Tag: nykaa ipo

Rs 45,000 crore IPOs set to fuel India Inc’s capex plans, BFSI News, ET BFSI

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The huge fundraise by companies and start-ups through initial public offerings is set to drive the capex engine of India Inc. With abundant liquidity and a rise in stock market fortunes, companies are rushing to raise money via the primary route.

At the forefront of the fundraising are start-ups, which are flocking the stock markets with astronomical valuations, though many such as Zomato are yet to turn a profit. Investors are eager to buy into these IPOs, banking on growth opportunities that digital reach has afforded to these nascent companies.

The startups being listed are joining the broader India Inc, which is on cusp of a burgeoning investment capex cycle as several indicators show.

While a chunk of the IPO money is going as returns to early investors who had bet on the potential of these companies, such as Ant Financial and Softbank offloading stakes through offer for sale in the Paytm IPO, huge capital is being available for further growth initiatives.

IPO rush

At least 30 companies are looking to collectively raise over Rs 45,000 crore through IPOs during October-November. Of the total fundraising, a large chunk would be garnered by technology-driven companies, including FinTechs.

The firms that are expected to raise funds through their IPOs during October-November include Policybazaar (Rs 5,710 crore), Emcure Pharmaceuticals (Rs 4,500 crore) Nykaa (Rs 4,000 crore), CMS Info Systems (Rs 2,000 crore), MobiKwik Systems (Rs 1,900 crore). In addition, Northern Arc Capital (Rs 1,800 crore), Ixigo (Rs 1,600 crore), Sapphire Foods (Rs 1,500 crore), Fincare Small Finance Bank (Rs 1,330 crore), Sterlite Power (Rs 1,250 crore) RateGain Travel Technologies (Rs 1,200 crore) and Supriya Lifescience (Rs 1,200 crore) may float their IPOs during the period under review.~

Fund deployment

While Nykaa has said that it will use the IPO proceeds to set up new retail stores, fund capital spending and repay debts, PolicyBazaar plans to use Rs 1,600 crore of the proceeds to enhance visibility and awareness of its brands including Policybazaar and Paisabazaar, Rs 375 crore will be used for new opportunities to expand growth initiatives to increase its consumer base including offline presence, Rs 600 crore for funding strategic investments and acquisitions and Rs 375 crore for expanding its presence outside India. Keventer Agro will use the proceeds of Rs 155 crore will be used to repay debt and Rs 110.76 crore will be used for funding capital expenditure requirements. Start-up fundraising

The funds raised by Indian unlisted startups have crossed the $10 billion mark spread across 347 deals, according to PwC India. This was twice the amount of funding received in Q3CY20 and was up about 41% over the second-quarter figure.

The increase in funding activity was noted across all sectors, both by value and volume.

Fintech, Edtech and SaaS were the top three hot investment sectors in CY21, together accounting for about 47 per cent of the total funding activity. The fintech sector saw a four-fold increase in funds raised in the first three-quarters of CY21, over the first three-quarters of CY20. Six fintech companies reached unicorn status.

Editors View is a weekly column written by Amol Dethe, Editor, ETCFO. Click here to read his previous columns.



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IPO financing costs double as 5 IPOs set to hit market, raise Rs 31,000 crore, BFSI News, ET BFSI

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After the Reserve Bank of India capped the borrowing from NBFCs for IPO subscription to Rs 1 crore per borrower, investors have been hit by doubling interest rates in the last two months.

Funding rates have shot up as many large-sized IPOs are scheduled within a short span of time. Interest rates have risen to 12-13 per cent in the last two months as liquidity has tightened in the system. Liquidity is further seen going down in the next couple of weeks and funding rates may rise further. With five IPOs scheduled to hit the market by November 3 and aiming to raise Rs 31,000 crore, the demand for funds is bound to go up amid a liquidity crunch.

Five IPOs

Five companies are looking to mop up over Rs 31,000 crore cumulatively between October 28 and November 10. Industry players expect Nykaa to be the biggest draw. Its IPO is expected to generate bids between Rs 80,000 crore and Rs 90,000 crore in the HNI category.

