Nykaa - The Make Up Company

Notes from Conf Call, Investor Presentation, and Q2FY22 results.

Consolidated Revenue from Operations grew 39% YoY.
A portion of the MD and CEO’s comment: Consumer demand for premium beauty, personal care, and wellness is showing signs of buoyancy as we gear up for a promising H2 FY23. We are investing in growth engines of the future, particularly SuperStore by Nykaa. The International business which includes the venture we have with the Apparel Group in the GCC, is promising.

  • BPC: Physical Stores: 121 across 53 cities. Plan to open 300+ stores across 100 top cities. Store location and stock-up based on demand analytics from the platform
  • Fashion: NSV growth of only 20% in Fashion. Rationale - Increased returns compared to Covid period, but as per norm of the historical data. Calibrated approach - choose the right customer, ensure positive contribution margin, and right shift marketing initiative to take advantage of upcoming bigger sales season in Q3.
  • International business: Partnership with Apparel Group: Beauty market 2x that of India. However, well entrenched with existing offline players. Plan to implement like a start-up business. Yet to develop a clear path of execution. Hope to do physical rollout in 12 months. E-Com might take more time.
  • eB2B: Doing well and scaling up aggressively. At steady state (few years away), business will be negative WC.
  • Increasing own brand contribution in the revenue. Hence, scale up in gross margins.

My Opinion:

  • The ongoing growth rate shall continue.
  • Profitability will remain debatable due to continuous investment for future growth.
  • In this quarter, BPC OPM is now @ 12% [With Contribution Margin already provided, I assumed employee cost as 7.3% of BPC revenue (basis FY22 investor presentation), and other Expenses @ 88% (% of BPC revenue in the overall revenue)].

Disc: Invested.


Nykaa is going through a storm of selling. And thats alright. In the short term, I could be wrong at having bought the first tranche at 1400. I will buy another at 1000, I could be wrong again. But, as I know it, that is not my edge to know the best price to enter.

My edge is in building confidence in the brand of Nykaa. To read about it, to monitor expansion and finally distill all that to its EPS and see if there is growth.

As long as GMV is up, I couldnt be much wrong. Cuz, Nykaa is doubling topline in 2.5 years. No matter what price I buy, the business growth will catch up. I will be wrong in the short term, and right in the very long term. And that is my end goal.

I realized this after anguishing over consistent rise in Dmart share price for a very long time.


Interesting Initiating Coverage report from HDFC Securities


Thanks for sharing.

A nice read, particularly the sections dealing with SKU analysis/channel checks and What Nykaa got right.

However, I think that the below points are either missed or underestimated:

  • Potential of the latest partnership with the Apparel Group.
  • AoV (average order value) to remain at its current levels.
  • BPC TAM calculation considers only the women population.

In nutshell, the analysts expect revenue growth of 35% CAGR till FY25, sales to reach 9256 Cr. and
ROE to reach 21% by FY25.


As a first mover, market leader & having the start up new age DNA, I would have expected Nykaa to take lead in innovations…although the way Tata’s have been reinventing themselves, the biggest possible power in overall Indian retail ahead seem to be taking lead in beauty space innovation with their new agenda here…beauty tech/experiential retail of beauty & cosmetics via technology…

Not sure if Nykaa does already have such presence or plan…

Disc: Invested hence critical. Transactions this month. Not eligible for any advice or recommendations


Due to women co-founder, Nykaa also has a very aspirational appeal among the woman populace. Plus it pays top dollar for talent (I’m in ISB and have seen Nykaa posting jobs vs brands like Tata Digital / P&G / HUL / Lo’real, etc.), so they do get a talent edge too.

Key thesis pointers for Nykaa to keep doing well:-

  1. Organic engagement on its platform courtesy user communities / experts / influencers. This is hard to replicate by any new platform.

  2. Range of SKUs - one stop shop for all thing related to skin care, and fashion

  3. Niche of Nykaa - catering to a certain segment that’s sticky, has high buying power and this segment is expanding high. Nykaa is an aspirational brand. People want to upgrade to Nykaa. It’s not just an outlet.

I do expect operating leverage to kick in incrementally even in the next 2 years, mainly on account of ad spends increasing in lower proportion as compared to revenue growth. Let’s see how the story plays out.

D - Invested.


