To say the very least, Nykaa’s (formally, FSN E-Commerce Ventures) share market launch on November 10 exceeded all expectations. On the Bombay Stock Exchange, the corporation’s shares concluded at ₹2,206.70 a share (BSE). This marks a 96% gain over the initial offering price of ₹1125 per unit. On November 10, Nykaa’s market valuation increased to ₹1,04,438.88 crore, putting it far ahead of several consumer businesses such as Marico as well as Berger Paints India. Of course, these businesses aren’t quite alike. Nykaa is an online store that is profitable but at a far lower rate than several other consumer enterprises.
According to Karan Taurani, an expert at Elara Securities (India), “businesses like Nykaa are in the aggregating game, while consumer corporations market their brands.” Nykaa, on the other hand, is a one-stop store for numerous companies, and its scalability is enormous.” Many analysts believe that the potential for the development of internet/digital enterprises is vast. “It is worth emphasizing that various consumer-related enterprises are not likely to expand at 40-50% every year and they are largely offline plays,” stated Nitin Rao, creator of Alpha Ideas. in, an investment blog. Nykaa’s estimated potential rate of growth is substantially higher in contrast, and it is a digital bet.”
The COVID-19 pandemic has expedited the implementation of electronic portals, and firms like Nykaa stand to prosper as a result. Nykaa is an Indian multi-brand Beauty & Personal Care (BPC) portal with a strong presence in this market. It entered the fashion market in 2018 as Nykaa Fashion. “Furthermore, the Chinese government’s digital repression will push foreign investors to explore alternative possibilities, and as a result, they may find the Indian market appealing,” Rao remarked. It also helps because Nykaa is profitable, as opposed to other internet companies such as Zomato (an online food delivery service) or One97 Communications (Paytm).
Nykaa’s net income in FY21 was ₹62 crore, with an Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin of 6.6%. Thankfully for shareholders, the forecast for margins is positive. “We estimate Nykaa can maintain a CAGR of roughly 35% in sales and 50% in EBITDA over the next several years with double-digit margins,” Prabhudas Lilladher Pvt. Ltd. analysts stated in research on October 26. For context, Nykaa’s earnings climbed at a CAGR of 48% between FY19 and FY21. During the same timeframe, the Gross Merchandise Value (GMV) CAGR was around 57%. While these indicators are promising, it comes without mentioning that Nykaa’s values are exorbitant.
Elara’s anticipated target value for Nykaa’s stock 5 years from now, depending on FY27 revenue estimates, is ₹1880 per share. Nykaa’s stock price has now crossed this level. Considering Elara’s expected revenues for FY27, the stock now trades at a market valuation to revenue ratio of around 8X. “Shareholders would have to monitor the implementation in the clothing category, the success of which would be essential for values ahead,” Taurani says. Investors must also keep a careful watch on the rate of expansion. On Thursday, when the wider markets were down, Nykaa’s shares slid around 1% to ₹2187 per unit on the BSE at 12.51 p.m.