Nykaa - The Make Up Company

I find myself hung on this re-rating.
A sprint from 5000Cr to 1L Cr will cause some cool-off time. This will give us time to build conviction. we will have tracked the progress of the business over several quarters.

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Hi folks,

i went through the thread and loved the discussions on different metrics for valuation of such companies.
What do you think about nykaa after it came down till 10% of its issue price?
I feel if it comes below 1200₹ that would be a reasonable level to enter?


I believe the valuation of stock will be around 1050, so will wait for that. Recently booked profit for my ipo holding, will make an entry when it hits the right valuation.

Nykaa has changed the strategy of being on high growth without the profitability and with a compromise of bottom line towards sustainable bottom line with lower growth. With this revision the Marketcap it was commanding with high PE will take a beating.

I think the PE investors were demanding a high growth and now as it has been listed the market will try to measure it with profitability matrix.

Also, if you see the retail was only holding the majority shared and there were less Institutions as per the Dec 21 SHP.

Will need to see the story for next few quarters how the overall growth pans out.


Nykaa on February 22 said that it has settled a long pending litigation with L’Oreal S.A, which involved a legal fees of ₹2.87 million. In November 2019, L’Oréal S.A filed a civil suit in Delhi High Court alleging similarity in certain packaging leading to an alleged infringement of intellectual property rights and obtained a restraining order, which restrained Nykaa from using the packaging on its own brands.


I wonder are there any listed peers for comparison, especially in similar markets like china and brazil.

Farfetch, etsy to an extent?


Taobao and Douyin
taobao >> ali baba
Douyin >> tiktok

They have live streaming shopping too which nykaa is working on too.



Some calculations on incremental RoCE:

201803 201903 202003 202103
EBIT -30.29 -5.03 33.81 107.63
Capital Employed 204.64 541.03 734.72 822.63
RoCE -14.80 -0.93 4.60 13.08
Incremental RoCE 7.51 20.05 83.97
2 Yr Delta Incremental RoCE 12.09 40.01
3 Yr Delta Incremental RoCE 22.32

