Despite rich valuation, brokerages give thumbs up to Nykaa

Despite rich valuation, majority of brokerages are positive on the IPO and have given it a subscribe rating.

Published: 28th October 2021 08:27 AM  |   Last Updated: 28th October 2021 08:27 AM   |  A+A-

Nykaa store in Chennai. (Nakshatra Krishnamoorthy | EPS)

By Express News Service

NEW DELHI:  The 5,352-crore IPO of e-commerce beauty giant Nykaa is opening on Thursday. The former investment banker Falguni Nayar-founded startup’s initial stake sale will be a mix of a fresh issue and an offer for sale (OFS). 

Despite rich valuation, majority of brokerages are positive on the IPO and have given it a subscribe rating.
“While valuations may appear to be expensive on a P/E basis, Nykaa is one of the very few profitable Unicorns in India and we believe that the company is well positioned to benefit from the exponential growth in the online beauty and fashion retailing business over the next decade. Hence we believe that that the valuations are justified and hence we recommend subscribe to the issue,” analysts at AngelOne said on Wednesday. 

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Nykaa posted strong revenue CAGR of 48.2% between FY2019-20 and despite the Covid crisis, registered a profit of Rs 62 crore in FY2021. Nykaa’s IPO is being valued at price/sales of 21.0-21.8 x FY2021 revenues of Rs 2,441 crore. According to Marwadi Shares and Finance, Considering the TTM as of June 2021, adjusted EPS of Rs 2.54 on a post-issue basis, the company is going to list at a P/E of 443.46 with a market cap of Rs 53,204 crore.

The three-day stake sale of Nykaa begins on Thursday, and the issue can be subscribed till Monday, November 1. The price band of the public issue is fixed at Rs 1,085-1,125 per share. Nykaa would raise Rs 630 crore via sale of fresh equity shares, whereas promoters and existing shareholders will offload 43.11 million shares worth Rs 4,723 crore.

Reliance Securities, which has given a subscribe rating with a long-term view on the issue, said the IPO is valued at 21.8x FY21 EV (enterprise value) to sales, which is about 20% discount compared to the other two recently-listed unicorns, CarTrade and Zomato, despite generating superior RoE. Elara Securities also said that Nykaa is likely to trade at a huge scarcity premium versus global peers in the online BPC space (trading at 3x FY24E EV/sales average).


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