A good company at a bad price or over expensive valuations becomes a bad stock for investments. Currently Naayka is in over over expensive valuation territory. Rise of stock matters on a lot of factors and seeing lot of PE investors are sitting on hefty returns even on current valuation, ride in near to short is very rough. Long term will depend on sustainability, growth, margins which looks a herculean task. Let see how soon this message is marked as offensive​:joy::joy::joy:. Truth is always bitter.


Nykaa sells beauty products, same products can be sold by Dmart, Reliance, StarBazaar. Amazon is also there.

Personally I never needed nykaa for anything. Cannot understand how all these people are talking about market cap of 60k crores and 6L crores.

I wonder what happens if there are two or three quarters of no-growth or de-growth or some other company comes with similar concept and with ample funding to burn.


Looks like Tata want to enter in a big way as a competition to Sephora and Nykaa.

Source: Today’s business line newspaper.


The good, bad and ugly of Nykaa’s bonus issue


On a simiar note, one should be careful about promoters with investment banking/finance background who are more interested in share price than in actual business performance.


The question is not whether the bonus issue is generating good publicity or not. The real question is whether the issue of bonus shares is ethically correct or not.

After the issue of the bonus shares, the post IPO investors have to pay substantial STCG on sale of shares even when they are losing money on the trade. Small investors buy and sell as per their personal financial goals like family wedding or child education. It is really ridiculous to expect someone to pay STCG on a trade where one is losing as much as 60% of the principal amount. I know of small investors who are not financially literate enough to carry forward the long term capital loss and set it off against future income.

On the other hand, the bonus shares artificially lowers the LTCG liability for the promoter group and early investors who have very low acquisition price, looking for a partial exit.

May be Nykaa will continue to grow and turn out to be a multibagger and all this will be be forgotten but that does not absolve the management of their failure to carry on their fiduciary responsibility towards the small investors.

My two cents.

Discl. Not invested.


Can you explain in simple terms how a retail investor with loss has to pay tax for gain?

My returns come out the same with or without the bonus shares. If I sell some shares, the shares to come in account first will be sold before the bonus shares and will lead to short term capital loss. Where is this gain coming from?

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It looks like long term capital loss will occur on ipo shares and short term capital gain on bonus. This will create tax problem for immediate sellers who have long term holdings.
Won’t the institutional sellers be affected more as they will have to pay 15% tax on bonus shares instead of 10% if there was no bonus?

if someone entered at like 5-10 rupees, it provides partial exit at ~180 levels instead of 1200, while effectively preventing retail exits

This is as per many articles floating but sounds bit confusing and not logical. Logically in IT returns, the actual gain/loss must be mentioned irrespective of share price with or without bonus/split…and that’s what government would also expect…so if there is bonus, the buy price before bonus should adjust while filling returns to adjust for the bonus ratio…if someone is not doing that then it doesn’t seem correct on the individual part…same would go for retail investors…if they sell a share at 170 rs which they got by virtue of bonus on initial acquisition cost of rs 1800, then logically the buy price should adjust the real acquisition cost as rs 300 for bonus…because that’s what is logical and what is true as real capital gain or loss…

Would request some tax expert to enlighten forum here as there seems basic flaw in understanding, maybe including mine.

Disc. Not a tax expert. Views only academic and for learning. Can be wrong in all my assesemts.

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The buy price of the bonus shares will be lower at 0. The bonus shares are also 5 times the original.

Some years ago, the cost of bonus shares was calculated as a proportion of the cost of original shares, the proportion being equal to the bonus ratio. Eg. If the original shares were purchased @Rs. 1000 each and the company declared a 1:1 bonus, the cost of the original as well as the bonus shares, was Rs. 500. Capital gain/loss was calculated based on this cost. Then the IT Act was amended (I do not recall when exactly) to state that the cost of bonus shares was to be taken at 0. The original shares continued with the same cost at which they had been purchased. This may not sound logical, but that is the way capital gain/loss is calculated for tax purpose.


Some years ago or long long ago?
Because I don’t remember when the bonus share had the proportionate price of original.
I received bonus shares in July 2015 for maithan alloys and the cost it shows as 0 in my demat account.

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Quote from Livemint: " Income tax: Cost of bonus shares issued after 31st January 2018 is considered zero while in case of issuance before this date is considered close price of the stock on this date". i.e 31st Jan 2018.
Can’t comment on why your demat a/c is showing a zero cost for bonus shares of 2015.

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