“Left enough value for investors on the table while fixing the IPO price bracket”: Nykaa boss Falguni Nayar


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New Delhi: Nykaa will highlight Dalal Street with its IPO of Rs 5,350 cr which opens on Friday October 2021. The price range has been set at Rs 1,085 to 1,125 / share, and the issue closes on Monday November, 1st.

Seeking a valuation of $ 7.4 billion through this IPO, Nykaa founder and CEO Falguni Nayar says enough value has been left with investors on the table, and reveals that 60% of sales in its market come from small towns, which indicates how much it can increase. in the years to come. Here are edited excerpts from Nykaa’s boss at ET Now’s Nayantara Rai:

Why are you so confident this IPO is going to be a blockbuster?

We’ve done a lot of work over the past few years to build a strong business with the right fundamentals and the right customer offering that we see in terms of all the brand love we get from our customers. A company like this will likely be better understood by the markets and we hope we enjoy the same enjoyment among our market participants.

Nykaa is also different from other internet tech companies heading to Dalal Street in the sense that it is already profitable. Perhaps the last comparable IPO was Zomato. Now, despite being profitable, why is Nykaa looking for a fairly similar valuation on the IPO? Is it because the markets may have cooled?

I would like to talk about two or three principles. First of all, when it comes to internet companies, profitability is a balance between acquiring customers and how you see, in terms of your customers who have acquired in the past, what kind of return behavior you have seen among the customers. As we shared in our prospectus, Nykaa has a 30% share of new customers and 70% of the business is from loyal customers who have bought from us in previous periods and come back to buy again.

It is this right balance between acquiring new customers and returning customers that dictates short-term long-term profitability. What the market attributes to various companies is the fact that no matter how large the markets as a whole, whether it is beauty and personal care or even fashion, this is a very large total addressable market in the country and a very small percentage of it is online at this time. Around 8% for beauty and 12% for fashion and the market thinks that this e-commerce penetration will increase and that is why many platforms that have made the consumer buy online prospectively are enjoying a good valuation. .

In this setting, whether it’s food delivery, e-commerce, or travel portals, each caters to a very different addressable market and differs in the type of penetration they can achieve. In the long term, investors will look at the longer term outlook. So comparing someone to be profitable, someone to be taller at some point doesn’t really matter. What matters is in the long run what kind of journey many of these companies will be going through.

With the price range of Rs 1,085 to Rs 1,125 per share, have you left enough value on the table for investors to post the IPO?

I was an investment banker. It was very important for us to make sure that we don’t dictate the valuation and we are really open-minded about how institutional investors, especially those who come in through the anchor book and also at- beyond the bankers who will represent the way individuals and high net worth individuals will consider this particular offer to resolve it. So by taking advice from all of them, we allowed them to tell us what the reasonable valuation would be, and then we made sure to leave a reasonable amount on the table so that no investor felt like they were in. not getting the right deal, if it be market volatility. If I get any advice from the corporate world, it will always be to make sure I leave enough value on the table for new investors arriving.

Some believe that the peak of the bull cycle is behind us; some say no, it’s a great bull run. Does all of this concern you?

We have seen that in the private market there have been a lot of internet companies that have garnered a lot of interest, but from a public market point of view there are literally a few IPOs that came before us and what remains is a lot of offers likely to arrive on the market. So for the sake of the market I think the way investors see it as a decades-long journey and hopefully it will, with a really good experience for all of the shareholders investing in the internet economy. .

At any point in time, because investors love this space and are willing to discount a lot more profits over time, it may appear that there is a risk at this time. But there needs to be a much longer term perspective on how this sector and these companies will develop and what they can offer in terms of supply to consumers and how that should be valued. For example, even if you look at Nykaa, we are a 9 year old company. Today, whether it’s physical retail or e-commerce, the type of offering that we have in terms of 4,000 brands and platform, the number of SKUs on the platform – form and the greatest ease with which the consumer can transact between categories, brands, so many SKUs, all this is valued by investors.

The pandemic has taught us that the makeup and cosmetics business is recession-proof. Looking through the fine print, I see that not only did they bounce back, but that we could have beaten pre-Covid levels as well.

Yes, what was interesting was that in fact in RHP we shared the numbers for the first quarter of fiscal 2022, which is basically the April to June quarter, when we had phase two. of Covid and that there was a significant human price to pay in some cities. There were no nationwide lockdowns and because of that we found that business continued very strongly. In fact, at the overall consolidated GMB level, we reported a GMP of $ 199 million for the first quarter of this year and we also found that the fashion and beauty companies are doing very well. If we look at it from year to year, the previous year from April to June was a year of load shedding. So we increased 9 times and beauty increased 178%.
But even if we ignored that comparison because it was actually a year of containment, but even quarter-on-quarter we saw very strong growth of 12% in beauty and 43% in fashion. So we had a successful quarter. However, physical retail has been a bit subdued. He is doing better in the future and he will get better as things open up.

If I had to look at the strong growth that you saw in the quarter that you referred to and that you reported in the Red Herring prospectus, what would have been the main growth drivers in the first and second quarters?

Nykaa had started to do more customer acquisition. Over the past year, full year numbers reflect the first half of the year where we were hit quite a bit by Covid and there were restrictions based on core and non-core activities. The first half of the last fiscal year was impacted by the Covid, which limited customer acquisitions. As we resumed customer acquisition in the second half of the year, we started to feel bolder earlier because the supply chains were better as well.

This is therefore a quarter driven by very strong customer acquisition momentum and we believe that we will continue to do so in the future. Along with this, we found that consumers were willing to come back and consume certain categories that they did not consume during the lockdown. Makeup was one such category where we saw a big difference between Covid consumption and non-Covid consumption, although other categories like personal care have grown throughout. Businesses like fashion are mostly physical businesses. People are buying more fashion in stores, but I think more and more consumers are now comfortable buying fashion online. I believe many of these changes in consumer behavior are here to stay.

Is the growth you see widespread or is it mostly coming back to the big cities?

No, in fact the reverse. Tier 2 and Tier 3 cities are growing very fast, much faster than Tier 1 cities and in fact even for Nykaa almost 60% of our orders and consumption comes from Tier 2 cities and level 3. Level 1 cities, metropolitan cities only represent about 40% of our sales. This shows that the future proportion will be more in favor of levels 2 and 3.

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About Florence L. Silvia

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