Nykaa’s ambitious future plans: expansion, acquisitions, and more
fool: Considered one of Dalal Street’s poster IPOs, 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 stock gain traction in the future?
Nykaa’s Industry Outlook
In the context of a recent market study, the Indian beauty industry size was approximately USD 14.9 billion in 2021 and is expected to grow to USD 28.9 billion by the end of 2028. According to another report from Research & Markets, the Indian Beauty & Beauty Industry Personal Care Market is expected to be close to USD 27 Billion by 2029, with the growth forecast at a CAGR of 6.29%.
India’s fashion industry is also expected to grow at a CAGR of 10.65%, reaching $24.35 billion in 2029 from $14.68 billion in 2024. Social media penetration and Bollywood’s growing influence on youth will further accelerate growth.
Nykaa Company Overview
jerk off It is an e-commerce company with over 2000 employees and is headquartered in Mumbai, India. The company engages in selling wellness, beauty and fashion products through its website, mobile applications and more than 100 offline stores.
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This not only allows the company to sell its own products, but Nykaa also offers products from over 2000 brands from around the world. It is the first Indian unicorn startup led by a woman, Falguni Nayar.
expansion
Nykaa began its development mission in 2015 when it transitioned from online-only to online-only. omnichannel I created a 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 launched a premium membership program called Nykaa PRO, giving customers access to selected premium products at deeply discounted prices.
Nykaa also introduced ‘Nykaa Man’ in 2020, becoming a pioneer in the multi-brand e-commerce market for men’s grooming items. He also entered the fashion industry through the clothing brand ‘Nykaa Design Studio’.
take over
Nykaa has also made a series of acquisitions, such as “20Dresses.com,” a personal women’s styling platform, in 2019. Indian fashion jewelry brand “Pipa Bella”, 2021 skincare brand “Dot & Key”. Finally, in 2022, Nykaa acquired 18.51. 10% stake in Indian skincare brand ‘Earth Rhythm’.
Nykaa’s Brands and Collaborations
All of Nykaa’s brands can be classified into two groups, mainly consisting of Nykaa brand house Nykaa Naturals, Nykaa Cosmetics, Kay beauty, and the second group is Nykaa fashion, including Nykd by Nykaa, 20 Dresses, RSVP, Mondano, Rika, and Pippa Bella. . Apart from this, the company has also tied up with Masaba Gupta to create a separate premium clothing line called “Masaba by Nykaa”.
IPO failure
Nykaa has also faced the heat of extreme valuations like other Indian unicorns like Paytm, PolicyBazaar and Zomato. Nykaa’s stock price went from ₹430 to ₹115 in just one year after listing. You get a 90% listing profit. This once again proves the old adage: Don’t chase the euphoria of the basics.
corporate governance
In November 2022, Nykaa issued 5:1 bonus shares to coincide with the expiration of its pre-IPO shareholder lock-in period, which led to the company receiving heavy criticism, with some questioning the ulterior motives of management, with concerns over the company’s performance. manipulation and tax avoidance.
After that, CFO Arvind Agarwal resigned and there was an investigation by the Stock Exchange of India, but nothing was proven.
Competitors
The beauty industry has grown steadily over the past 20 years. However, in recent years it has experienced a boom due to the penetration of the internet, social media, and celebrity cult status. This has left the market so saturated that new entrants like Sugar Cosmetics, MamaEarth, Tira by Reliance and Tata CliQ by Tata Group are aiming to capitalize on the growing demand for fashion and beauty products with decent margins.
All of these companies are aiming to enter the luxury goods market by targeting urban elites. Apart from this, there are well-established companies like Hindustan Unilever and L’oreal that are giving tough competition to these new companies and brands.
Apart from this, the fashion sector is filled with companies like Aditya Birla Fashion Retail that has premium brands like Allen Solly, Van Heusen, Louis Phillipe, and Peter England. Additionally, Reliance Trends’ Reliance and Zudio and WestSide’s Tata are also giving stiff competition to Nykaa’s own brands.
Nykaa’s Financial Highlights
The company’s revenue has grown exponentially over the years, quadrupling to ₹6,386Cr. From ₹1,768Cr in the same quarter of 2020 to March 2024. This can be attributed to factors such as store expansions and acquisitions, while other key factors such as net income and earnings per share have remained stagnant over the years.
Nykaa is also struggling to improve its operating margins as it spends heavily on marketing campaigns and brand promotions. In addition to this, several companies have recently emerged in the beauty and fashion industries, further compressing profit margins.
Interesting key financial aspects
What’s interesting is that while Nykaa’s profits have grown, depreciation expenses have been growing at a similar rate to corporate profits.
According to company executives, this is due to amortization of capital expenditures incurred between 2021 and 2023, when the company was at the peak of its expansion. According to management, it was the highest level of expansion.
Nykaa’s future plans
Nykaa plans to expand its physical store presence by opening several stores under its brands, such as Nykaa Luxe. Apart from this, the company plans to launch Nykaa kiosks in shopping malls across metros and tier 2 cities.
We are also planning to open a store within the store that can provide customers with a higher brand experience and experience zone. In addition, we are also planning educational beauty events to raise awareness about the use of various products and increase category penetration.
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SWOT analysis
driver: The fast-growing fashion and beauty & care products market, expected to reach approximately $30 billion by the end of 2029, will be a key factor supporting Nykaa’s future growth. Nykaa is already gaining traction in the market and is outperforming similarly sized competitors such as Sugar Cosmetics and MamaEarth. This is the result of aggressive marketing efforts and an extensive retail and online presence.
Additionally, Nykaa has partnered with several global brands like Dior, Anomaly, Ralph Lauren, Armani, etc. to offer their products on its platform, which gives it an edge over competitors like MamaEarth, Sugar Cosmetics, Tira, and Tata CliQ.
Restrictions: However, the hurdle in front of Nykaa seems to come in the form of deep-pocketed industrial giants like Tira by Reliance and Tata CliQ by Tata launching big brands in the beauty and personal care segment. Besides, Aditya Birla Fashion, a giant in the Indian fashion industry, poses a significant challenge to Nykaa’s fashion division. Additionally, as awareness of the use of cosmetics Chemicals in certain populations can also act as a major barrier.
Nykaa’s Key Indicators
Nykaa’s price target
Jeffries: The target stock price was set at 220 won and the investment opinion was ‘buy’. Jefferies believes that value-conscious customers will continue to choose Nykaa for its high-quality products.
JM Financial: We also give Nykaa a ‘buy’ rating at a price of ₹165-168 with an upside target of ₹220 as it can maintain its market share even after increased competition.
Nuva: The brokerage gave the stock a ‘buy’ rating with an entry price of ₹165 and a target of ₹189.
ICICI Securities: We assign a Hold rating because we believe the company has the potential to outperform its competitors due to improving financials.
conclusion
Ultimately, it will be interesting to see how Nykaa’s narrative unfolds in the Indian fashion and beauty sector. Can Nykaa make a name for itself in the market and pose a real threat to larger companies? Moreover, the question of whether or not it will become a multibagger in the future will become clearer as time goes by.
Written by Deepangshu Kundu
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