Prabhudas Lilladher IPO report on FSN E-Commerce Ventures
We recommend Subscribe Rating to IPO of FSN E-Commerce Ventures which operates Nykaa, India’s largest Omni channel play across Beauty and Fashion segments. Nykaa has revolutionized the art of online retailing of BPC products in India. Nykaa has been able to create strong consumer following and 70% repeat purchase led by 1) Inventory led BPC Model which ensures authenticity and guarantee of quality 2) wide product range offered by Nykaa as against low fill rates, stock outs and limited assortment in physical stores 3) 2mn SKU’s, 3826 brands and availability in 24817 pin codes 4) consumer education through 1363 influencers, ~39500 Facebook posts (12.6mn followers) and 1.1mn You tube subscribers 5) Ability to bring global brands like Estee lauder, Huda Beauty, Charlotte Tilbury etc. to Indian consumers 6) private labels like Nykaa Beauty, Nykaa Naturals, Kay Beauty. We believe Nykaa’s entry into fashion segment holds promise with focus on 1) premium customers 2) curated and managed marketplace offering over 1.8 million SKUs 3) private labels like NYKD, Pippa Bella, 20 dresses and 4) industry leading AOV of Rs 3977 and ~25% contribution to GMV in 5MFY22.
Valuation and Outlook
Although we expect lower margins in FY22 (lower ad spend in FY21), we expect steady margin expansion led by scale economies as it has already expanded margins from 1.8% to 6.6% over FY19-21 making it one of the few Ecom players to turn profitable. We believe Nykaa can sustain a CAGR of ~35% in sales, 50% in EBIDTA over coming few years with double digit margins. We believe IPO at 12.6xEV/GMV on FY21 sales and ~4.7xEV/GMV on FY24 sales offers long term value. We assign subscribe rating to the IPO.
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