Nykaa IPO

Strengths

• One of India’s leading lifestyle focused consumer technology platform

Nykaa is a destination of choice for consumers not only for engaging, personalized shopping experiences but also to understand latest trends in beauty, grooming and fashion in India.

According to the RedSeer Report, Nykaa is the largest Specialty Beauty and Personal Care Platform in India in terms of value of products sold in the FY21 and one of the fastest growing fashion platforms in India based on growth in GMV during FY20 and FY21.

Strong brand affinity drives increase in consumer traffic, which in turn increases the number of transactions on its platform.

• The preferred destination for luxury and prestige products in India for consumers and brands

According to the RedSeer Report, Nykaa has the highest Average Order Value (AOV) among leading online beauty and personal care platforms in India, and it is the largest luxury beauty and personal care platform in India.

It offers a vast bouquet of leading luxury and prestige beauty and personal care brands such as Armani Beauty, Aveda, Azzaro Fragrance, Bobbi Brown, Bvlgari, Charlotte Tilbury, Clinique, Diesel Fragrance, Dior, Estee Lauder, Forest Essentials, among others. It also has a significant number of leading luxury and prestige fashion brands such as Aachho, Adisee, AMPM, Boat, Falguni & Shane Peacock, Fayon Kids, Forever New, among others on its platform.

Many global luxury brands such as Charlotte Tilbury, Huda Beauty, Mario Badescu, Pixi and Tangle Teezer has selected Nykaa to import, launch and sell their products to consumers in India.

• Resilient, capital efficient business with a combination of strong growth and profitability

Company has a scalable business with strong growth and profitability. Its capital turnover ratio has improved from 3.1 times in FY19 to 4.2 times in FY21.

It has achieved this scale with only ₹5,777.38 million primary investments in the company as of March 31, 2021.

• Proprietary technology stack

Company has its own proprietary platform, the Nykaa technology platform, which keeps evolving in sync with external environment. The platform architecture comprises small, maintainable, scalable building blocks following the principles of a service oriented architecture. It supports multiple business models, executes new initiatives and makes operational efficiency gains across offerings, new and existing. At the same time, the architecture retains the flexibility to customize technology requirements for individual businesses.

It also has strong data analytics capabilities, powered by scalable data engineering. Nykaa’s online platform has various differentiated technology driven features such as virtual try-on of make-up products, in-app store-in-store concepts, in-app personalized content feed, live streaming and time bound commercial offerings that prompt consumers to explore and purchase.

• Founder-led company supported by a professional management team

Nykaa’s founder-led management team with relevant experience and complementary skill sets has driven its growth so far. Its Founder, Executive Chairperson, Managing Director and Chief Executive Officer, Falguni Nayar, started the business in 2012 and has been the driving force in developing and growing the business. She is supported by a professional management team which shares the same vision and values as hers.

Nykaa's Growth strategy

• Continue to acquire new consumers and increase consumer loyalty

Nykaa aims to continue attracting new consumers to its platform by providing an immersive shopping experience. It keeps refining its content engine, technology capabilities and assortment, to increase engagement with every new visitor, thereby increasing its ability to acquire new consumers. It deploys the levers of “voice, video and vernacular” to improve its reach and acquire consumers. The company plans to deepen its existing consumer relationships to enhance its revenues by increasing its wallet share from such consumers. Focus on increasing purchase frequency and AOV by improving personalization, better targeting and refined data analytics.

• Deepen and broaden our brand relationships

With an aim to offer a curated assortment of brands and products to its consumers, Nykaa will continue to invest in new brand relationships, while nurturing existing ones. It will focus on driving sales growth through improved merchandising, refined marketing and new data driven brand specific experiences. Company will ensure that its platform maintains its position as a go-to lifestyle destination for its diverse brand relationships.

• Leveraging on art of retailing to expand into lifestyle adjacencies and launch new channels

Nykaa is looking to foray into other lifestyle adjacencies to make its platform the single largest destination for lifestyle needs of its consumers. It recently launched The Global Store, an online channel that enables Indian consumers to buy select beauty and personal care products of several prominent foreign brands from accredited overseas retailers.

• Further expand Omni channel capabilities

Nykaa will invest further towards expansion of its physical store network to serve more consumers across the country. At the same time, it will further leverage the synergies between the offline and online channels to create a seamless journey across touchpoints. It will invest in people and infrastructure to build further capabilities for delivering an integrated online-offline shopping experience. To this end, the company commenced Nykaa PRO, a membership-based program for beauty professionals and makeup artists, providing them access to products, offers and classes, including, educational content. It is also conducting trials of SuperStore, an online channel with a separate mobile application for standalone local retailers in India to offer them select beauty and personal care products to offer to their consumers.

• Invest in its owned brand portfolio

The success of its owned brand portfolio so far has come from identifying market gaps and building innovative products to address consumer needs by leveraging its marketing and consumer insights. Nykaa aims to increase the product offerings in its current owned brand portfolio across business verticals and add newer long-term focused brands.

• Focused, selective international expansion as well as acquisitions and joint ventures in India

Nykaa has experience in India of localizing global trends for specific sub-markets and tastes. It aims to explore expansion selectively and prudently into international markets. It will also continue to consider acquisitions and joint ventures in India, particularly to supplement its market leading position, product offerings, channels and owned brands.

Risk factors

• Company derives a significant portion of its GMV from top three categories, and its business may be adversely affected if products in these categories do not perform as well as expected.

• High dependence on select brand vendors and any adverse changes to its relationships with such brand vendors can adversely affect its business, financial condition, cash flows and results of operations.

• Inability to retain existing consumers or to maintain AOV levels could have a material adverse effect on Nykaa’s business and results of operations.

• Risks associated with sales of its own brand products (which are manufactured by third party firms)

• High competitive intensity

• Any interruptions or delays in service on Nykaa’s mobile applications or websites or any undetected errors or design faults could result in limited capacity, reduced demand, processing delays, and loss of consumers, suppliers or sellers.

• Seasonality of its business affects its quarterly results and places an increased strain on its operations.

• One of the Promoters, Falguni Nayar Family Trust, has pledged certain of its equity shares in favor of a systemically important NBFC, Infina Finance Private Limited. Any exercise of such pledge by the lender or enforcement of such pledge could dilute the shareholding of the Promoters, which may adversely affect its business and future prospects.