Post-IPO, promoter family of Nykaa to continue holding 51% stake

The promoter family of beauty and fashion start-up Nykaa will continue to hold a 51 per cent stake in the company following the proposed IPO. 

The promoter family has three members in the top management team: founder Falguni Nayar, daughter Adwaita who is the CEO of Nykaa Fashion and son Anchit, CEO of the beauty e-commerce platform. They will continue to play a key role in running the business.  

The company has a diversified range of investors which include Fidelity, TPG, Steadview Capital, Sunil Munjal, and Bollywood star Katrina Kaif, among others. The IPO will include an offer for sale from existing shareholders as well as the fresh issuance of shares.   

According to sources, many of the existing investors are expected to participate in the offer for sale, but none of the investors are pulling out by selling their entire stake. Those in the know say that the size of the offer for sale could be larger than the size of the issuance of fresh shares.   

The promoters will also offer some small percentage of their shares for the offer of sale, say sources. The company is expected to file its draft red herring prospectus to the Sebi in a few days and sources say it expects to close the IPO within the next few months. 

Nykaa did not respond to queries on all these issues. Unlike most other start-ups, Nykaa has been able to make a profit in the year FY’ 21, despite the pandemic. It has been EBIDTA-positive for more than three years. This feat has been achieved primarily by eschewing the example of rivals who have opted for heavy discounting of their products. 

The company has followed an inventory-led model so that the authenticity of the quality of brands was assured. It also kept a rein on its marketing budgets. Currently, over 80 per cent of Nykaa’s gross merchandise value comes from the beauty business, even though it entered the fashion business three years ago, positioning itself at the premium end of the market.

Nonetheless, sources say it expects the fashion business to grow faster than the beauty business and increase its share of the total business too. Nykaa has recently set up a pilot fashion store in Delhi and it will take a call on a future strategy based on market feedback to the store. The company’s plan to increase its beauty products offline business through the setting up retail stores has, say sources, slowed down due to Covid-19.

The plan to get 20 per cent of its revenues offline for its beauty products might now take another 3-4 years: after all, it has stores in only 40 cities whereas digitally its products are sold in as many as 19,000 PIN codes. Consequently, the current offline business’s contribution to revenue is less than 10 per cent. The company has also made forays for its beauty brands in global markets such as Dubai, London and Mauritius.  The nine-year-old company has been valued by experts and analysts at around $4-5 billion. The size of the IPO is expected to be between $600-800 million.