Beauty shop IPO makes Indian tech listings blush

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An artist gets her makeup done before taking part in a religious procession ahead of the Mahashivratri festival in Jammu February 26, 2014. Hindus across the country celebrate Mahashivratri, better known as Lord Shiva's wedding anniversary. REUTERS/Mukesh Gupta (INDIAN-ADMINISTERED KASHMIR - Tags: RELIGION SOCIETY) - GM1EA2Q1FC901

MUMBAI, Aug 9 (Reuters Breakingviews) - Nykaa is adding a shimmer to Indian tech listings. Former investment banker Falguni Nayar’s mostly online beauty store is growing fast by selling lipstick, epilators and sneakers to a loyal band of millennials in far-flung cities where it can often be tricky to find good products. The company ekes out a profit too. That stands it apart from money-losing compatriots Zomato (ZOMT.NS), Paytm, and PolicyBazaar, which are all racing to debut in a red-hot market. And it makes Nykaa’s mooted up to $4.5 billion valuation for its initial public offering look less dolled up.

The nearly decade-old firm houses close to 4,000 brands from domestic luxury names Forest Essentials to high-end foreign ones like Bobbi Brown. It processed 19.5 million orders in the year to the end of March, with a respectable average order value of $37 in fashion. Users flock to the site to learn about the latest beauty trends, and a network of over 1,300 influencers helps it to drive sales. It’s playing in a $70 billion addressable market that will more than double in size within about three years, consultancy RedSeer estimates.

As an Indian-controlled entity, Nykaa can hold its own inventory of beauty and personal-care products, rather than having to depend on sellers on its platform stocking them. That offers a cost and efficiency advantage over the marketplace structure of foreign-funded rivals like Walmart’s (WMT.N) Flipkart or Amazon (AMZN.O) that it’s increasingly competing against. It also connects buyers and sellers for its fashion business. There's an offline presence too, with 73 stores across 38 cities. And it caters to customers at different price points, offering distinct pages and packaging for higher-end goods. That’s popular: Returning customers account for 70% of its gross merchandise value.

At its mooted valuation, the company 54%-owned by Nayar and her related entities would trade on 10 times sales, or more than twice the multiple of both Alibaba (9988.HK) challenger Pinduoduo (PDD.O) and Yatsen (YSG.N), a Chinese cosmetics maker and online retailer that went public last year. That assumes its top line grows some 38% in the current financial year, the same rate as during the first year of the pandemic, when new users, sellers, suppliers and advertisers turned to the platform, helping it to end the year in the black. If it can maintain its profitability, it stands to come first in India’s tech beauty parade.

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CONTEXT NEWS

- Indian online beauty retailer FSN E-Commerce Ventures, better known as Nykaa, filed on Aug. 3 for an initial public offering.

- The company is planning to offer shares worth up to $500 million, according to a person familiar with the situation.

- Founder Falguni Nayar and entities related to her family control 54% of the company. Other investors include TPG Growth.

- Proceeds will go towards setting up retail stores, warehouses, marketing and general corporate purposes, among other things.

- Kotak Investment Banking and Morgan Stanley are acting as global co-ordinators and book running lead managers.

Editing by Antony Currie and Katrina Hamlin

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