NBFCs issue seven-day commercial papers (CPs) to meet this funding requirement. The CPs are issued at 5.5 to 6.5 per cent. Industry players said the huge borrowing requirement had also led to a 100-200 basis points increase in CP rates.

Bajaj Finance, Kotak Securities, IIFL, JM Financial, and Motilal Oswal are among NBFCs that are looking to borrow or have borrowed from the CP market to lend to HNIs to apply for IPOs of Nykaa and others.

Rising costs

With the increase in funding rates, the cost per share has gone up drastically for wealthy investors.

For instance, at 7% for seven days, the cost for one share of Nykaa comes at around Rs 151 for 100 times HNI portion subscription. At 11%, the cost will go up

to Rs 237 per share, and at 13%, it will be Rs 280 per share. This means investors will make money only if the Nykaa lists with a premium of more than Rs 280 per share if one borrows at 13%.

The IPOs of Nykaa and PB Fintech are currently traded at a grey market premium of Rs 670 and Rs 220 apiece, respectively.

Raising funds

While the Nykaa IPO will hit the market on Thursday to raise Rs 5,352 crore, the PB Fintech IPO will open for subscription on Monday, November 1, to raise

Rs 5,710 crore. There is demand for nearly Rs 1 lakh crore from high-net worth investors for these two IPOs against the availability of Rs 50,000-60,000 crore at one time

NBFCs are readying a war chest of close to Rs 2 lakh crore to lend to high net worth individuals (HNIs) for their IPO bets.



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Post-IPO, Nykaa founder Falguni Nayar will remain in the saddle, BFSI News, ET BFSI

Personal Finance

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Omnichannel beauty retailer Nykaa will not only be the first woman-led Indian unicorn to launch an Initial Public Offering (IPO), but Falguni Nayar, its founder and CEO, is also expected to have strong control over the company compared to founders of other startups such as Paytm, PolicyBazaar, Zomato, Mobikwik and CarTrade.

Including Nykaa, six Indian startups have filed their draft prospectus with markets regulator, the Securities and Exchange Board of India (Sebi). Food delivery app Zomato has already made a stellar stock market debut.

Falguni, a banker-turned-entrepreneur, will have – as a promoter of the company – the right to nominate up to “50% of the number of directors on the board as well as nominate at least one such nominee director as member on each statutory or other committee constituted by the board…,” according to the IPO draft papers.

The option of exercising such rights comes at a time when most startup entrepreneurs are often left with less than 10% stake in their ventures by the time they list publicly.

This will be valid as long as Nykaa’s promoters hold more than 25% in the company.

As long as Falguni Nayar, husband Sanjay Nayar – the chairman of private equity major KKR India, the Nayar Family Trust and Sanjay Nayar Family Trust continue to be classified as promoters, they can nominate up to one-third of the board of directors as well as nominate at least one such nominee director as a member on a committee constituted by the board.

Falguni, Sanjay and their children own over 53% stake in Nykaa parent FSN E-commerce Ventures.

Nayar, a source told ET, will retain majority control even after the IPO.

The company will continue to be an inventory-led ecommerce platform as well. Foreign-owned ecommerce platforms are not allowed to have inventory models in the country and have to operate as a marketplace, like Walmart-owned Flipkart and Amazon India.

Further, Nykaa’s promoters will have the right of first refusal when a shareholder with less than 3% stake sells shares.

These rights are an outcome of the majority shareholding Nayar and her family hold as promoters.

“For a majority stakeholder, these broad rights can be accorded as per the laws. However, she is the only founder among the top-tier founders to have such a stake in the firm going into the IPO,” a senior industry executive who has worked with startups on IPO regulations said.

“In addition to the above, Sanjay Nayar and Falguni Nayar, as long as each of them is a director, is not liable to retire by rotation for as long as their total number does not exceed one-third of the total number of directors, excluding independent directors, or such other limit as may be permitted under applicable law,” the draft prospectus added.

Revival in sales
Meanwhile, Nykaa has made a full sales recovery to pre-Covid-19 second wave levels at the end of last month, a person aware of the matter said.

The overall impact on monthly sales was relatively less during the second wave compared to the first.

