Nykaa: Considered as one of the poster IPOs in Dalal Street, Nykaa also known as FSN-E Commerce was incorporated in April, 2012. The brand name is derived from a Sanskrit word meaning “one in the spotlight”. The question is, will Nykaa’s shares come under the spotlight in future?

Industry Outlook Of Nykaa

Keeping in context the recent market study, the Indian beauty industry was approximately USD $14.9 billion in size in 2021 and it is projected to grow up to USD $28.9 billion by the end of 2028. Another report by research and market suggests that the Indian Beauty & Personal Care Market is estimated to reach close to USD $27 billion by 2029 with growth projections expected to be at 6.29% CAGR.

The fashion industry in India is also expected to reach US $24.35 billion by 2029 from US $14.68 billion in 2024, thus resulting in an expansion of 10.65% CAGR. The social media penetration and ever expanding influence of Bollywood on the youth will further accelerate the growth.

Company Overview Of Nykaa

Nykaa is an e-commerce company with 2000+ workforce and is headquartered in Mumbai, India. The company is involved in the sale of wellness, beauty and fashion products through its website, mobile application and close to 100+ brick and mortar outlets.

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Through these, the company not only sells its own products but Nykaa also offers products of close to 2000+ brands from around the world. It is the first Indian Unicorn startup headed by a woman, Falguni Nayar. 

Expansion

Nykaa began its development aspirations in 2015 when it switched from an online-only to an omnichannel business strategy and started selling items from several brands. As of March 2024, the company has close to 2000+ brands available for purchase on its platform.

In 2018, Nykaa had also launched its premium membership program named as Nykaa PRO which allowed customers to get special access to curated range of premium products at heavy discounts.

Nykaa also introduced “Nykaa Man” in 2020, making it the pioneer in the multi-brand e-commerce market for men’s grooming items.Through its clothing label “Nykaa Design Studio”, the business also entered the fashion industry.

Acquisitions

Nykaa also made a series of acquisitions like “20Dresses.com”, a private women’s styling platform in 2019. “Pipa Bella” an Indian fashion jewellery brand, “Dot & Key” a skincare brand in 2021. Finally in 2022 Nykaa acquired an 18.51% stake in Indian skincare brand “Earth Rhythm”.

Brands & Collaborations Of Nykaa

All the brands under Nykaa can be predominantly categorised into 2 groups that is, Nykaa House of brands: comprising of Nykaa Naturals, Nykaa Cosmetics, Kay beauty, and the second group being Nykaa fashion: which includes Nykd by Nykaa, 20 Dresses, RSVP, Mondano, LIkha, Pipa Bella. Apart from this, the company has also partnered with Masaba Gupta to create a separate line of premium clothing called “Masaba by Nykaa”.

IPO Fiasco

Nykaa also faced the heat of extreme valuation, as met by other Indian unicorns like Paytm, PolicyBazaar and Zomato, where in the shares of Nykaa became 1/4th over the course of just 1 year from ₹430 to ₹115 even after listing at close to 90% listing gains. This again proved the age old saying: don’t chase euphoria over fundamentals.

Corporate Governance

In November, 2022 Nykaa issued 5:1 bonus shares to coincide with the expiry date of pre-IPO shareholders’ lock in period this led to the company being at the receiving end of heavy criticism, questioning the ulterior motive of the management with concerns regarding market manipulation and tax avoidance.

This was followed by the resignation of the CFO Arvind Agarwal and scrutiny by the Securities Exchange Board of India, although nothing could be proved.

Competitors

The beauty industry has seen steady growth over the last 2 decades. However, in recent years it has experienced a boom due to the infiltration of the internet, social media, and celebrity cult status. This has resulted in the market becoming too saturated with new entrants, such as Sugar Cosmetics, MamaEarth, Tira by Reliance, and Tata CliQ by Tata Group all aiming to capitalise the decent margins and rising demand for fashion and beauty products.

All of these companies are targeting the urban elite class and trying to break into the luxury product market. Apart from this, there are well established players like Hindustan Unilever and L’oreal who pose a stiff competition to these new companies and brands.

Besides this, the fashion segment is also saturated with companies like Aditya Birla Fashion Retail with premium brands such as Allen Solly, Van Heusen, Louis Phillipe, Peter England under its umbrella. Additionally Reliance with Reliance Trends and Tata with Zudio and WestSide also pose stiff competition to Nykaa’s own brands. 

Financial Highlights Of Nykaa

Revenue of the company has been growing exponentially over the years and has quadrupled to ₹6,386Cr. in March 2024 from ₹1,768Cr of the same quarter in 2020. While other key factors like net profit, and earnings per share have remained stagnant over the years, which can be attributed to factors like store expansion and acquisitions.