Disc- no holdings as of now


Analyst meet notes

1. Nykaa BPC - Anchit Nayar 
	a. 11.2% of the BPC GCV came from own brands in FY22
	b. 3mn Annual active users buy private labels out of the total 8.5mn users. 
	c. AOV remains high at Rs1900 versus Rs1450 in FY20
	d. Nykaa imports business
		i. We are one stop shop for marquee international brands in India
		ii. We are their brand satellite office - they don’t need to manage their operations 
		iii. We do pricing, distribution, GTM strategy 
		iv. This is a strong USP for several strong international brands
		v. Today we import 22 brands and this portfolio is growing at 70% YoY
		vi. Examples are Huda, Charlotte Tilbury. Elf cosmetics and many more
		vii. They have SIS pages on our apps
		viii. Why have they joined us?
			1) They can target 15mn beauty enthusiasts in India through us
			2) They get visibility on the app and in our stores and helps them scale fast 
	e. Nykaa is the largest beauty retail platform in India today 
		i. 13mn + social media followers
		ii. 5400+ influencers 
		iii. Watch and Buy feature on the app is industry leading in India - viewers can watch content and BUY
		iv.  Multiple TV campaigns this year which were very differentiated - has improved recall for us as per Kantar
		v. We have a substantial lead on recall metrics versus the number two player in BPC
		vi. Our secret is content which allows us to grow the market and drive adoption 
	f. Physical footprint of Nykaa stores
		i. 7% of GMV now from physical stores 
		ii. Presence in 49 cities with 105 retail stores 
		iii. 80% of stores are already EBITDA positive in FY22 overall (3QFY22 90% were in the green)
		iv. Several retailers today have BPC aisles to improve their margins; BPC is a high margin category 
		v. 16% two year SSSG basis two year CAGR (FY20-22). 
		vi. Organised BPC TAM growing at 25% and we can grow faster
		vii. Stores serve as marketing points and help trials - and older stores are already well profitable
		viii. Also help in out omni-channel strategy - can serve online orders from physical stores - helps manage inventory and reduces warehousing and logistics costs
		ix. Total area is 100k sq ft  
		x. We have 480 beauty advisers in the stores to help in assisted selling 
		xi. All stores have endless aisle features 
		xii. 70% stores in malls and 30% on high street
		xiii. 50% in tier 2/3 cities. Average size is 1000 sq ft. 
	g. Delivery capabilities 
		i. 98% of pincodes in India can be served by us (28,000 pin codes served) 
		ii. Average time to delivery in FY22 down to 2.4 days versus 5 days in 2016
		iii. This is a function of rising scale and adding more strategic warehouses 
		iv. Split shipment ratio has been declining 
		v. Share of air shipments is going down
		vi. Fulfillment expenses down from 11.4% of sales to 9.7% (1QFY22 to 4QFY22) 
		vii. These are all markers of improving logistics and delivery economics 
2.  Nykaa Fashion - Advaita Nayar 
	a. Forayed into fashion three years back given fashion TAM is 3-4x BPC TAM
	b. Online fashion TAM growing at 40%. Even if we get a 10% share of online fashion, will be huge for us 
	c. We 
		i. Don’t Excessively discount like others 
		ii. Focus on limited but well curated SKUs
		iii. Help brands become more visible versus other generic platforms 
	d. We differentiate by 
		i. Want to offer complete assortment - plug in via own brands where necessary 
		ii. Acquiring a strong customer base - which is more aspirational 
		iii. Build content and customer journeys to aid discovery (we pioneered this in BPC) 
	e. 415 brands in FY20 to now 1500 brands selling on Nykaa fashion 
	f. We have leading national and international categories. Also some niche ones.  
	g. We have 4.3mn SKUs versus 50k in FY20
	h. Women is 75%; men is 20%; also have kids and home categories 
	i. Premium and mass premium is our focus which is 70% of sales. 
	j. First year when started doing TV commercials for Nykaa Fashion and hired celebrities 
	k. We can support but inventory and marketplace models - we have all the tech to operate as a marketplace without investing in our own warehouses. 
	l. BPC business is largely inventory led but fashion is marketplace (reduces inventory risk substantially) 
	m. Fashion GMV two year CAGR 206%; fashion now is 25% of overall Nykaa GMV
	n. Average order value is Rs3400. This is far higher than the industry. 
	o. Gross margins to NSV are 44% (much higher for us than industry since we do not discount much)
	p. ~15% of sales are full price. 30% of sales are new season sales, this is also much higher than peers. 
	q. Business is contribution margin positive in FY22 with only two years of operating history. 
	r. Private label is 8% of sales currently but should go up. We have 6 private label brands now. The reason for this is to 1) plus large assortment gaps we see on the platform 2) some large categories where we can become materially large. Some of our PLs will go on other channels also - one example is Nykd which is our own innerwear brand. These will also have their own websites as they have a D2C identity. 
	s. Will start opening own fashion stores this years - will include own brands and global brands. This is early stages and we are piloting currently. 
3. Nykaa Superstore - the eB2B business - Vikas Gupta 
	a. The guy who leads this is from HUL and works at the Bangalore business (very impressive)
	b. A large part of the BPC market is made up of neighborhood stores - we are going to serve them
	c. Current distribution structure has pain points - fragmented distribution leading to poor fill rates are retailers
	d. Distributors struggle to make good FCF from this structure. Driving next generation away. 
	e. Retailers have poor credit coverage and limited access to new brands. Two thirds have working capital limitations. 
	f. We buy from the brands directly, bypass all the middle man and supply to the retailers directly 
	g. It's called the Nykaa Superstore platform - we only do BPC category 
	h. Pharmacy is also becoming an important channel - lot of them are expanding their categories 
	i. Same with salons - wanted to expand beyond services 
	j. Our value proposition to retailers? 
		i. Retailers can buy how much they want and when they want
		ii. We tell them what other stores are buying in the vicinity 
		iii. All brands found on the app - Indian and International 
		iv. No need to engage with salesmen and go to wholesale markets 
		v. We deliver to the door step service in 24 hours
		vi. We have partnered with NBFCs which are providing credit coverage for the retailers 
		vii. We are helping new age D2C brands expand physical retail reach 
		viii. Parachute recently launched their onion hair oil and gave us a one month head start on distribution. 
		ix. All large Indian FMCG cos already working with us. 
	k. Our right to win
		i. Intimate customer understanding due to our BPC scale and data generation 
		ii. Deep brand partnerships and known for authenticity 
		iii. Helps that BPC is a high margin category which will help becoming profitable quickly 
		iv. Platform is not focused on discounting but service excellence. These categories no brand likes discounting. 
	l. This business is only 6-8 months old 
	m. Already 45000 retailers from 500+ cities
	n. 80% retailers from tier two and below cities 
	o. Non-kirana is 63% of sales. 67% repeat customer usage 
	p. Unit economics in steady state 
		i. TAM is GMV of US$3-4bn 
		ii. 10-12% GM with 4-6% EBITDA 
		iii. But we are doing GMs much higher than this since we do  only BPC which is higher gross margin
		iv. Balance sheet - steady state it is capital lite as SKU complexity is lower than B2C
		v. Brands will give us credit on sales reducing working capital needs. 
		vi. Capex % sales is lower given the large volumes
		vii. So post the cash burn first few years this can be a high ROCE business 
	q. Key monitorable 
		i. Customer acquisition
		ii. Repeat usage 
		iii. Gross margins
		iv. Service levels versus fulfillment costs 
		v. Inventory cover 
4. Financials for Nykaa overall - CFO session 
	a. Sales - three year CAGR 48% despite COVID
	b. Gross margins have expanded 500bps FY19-22. FY22 GM up by 470bps. 
	c. EBITDA margin for FY22 at 4.3% doubled from FY19. 
	d. Profitable at net profit level for both FY21 and FY22 despite investments in Nykaa Fashion and SuperStore.  
	e. Core EBITDA margin on online BPC is much better at 9% without these investments.
	f. Fashion is 20% negative margin at EBITDA but became contribution margin positive in FY22.

Thanks for great write up! The agility with which these new age businesses work is mind boggling & inspiring…just 6-8 month old superstore business has already gained scale with 45000 retailers in 500+ cities…so much for traditional businesses to learn from them…

Dabur also has a BPC retailing business, NewU, started before Nykaa even existed…but the execution difference between them has been stark…of course traditional businesses like dabur have their own strengths…


I just was reading that ril is trying to buy Revlon.
It is one of the largest cosmetic brands in the world so if it can gain a good hold and also target India it could easily compete with the Nykaa brand especially since they have bought a brand so cosmetic brand building is done and also can easily use other markets to fund Indian growth.

Can Reliance Jio Mart be a great threat to Nykaa if they start to get aggressive as now they have a better own brand and also easier access to other foreign brands with a much better supply chain?

If Reliance Buys Revlon Can it be a great threat to Nykaa’s growth?


Not exactly a detailed analysis over there foreign peer but something that can help.

In India the demographic is different but the model could be very similar atleast to retain the customers and future profit outlook.