Last year, Nayar had told ET that being an omni-channel retailer helped it during the Covid-19 outbreak even as online sales recovered faster. She told ET that 85%-90% of its customers were registered in Nykaa database and that it was able to cater to them through hyperlocal, and in some cases by taking orders over the phone as well.

“By the end of last month, sales were back to pre-second wave levels. Overall, the expectation is that this year would be another good year for growth,” the person said.

Nykaa sells several third-party beauty and personal care brands but is also building its own set of private labels across categories.

Its fashion business is now about 20% of overall sales, sources aware of the matter said.

For now, Nykaa’s in-house labels are relatively a smaller vertical.

“Nykaa is seeing recovery across the board but there is a sharp rebound in tier 2 and tier 3 cities. Non-metros seem to be less impacted in terms of consumption for Nykaa users,” this person added.

In the DRHP, Nykaa said sales from tier 2 and tier 3 cities contributed 64% in FY21 compared to 59% in FY20.

It has also cited current draft ecommerce proposals as a risk-factor as the proposals could impact its operations.

Nykaa clocked total revenue of Rs 2,452.6 crore in FY21 compared to Rs 1,777.8 crore in FY20, a growth of 38%.

Its net profit stood at Rs 61.96 crore in FY21 compared to a net loss of Rs 16.34 crore in FY20.

Its gross merchandise value jumped by over 50% to almost Rs 4,046 crore in FY21.



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New-age IPOs: All those 3-letter words decoded

Personal Finance

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An interesting feature of the IPO rush this time around is the number of consumer focussed tech-driven start-ups that are lining up for going public. While Indian IPO investors have tasted Zomato, public issues of Mobikwik, Paytm, Nykaa, Policybazaar, Ixigo, Delhivery, Flipkart etc. are said to be in the pipeline. While reading offer documents of IPOs, you will come across terms such as GMV, AOV, cash burn, MAU, DAU, CAC, churn etc. As many of these new-fangled IPO-bound firms are yet to make profit, operational metrics are focussed upon. Learning these new terms becomes central to understanding the business model, prospects and multi-billion dollar valuations.

Volume measures

Volumes and transaction size are among the most important dynamics in marketplace businesses. GMV or Gross Merchandise Value is a popular metric used. GMV is the total transaction volume of merchandise transacted through the marketplace in a specific period. GMV can include taxes, fees and services, and gross of all discount. Often the most recent month or the recent quarter’s GMV is annualised. In case of Paytm, FY21 GMV is Rs 4 lakh crore.

GMV is a useful measure of the size of the marketplace. For instance, during Covid-ravaged festival season of October-November 2020, Flipkart and Amazon led the $8.3 billion festive GMV pie, indicating their massive size.

Actual revenues are only a portion of GMVs, for instance, Mobikwik’s FY21 GMV was about ₹15,000 crore but revenue from operations is ₹290 crore. Revenue consists of the various fees charged by such a company. In case of Paytm, the revenue from operations is around Rs 2,800 crore, less than 1 per cent of reported GMV. GMV is also referred to Gross Transaction Value, or GTV.

The ticket size in a business matters. Tech-driven start-ups work on volumes. Each time someone places an order, the company gets a certain sum. So, if the company can do an order by spending ₹200 and make ₹210 via fees, then it has positive unit economics.

To understand positive unit economics, you have to look at a metric called Average Order Value (AOV) which is calculated by dividing GMV by the number of orders during a given period. The higher the AOV, the better the chance of breaking-even and clearer is the path to profitability, provided the take rate is not reduced. Take rate is the percentage fee charged by a marketplace on a transaction.

Burn, churn

Cash burn for IPO-bound start-ups is an important metric. Loss-making companies fail when they run out of cash and don’t have enough time left to raise funds. Cash burn is computed by subtracting cash balance at the beginning of the year from cash balance at the end of the year. Start-ups are known to burn high cash amounts by chasing growth. When Google was burning cash in 1999-2001, money was going into building high-tech Internet products. Ditto for Facebook and Amazon in respective periods. However, many Indian start-ups burn cash to sustain businesses. And, now they are getting listed. Hence, investors must be able to identify whether the fund-raise is aimed to just meet expenses..

