Online cosmetics to fashion retailer, Fsn E-Commerce Ventures Ltd (Nykaa) has been in the news for the past few days. The company’s shares gained 19.22% on Friday’s early trades to reach an intraday high of ₹ 224.45 apiece. They were trading at ₹ 215.50 apiece at 12:17 PM on Friday.
Its shares did not witness selling pressure, even though the lock-in period for its shares expired and many credited its Founder and CEO, Falguni Nayar for a master stroke that avoided the selling pressure which could drive its share price lower.
The cosmetics-to-fashion retailer’s 67% shareholding was released from lock-in. As a result, those investors who had invested in the company’s shares before the IPO were now free to sell their shares.
The masterstroke
Falguni Nayar, the investment banker-turned-entrepreneur changed the record date for the issue of its bonus shares from November 3, 2022 to November 11, 2022. As a result, its ex-date (November 10) coincided with the release of 310 million shares that were locked.
Without the bonus issue, these investors could sell their shares at ₹1143 levels and receive stellar returns immediately after their shares got released. However, the 5:1 bonus issue has delayed this sell-off.
Companies typically take one month or longer to credit bonus shares to the accounts of shareholders. Thus, the lock-in period in this case will also get delayed by an equal amount of time.
In this case, shareholders will receive five shares of Nykaa for every one share held by them. They will now hold six shares instead of one. The shares that went ex-bonus were available for trade, but the five shares that are to be issued for every one share that was held will be credited to the demat accounts of investors only after a few days. This master stroke has cut down the available stock for sale to one-sixth, hence reducing the selling pressure.
The additional 1550 million shares ( 310 million *5 bonus shares) will be freed from the lock-in period only after they get credited to the account. Moreover, the 310 million shares that are available, have a market price of merely ₹ 215 levels, on account of adjustment due to the bonus issue. Therefore, many investors might refrain from selling them even though they are sitting on huge returns.
Is this a master stroke a delayed disaster?
67% of Nykaa’s total shareholding will be released in a month or so. However, Falguni Nayar’s family holds 52 per cent stake in the company, of which 32.4 per cent stake or 145 million shares have been released from lock-in, based on SEBI’s new regulations. Market observers say that the promoters are less likely to sell their shares, as they have a lion’s share and might want to wait for a favourable time to get better returns.
A few other early investors include Steadview Capital Mauritius, TPG Growth, Lighthouse India Fund, and High Networth Individuals (HNIs) like Harindarpal Singh Banga, Narotam Sekhsaria and Sunil Kant Munjal.
They’ve bought a considerable number of shares at an average cost of ₹ 6 to ₹ 9 and are already receiving multibagger returns. However, they are family and friends of promoter Falguni Nayar and analysts said that they are highly unlikely to sell these shares.
Who is already selling, and who is buying?
Narotam S Sekhsaria, founder of Ambuja Cement, and an HNI took an exit by selling his entire stake, i.e., 1.47 crore shares (3.11 per cent equity) in Nykaa at ₹173.7 per share.
Lighthouse India Fund III also sold 96.89 lakh shares (2.04 per cent stake) of the online fashion retailer at an average price of ₹ 171.75 per share, and Mala Gopal Gaonkar (an individual employee seller) offloaded 40 lakh shares (2.4% stake) at an average price of ₹ 172.04 per share.
Foreign investors have bought a stake in the company. Segantii India Mauritius bought 37.92 lakh shares at an average price of ₹171.75 per share, Norges Bank on account of Government Petroleum Fund bought 39.81 lakh shares at an average price of ₹ 173.35 per share, and Aberdeen Standard Asia Focus Plc picked 42.72 lakh shares at ₹ 173.18 per share, totalling to a 2.53 per cent equity stake in the company via open market transactions.
Market observers expect pre-IPO investors to sell Nykaa’s shares once the bonus shares get credited. And if this happens, Nykaa’s masterstroke will only be a delayed disaster.
Written by Simran Bafna
Disclaimer
The content in this news article is not investment advice. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
