Nykaa’s IPO: What is Nykaa doing right?
Startup
Nykaa, a relatively late entrant into the Indian e-commerce market, has successfully monopolized the Beauty Retail segment. With over 1.5K brands, 130K products and 1.5 Mn monthly orders, this beauty retailer is all set for an IPO, a first by an online beauty marketplace in India.
Nykaa had posted annual profits since FY19 when it recorded a revenue of ~$155 million and a profit of ~$0.2 million. It achieved steep revenue growth of 60% in FY20 to ~$249 million and is estimated to hit the $334 million mark in FY21.
IPO mythbuster: Can any company do an IPO?
No, according to SEBI's Entry Norm 1, a firm is allowed to list its shares on the stock exchanges only if it has a track record of profits for at least three preceding years.
While several other Indian Unicorns are looking at IPOs, Nykaa, who had turned profitable since FY19, seems to be the only one amongst them that meets Entry Norm 1's eligibility criteria.
The IPO strategy
What's interesting to see now is how Falguni, a former banker who has helped several companies price their IPOs, wins this pricing game.
A preview of her strategy can be seen in the stark increase of the proposed valuation from $3 billion to $4.5 billion over six months. A stellar 150% higher than its current valuation of $1.8 billion. As the sudden digitization has made the market lean towards e-commerce startups, one can only wonder what the value will be by the time the stock hits the Street.
Burn cash, grow revenue and pray for an exit - Indian e-commerce mantra
The Indian e-commerce industry is infamous for ginormous overheads and heavy cash burns. Despite the multiple rounds of funding, it takes painstaking efforts and countless years for the companies to turn a profit. Now the interesting question here is what exactly did Nykaa do to achieve sustainable profits not once but for 3 consecutive years since FY19.
What did Nykaa do right?
Very few have been able to achieve the balance between partner relationships and customer loyalty.
Nykaa's policy against forceful platform discounts assures the brands that they have found a perfect strategic partner while weeding out the masses to find Nykaa's "true customers". Most schemes and promotions on the platform are curated to align with the brands' strategy and are funded by the brands themselves.
Moreover, their high-cost inventory model, assures that the customers never have to suffer on quality when ordering from Nykaa and therefore it enjoys high-profit margins. Nykaa's unique strategies and their strong unit economics have led to their gross margins doubling over the last five years, from 21% in FY15 to 41% in FY20, said the Jefferies report.
Expensive equity or cheap debt?
The one significant thing Falguni brought to the table was her knowledge of capital allocation and industry connections. With a finance wiz at the helm, Nykaa managed to build the unicorn with relatively lower equity funding but obtaining a significant line of credit from the banks and therefore operating at a high return on equity.
Moreover, while Nykaa’s customers pay it on Day 1, Nykaa pays its vendors anywhere between 30-60 days thereby making its customers fund its operations. This is the reason why Nayar and family own more than half (56%) of this unicorn even after having raised USD 342 million.
Challenges: Still a long way to go?
Despite the rosy picture and the current fortune, Nykaa still has a lot to prove.
With the sudden surge of digitization, Nykaa now faces tremendous competition from unorganized upcoming e-commerce players. Increased competition might force Nykaa to rethink its "no discount policy", making it difficult to sustain the current margins.
Additionally, Nykaa's plans of expanding its offline presence come with the challenge of a high CAPEX ($100K per store). Therefore, the stores break even only if they are positioned strategically to be able to attract optimal volumes of loyal customers.
The challenges posed in front of India's largest omnichannel beauty destination are dire. But Nykaa is sure to benefit from their current market position, the team's and shareholder's extensive experience, their vast network of global brand partners and millions of loyal customers.
Activist athletes: Patriotism ≠ Free speech?
Opinion
Athletes, for years now, have used international sports platforms to highlight important issues like racism and inequality. Every time this happens the world gets divided. Is using a platform where you represent your country the right place to talk about the issues in your country?
This question came up again last week when Athlete Gwen Berry decided to turn away from her national anthem.
Who is Gwen Berry?
On June 26, in the US Olympic trials in Eugene, Gwen Berry, a hammer thrower, won the third position, earning herself a place in the upcoming Tokyo Olympics.
Later, on the podium, she turned her back on the US flag while the national anthem played during a medal ceremony and placed her t-shirt, which read "Activist Athlete," over her head.
“It was a setup”
Berry was placed on probation for a year by the US Olympic and Paralympic Committee (USOPC) after she raised her fist on the podium at the Pan American Games in Lima, Peru in 2019. Hence, she believes that it was a setup to have her on the podium while the anthem played.
However, the USA Track and Field (USATF) said that the anthem was arranged to be played every day at the trials based on a predetermined schedule.
What is Berry’s reason for protest?
The US National Anthem makes her uncomfortable because of its history. Berry said, “History. If you know your history, you know the full song of the national anthem. The third paragraph speaks to slaves in America — our blood being slain all over the floor. It’s disrespectful and it does not speak for Black Americans.”
Rule against protest
Protests are banned by the International Olympic Committee (IOC), but the USOPC began permitting demonstrations during trials in 2021. The USOPC had also apologized to Berry last year for her 2019 probation before it changed its rules surrounding protests. So if the rule of USOPC allows Berry’s action, what is the problem?
Conservatives' backlash
Following her protest of the anthem, Berry drew backlash from a lot of Republican conservative voices. While US politicians, Ted Cruz and Tom Cotton, questioned her love for the country, Texas congressman Dan Crenshaw said that Berry should be removed from the team. The sentiment of the conservative leaders is that the USA does not need any “Activist Athletes”.
Throwback to the 1986 “Black Power Salute”
The story of activism by athletes on public forums is not new. During the 1968 Summer Olympics, two African-American athletes, Tommie Smith and John Carlos, raised black-gloved fists during the US national anthem to protest the living condition of the minorities. The world took notice and the event made its way into the history books.
The debate
From 1968 to date, a lot may have changed but the debate around activism by athletes during international events like Olympics remains.
On one hand, there are people who strongly believe that forums like these should allow for peaceful protests to draw international attention to the issues back in their home countries. On the other hand, there are people who believe that respect for one's country is strongly symbolised by how one treats the national anthem or the flag of their country.
Author’s opinion
Although symbols like the national flag and the national anthem play a huge role in bringing a country together by giving the people something common to identify themselves with, the very idea of free speech is under question if democracy does not allow for an opinion to be expressed peacefully.
Suppressing a voice that is raising concern and questioning a long-standing tradition, cannot be justified, not even in the name of patriotism.
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