Once a company with high cash burn is listed on the bourses, it would have to raise money by diluting equity or get merged/acquired by a bigger business. This can impact public shareholders. When they are unlisted, firms can tap venture capital funds etc. to get cash and consequently get valued higher in each funding round to get more cash. But, this is why founders of some hyper-growth firms end up with very small equity ownership. But when they are listed, long periods of cash burn can push the company towards insolvency.

Rhyming with burn, is another important metric called churn. Businesses are successful when they do repeat business. The churn rate is the percentage of existing customers who stop doing business with an organisation over a specific time period. Successful software companies report annual churn rates less than 5-7 per cent. Check for high churn rates in companies.

High churn rates are not good, neither are higher CAC (Customer/Consumer Acquisition Cost). CAC is the cost of winning a customer to purchase a product/service and is expressed in per user terms. For instance, Mobikwik’s new registered user CAC was just ₹11.51 in FY21. Some firms such as Paytm have brought different verticals under one umbrella to lower CAC. Do note that ed-tech firms such as Byju’s may have much higher CAC, which they partially recover when customer buys a course.

Since product and engagement metrics are important for new tech-enabled start-ups, user count is very important. IPO-bound companies will like to wow investors with user engagement and growth. But the focus should be on active users, or even better, monetisable users. For example, Paytm uses a metric called MTU (monthly transacting users), which is defined as unique users with at least one successful transaction in a particular calendar month.

Users are counted as monthly active users (MAU) or daily active users (DAU). Facebook, for instance, defines a daily active user as a registered and logged-in Facebook user who visited Facebook through its website or a mobile device, or used Messenger application, on a given day. Twitter uses Monetisable Daily Active Usage or Users (mDAU) as those who logged in or were otherwise authenticated and accessed Twitter on any given day through twitter.com or Twitter applications that are able to show ads.



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IPO boom prompts ICICI Bank to hire more investment bankers, BFSI News, ET BFSI

Banking & Finance

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By Baiju Kalesh

India’s second largest private lender ICICI Bank Ltd. is making its biggest hiring push in investment banking and institutional equities in four years, as it anticipates a rise in companies going public.

The Mumbai-based firm plans to add five mid-to-senior level hires in each of the two units, which currently have 130 bankers in total, according to Ajay Saraf, head of investment banking and institutional equities at ICICI Securities Ltd. The new roles will be concentrated in sectors such as technology and health care, he said.

“We have not hired these kinds of numbers since 2017,” Saraf said in a phone interview last week. “We see investor interest disproportionately higher for these sectors in the next 12 months.”

India is joining the global share sale frenzy thanks to ample liquidity in the market with foreign investors and even retail buyers looking for new ideas to invest in. The booming local tech scene, which earlier in April minted six unicorns in a single week, is also expanding the initial public offering pipeline for bankers.

So far in 2021, nearly $3 billion has been raised through IPOs in India, the best start to the year since 2018, according to data compiled by Bloomberg. It could even surpass 2020’s $4.6 billion haul as companies such as Zomato Pvt., Policybazaar and Nykaa E-Retail Pvt. are set to go public in Mumbai as as soon as this year, Bloomberg News has reported.

ICICI Securities ranks first for equity offerings in India so far in 2021, according to the Bloomberg league table, a leap from 2020 when it finished 10th.

Saraf expects there to be more deals to go around as high-quality firms come to market in the next three to six months.

“The deal activity on the primary market will be stronger than 2021,” he said. “The number of transactions will be widespread but the rise in volume will depend on the issuers’ decisions on the size.”

The banker doesn’t see those listings taking the form of special purpose acquisition companies. Investors have flooded into SPACs, vehicles that raise money from public listings in order to merge with private companies, and Indian targets are not immune to the frenzy. The country’s biggest renewable power producer ReNew Power agreed to merge with a U.S. SPAC in February, giving it an $8 billion enterprise value, and some bankers in India predict more blank-check firm deals to come.

Saraf is skeptical of a sharp rise in SPAC activity in the country. “What you need for a SPAC is the size, and path to profitability,” he said. “Not many companies pass that muster in India.”



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