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FSN E-Commerce Fashion Ventures, which operates online beauty, wellness and apparel platforms Nykaa and Nykaa Fashion, will open its initial public offering for subscription on October 28, while the bidding for fintech company Fino Payments Bank’s offer will start the next day. Experts largely prefer the IPO of the Nykaa operator over Fino Bank.
Among the reasons for opting for the Nykaa share sale, analysts cited a profitable entity in the ecommerce space, they listed it having a capital-efficient business model, good brand name recall, support from marquee investors, robust relationships with global brands, a loyal customer base, an omnichannel presence, a strong technology-led platform and an effective good management team.
In the case of Fino Payments Bank, it is the first such bank to get listed on the bourses, beating out Paytm. While this gives it a first-mover advantage, observers note that it is still a loss-making company even if revenue is showing consistent growth, which is why investors should pick Nykaa over Fino Payments Bank, they said.
Nykaa is backed by founder and CEO Falguni Nayar, formerly managing director of Kotak Mahindra Capital Company, and private equity firm TPG.
“Nykaa is one of the bright spots in the ecommerce landscape, having built a profitable and capital-efficient business model. Falguni is a great leader and having a banker at the helm has helped Nykaa to be fiscally prudent, demonstrated by the fact that only a small portion of the IPO is targeted at raising capital for the company while most of it is to give exits to investors,” said Sumir Verma, managing director at Merisis Advisors.
Also read – Nykaa IPO opens on October 28: 10 key things to know before subscribing to the issue
Public issue details
The Rs 5,351.92-crore IPO of FSN E-Commerce comprises a fresh issue of Rs 630 crore and an offer for sale (OFS) of Rs 4,721.92 crore by several selling shareholders including promoters and investors, at the upper end of the Rs 1,085-1,125-per-share price band. The issue will close on November 1.
Fino Payments Bank, which offers a diverse range of financial products and services, has fixed a price band of Rs 560-577 per share for its IPO that will close on November 2. The company plans to raise Rs 1,200 crore through the issue that comprises fresh issue of Rs 300 crore and an OFS of 1.56 crore equity shares by Fino PayTech.
Merisis Advisors’ Verma believes that 0ver the next few years will see dramatic growth in the fast-moving consumer goods personal care space and several new D2C (direct-to-consumer) brands will emerge to challenge the hegemony of larger players. “And Nykaa is uniquely positioned to become the backbone that will drive this change in the industry dynamics,” he added.
Grey market premium
Nykaa’s shares trading at a 60 percent premium in the grey market reflects investors’ strong to be part of the growth story of a sector that has seen unprecedented funding interest from venture capital companies, Verma feels.
Also read – At Rs 18,300 crore, India Inc’s Biggest IPO By Paytm May Launch Between November 8 to 10
Nykaa shares currently trade at Rs 1,795-1,805 each in the grey market, higher by Rs 670-680 or 60 percent over the upper price band of Rs 1,125 per share, IPO Watch and IPO Central data showed.
“Post the Zomato chapter, markets have behaved differently valuing businesses and Nykaa would be the next such fancy IPO to be tested in the market. Nykaa is likely to fetch a valuation of $7.1 billion in the initial offering and the company is well placed in super strong growth prospects but yet to showcase a sustainable profit track record to look good for the long term,” said Prashanth Tapse, vice-president, research, at Mehta Equities.
Also read – Sigachi Industries IPO opens from November 1, price band set at Rs 161-163 a share
Financials
Nykaa recorded a 38.10 percent growth year-on-year in revenue from operations at Rs 2,440.89 crore in FY21. It clocked a profit of Rs 61.95 crore for FY21 against a loss of Rs 16.34 crore the previous year. It generated Ebitda (earnings before interest, taxes, depreciation and amortisation) of Rs 161.43 crore and margins of 6.61 percent for FY21.
On the other hand, Fino Payments Bank posted a profit of Rs 20.5 crore in FY21 against a loss of Rs 32 crore in FY20, while income rose to Rs 791 crore from Rs 691.3 crore in the same period.
Incorporated in 2012, FSN E-Commerce is a digital native consumer technology platform, delivering a content-led, lifestyle retail experience. It has a diverse portfolio of beauty, personal care and fashion products, including its own brands.
Also read – SJS Enterprises IPO opens on November 1, price band at Rs 531-542 a share
The company runs the beauty and personal care segment through the Nykaa vertical. Its apparel and accessories vertical is operated through Nykaa Fashion. It also operates an offline channel, comprising 80 stores across 40 cities in India in three different store formats, as of August 2021.
Fino Payments Bank is primarily engaged in providing technology-based solutions and services related to financial inclusion. Its promoter Fino PayTech is backed by marquee investors including ICICI Bank, Intel Capital Corporation, International Finance Corporation, HAV3 Holdings (Mauritius), Blackstone GPV Capital Partners (Mauritius) VI-B FDI and Bharat Petroleum Corporation.
Valuations and ratios
Experts feel that on the basis of valuations and ratios, too, Nykaa is the preferred bet.
“Based on financial parameters, the valuations are highly stretched, making this an expensive offer, but considering the high growth industry opportunity and demand, investors can park funds for healthy listing gains,” said Tapse of Mehta Equities.
He added, “If we look at Fino Bank, it is in a hurry to launch its IPO before Paytm Payments Bank hits the street to gain market mood. This will be the first IPO of a payments bank while Paytm is expected to launch its IPO soon. Based on financial parameters, the valuations seem to be at peak levels, hence conservative investors can give a miss to this offer and wait for better pricing post listing.”
In both the IPOs, investors should note that retail allocation is only 10 percent of the issue size, which is due to some losses in the last three financial years, he added.
Likhita Chepa, senior research analyst at CapitaVia Global Research, feels the price-to-earnings or P/E ratio of Nykaa is nearly 27 times whereas Fino Payments Bank at the upper band of valuation is looking for P/E of nearly 220 times (earnings per share of Rs 2.62). “The ROE (return on equity) of Fino Bank is around 8.94 percent and for the past few years the bank has been in a loss. Nykaa managed to register a ROE of 13 percent for the year ended March 2021, which is higher than Fino Bank,” Chepa said.
“And in fact Nykaa is one of the first startups to actually post profits, therefore although Nykaa is trading at premium on the grey market, it seems to be reasonably valued,” Chepa added.
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