|
(54.51)
|
3.52
|
Minority Interest
|
(0.02)
|
0.27
|
0.10
|
(0.36)
|
0.11
|
Net Profit
|
(24.52)
|
(16.61)
|
61.85
|
(54.14)
|
3.41
|
EPS (Rs)*
|
#
|
#
|
1.3
|
#
|
#
|
* EPS is annualized on post issue
equity capital of Rs 47.29 crore of face value of Re 1 each
|
|
|
# EPS is not annualized due to
seasonality of business
|
|
|
|
|
EO: Extraordinary items. EPS is
calculated after excluding EO and relevant tax
|
|
|
|
Figures in Rs crore
|
|
|
|
|
|
Source: Capitaline Corporate
Database
|
|
|
|