Additionally, Nykaa is finding it difficult to improve its operating profit margins too, due to heavy expenditure on marketing campaigns and brand promotion. Apart from this, there are multiple companies that have cropped up recently in the beauty and fashion industry which have further compressed the profit margins.

Financial Year2020 (Mar)2021 (Mar)2022 (Mar)2023 (Mar)2024 (Mar)
Revenue (Crores)1,768 Cr.2,441 Cr.3,774 Cr.5,144 Cr.6,386Cr.
Net Profit (Crores)-16 Cr.62 Cr.41 Cr.21 Cr.40 Cr.
Operating Profit Margin (%)5%6%4%5%5%
Return on Capital Employed (%)5%13%7%6%6.84%
Earnings per share₹ -1.9₹ 6.82₹ 0.14₹ 0.07₹ 0.11

Interesting Key Financial Aspects

An intriguing finding is that while Nykaa’s profits have increased, depreciation is increasing at a rate that is comparable to the business’s profits.

According to the business’s management it is mostly due to the writing down of capital expenditures that were incurred between the years of 2021 and 2023, when the company was at the height of its expansion. Which according to the management were the peak expansion phase.

Financial YearFY 2021-22FY 2022-23FY 2023-24
Financial QuarterJunSeptDecMarJunSeptDecMarJunSeptDecMar
Operating Profit (₹ Cr.)26.9428.8268.9838.5246.0561.1478.1670.6973.4780.6398.7893.28
Depreciation(₹ Cr.)19.521.3125.1230.4831.0138.550.753.0451.9254.6458.0359.65
Net Profit (₹ Cr.)3.531.1729.027.585.015.198.482.275.427.817.469.07

Future Plans Of Nykaa

Nykaa is planning to expand its physical store presence by opening multiple stores of its brands like Nykaa Luxe. Apart from this the company is also planning to start Nykaa Kiosks in shopping malls across metropolitan and tier 2 cities.

They also plan to open stores within stores wherein they can offer elevated brand experience and experiential zones to the customers. In addition to this, they are also planning to organise educational beauty events in order to create awareness about the usage of their different products and enhance category penetration.

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SWOT Analysis

Drivers: The rapidly expanding markets for fashion and beauty & care products—which are projected to reach close to US $30 billion by the end of 2029 will be the main factors behind Nykaa’s prospective growth. Nykaa is already gaining traction in the market and is outperforming competitors of a similar size, such as Sugar Cosmetics and MamaEarth, an outcome of its aggressive marketing efforts and vast retail and online presence.

Additionally, Nykaa has partnered with multiple global brands like Dior, Anomaly, Ralph Lauren, Armani etc. and has been offering their products on its platform, which gives it an edge over its competitors like MamaEarth, Sugar Cosmetics, Tira and Tata CliQ.

Restraints: However, the obstacles in front of Nykaa seem to come in the form of big brands being launched in the beauty and personal care segment by giant industrial conglomerates with deep pockets like Tira by Reliance and Tata CliQ by Tata. Apart from that, the giant in the Indian Fashion Industry that is Aditya Birla Fashion also presents a significant challenge to Nykaa’s fashion segment. Additionally, rising awareness regarding use of cosmetics and chemicals among certain sections of the population could also act as a major hurdle.

Key Metrics Of Nykaa

ParticularsFigures
Market Capitalisation₹ 47,870 Cr.
Current Market Price₹ 175.2
Price to Earnings Ratio1,483
Price to Book Value₹ 4.42
Dividend Yield %0.00 %
FII Holdings10.32%
DII Holdings17.16%

Price Target Of Nykaa

Jefferies: has set a target price of Rs 220 and issued a BUY rating. Jefferies believes that customers who are value-conscious will continue to choose Nykaa for quality products.

JM Financial: has also given a BUY rating at ₹165-168 price with an upside target of ₹220, as Nykaa is able to hold on to its market share even after rising competition.

Nuvama: the brokerage house has given BUY rating with entry price at ₹165 and target of ₹189.

ICICI Securities: has given a hold rating as it believes the company has potential to outperform its peers because of its improving financials.

Conclusion

Ultimately, it will be fascinating to see how Nykaa’s narrative develops in the Indian Fashion and Beauty area. Will Nykaa be able to make a name for itself in the market and pose a real threat to large corporations? Furthermore, the question of whether it will be a multibagger in the future or not will only become clear with time.

Written By Dipangshu Kundu

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