Nykaa is currently running influencer-led live shopping events as part of its ‘Pink Friday Sale’, an annual sale event that is likely a spin on the Black Friday sales phenomenon.
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Interview from 2019 mentioning growth projections upwards of 40% in next few years. From valuation of just 5000Cr to now 1lakh plus Cr. The rerating is quite impressive and it looks mostly because of fashion segment entry.
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Re-rating has happened because of thrust of digital in last couple years and also as shares come to retail investors, they don’t have option to negotiate in valuations…of course market forces do decide but then if there are not enough people to part from the story and new ones cannot negotiate, neither the company has trouble raising cash…such absurd re-rating happens…sadly no choice.
Disc. Tracking position, no buy/sell recommendation
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Limited supply and unlimited demand due to extremely positive story setup, it may very well turn out to be true or may not be the case, in which case the valuation will reflect the new story. As Aswath Damodaran says valuation is “Numbers+Narrative” 
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To give due credit to Nykaa also…this story is not just narratives but backed by proper strategy and execution as well…
having said above the rerating as per one post above from 5000cr to 1lakh cr plus mcap in just 2 years is really absurd and disappointing for me as a retail investor.
While I do not doubt on the execution or the narrative, but I am not happy with this rerating as all of this happened before we could have even laid hands on this story (narrative was similar 2 years back also)…
But like I said above, do I have an option, No…will I get better option, not sure…will narrative change for worse…not likely…
Disc: Same as above
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I am not trying to justify the valuation here. Market values the companies based on future projections. I will try to list few growth drivers for Nykaa.
Growth Drivers
a. Venturing into Market place
b. Venturing into Men’s segment
c. Come with more private labels
Few Risks for Nykaa
a. If the management fails to execute and deliver the high sales growth rate
b. Govt regulations to not sale own brands on their own platforms
Strategies which I can see used by Management
a. To utilize Social Media influencers to sell more and more products
b. To cross sale fashion products to their existing BPC customers
c. Not to encourage discount based model to garner market share and focusing on providing quality products at good rates
d. Introduce new international brands and scale the business for those brands. Those international brands face challenge when it comes to sell in Indian market if they want to go solo and partnering with Nykaa it gives them that coverage (e.g. Huda Beauty)
e. Allow the customer to experience the product through its physical store which other players are not focusing on
f. Using technology like AI-ML to give recommendations to the consumers to enhance experience and increase the basket
As I said valuation is a debatable topic and it may change considering the growth projections. As mentioned by you if Nykaa would have listed few years back we could have participated in that growth rally but unfortunately that is not an option right now. It will totally depend on the investors appetite to invest in a high PE stock.
Disc: Invested with a tracking position. Future investment will depend on the growth this company shows.
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One small addition, the moment it had come to retailers…even if 2 years back…the valuations would have skyrocketed from IPO itself…
So retailers can at best participate only in compounding and not massive re-rating as that goes to high value individuals who invest before IPO…
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While talking about valuations, I see that many people are questioning Management for asking for such high valuations in IPO. In reality, the current market price shows that Management had left too much on table for everyone including retails investors. The situation is exactly opposite of what happened in Paytm.
Even if market drops and Nykaa goes 60% down from here (no Analyst is batting for that until now), it will still be at price that Promoters offered company at. So while valuation may be different depending on one’s understanding, we should not vilify the management.
In fact, if you look at promoter’s actions until now e.g. still retaining almost all their equity in company, it shows that the they still see the upside from here. In fact, that seems to be one of the driving reason behind curent share price.
Of course, mgmt may fail to deliver and share price may come down. But to think that investors are being short-changed by mgmt, especially the retail one, is a bit stretched argument to make.
Disc: Tracking
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I don’t think anyone is questioning intent of management etc. Or of anyone’s… infact management here is top notch…it’s just the simple fact that retail investors are the last to enter in these new age digital parties…and hence miss out on massive re-ratings but can very well enjoy compounding
Disc. Above and all earlier views only for academic purposes. I can be completely wrong in all my assessments
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Anybody who.has been affected by dot com bubble please comment here.
One of my uncle who invested at dot com bubble time and escaped infy and other IT companies in dot com bubble crash by doing one simple thing. He used to check book value and decided not to invest in them. Later on as infy, tcs developed more book value, he invested but after dot com bubble. He is still concerned about low book value of nykaa and policybazaar.and such recent ipos.
This article says pe was 311 to infy before dot com crash.
Disc: not invested, just my 2 words
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Essentially this is a backward looking exercise right? What your uncle implies is that he’ll wait for profits to come through, which will increase book value, and once that gives him the confidence that this is a sustainable business model he will go in and invest.
Insiders have been on a selling spree. Guess makes sense to book some profits after bumper listing.
Disc:- Tracking
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Can hot stock Nykaa still deliver strong returns? Yes, says HSBC
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https://etapp.onelink.me/tOvY/135dde21
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JM Financial initiates coverage on Nykaa with ‘buy’, expects addressable market to double in 5 years
Full report of JM Financial on Nykaa!
5_6201938419011029027.pdf (2.5 MB)
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As Nykaa grows, Sanjay has a few words of advice. “It’s very critical to have a sustainable growth profile built around an empowered team culture, solid governance and a focus on sustainability. That’s been the Nykaa culture and the idea is to embed it even deeper.”
The High P/E ratio is a concern for a few:
Jigar Shah, CEO, Kim Eng Securities India, concurs. “After two-three years, people will want to see profits. You cannot permanently have a high P/E [price-toearnings] ratio. There will have to be reasonable profits to justify the market valuation.”
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