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Indian Online Beauty and Fashion Startup is 82X Oversubscribed on IPO

2021 has been a record-breaking year for the BSE (Bombay Stock Exchange), which has exceeded previously unheard-of levels of 50,000 and 60,000. More recently, it has achieved its highest-ever funds raised through initial public offerings (IPOs). More high-profile debuts include SoftBank-backed startups Oyo, a hotel aggregator, the ride-hailer Ola, and Delhivery logistics.

Indian tech startups have been well represented and particularly well-received by the highly liquid, post-pandemic Indian market. Ant Group-backed fintech firm Paytm became India's largest-ever IPO when it launched at $2.5 billion. And food delivery behemoth Zomato, the nation’s first tech unicorn (the term for startups valued over $1 billion), went public in July. Now, the e-commerce fashion and beauty startup Nykaa has launched with a valuation of almost $13 billion, more than 10 times the valuation of its last private funding round in 2020.

FSN E-Commerce Ventures, the firm behind the Nykaa brand, was unique in being the only profit-making organization in the digital tech space. It was incorporated in 2012 and has been EBITDA positive since 2019, and finally reported net profits of $8 million for the year ending March 2021.

The IPO, made exclusively to institutional investors, delivered on founder Falguni Nayar’s promise only to take her company public once profitable. Strong investor traction drew bids of $32.55 billion, an oversubscription of almost 82 times, leading to a listing price of 2,018 rupees, a 79 percent premium to the issue price of 1,125 rupees. Blackrock Capital Group and Fidelity asset managers were among the top buyers. And Indian celebrities Alia Bhatt and Katrina Kaif are among its investors.

Falguni Nayar Now India’s Richest Self-Made Woman

Nayar studied at the Indian Institute of Management in Ahmedabad, India’s premier business school. The 58-year-old is no stranger to IPOs, having spent nearly 20 years as an investment banker at Kotak Mahindra Bank. There, she spearheaded multiple Indian IPOs and set up the organization's securities operations in America and the United Kingdom. She left the bank in 2012 to start Nykaa with an investment of $2 million. Early investors included Harry Banga, Rishab Mariwala (the son of Harsh Mariwala, the consumer goods billionaire,) and Sunil Kant Munjal, brother to auto billionaire Pawan Munjal.

Nykaa’s IPO makes Nayar the richest self-made woman in India—toppling biotech entrepreneur Kiran Mazumdar Shaw, currently worth $3.6 billion. Nayar holds her 52.6 percent stake with her husband Sanjay Nayar, head of the Indian division of the U.S. private equity firm KKR, and their twins who help run the company. The family’s stake is valued at $6.8 billion.

A Well-Timed E-Commerce Entry Captured Newly Affluent Communities

The name Nykaa comes from “Nayaka,” a Sanskrit word roughly translating to "one under the spotlight" or "actress." At the time of its creation, Indian consumers were only beginning to express interest in switching from local mom-and-pop stores to buying cosmetics online.

And Nayar wanted to bring them international brands like Estee Lauder, Bobbi Brown, and Clinique. The site now offers more than 4,000 brands. It also collaborates with more than 3,000 influences ranging from lifestyle bloggers to high-profile celebrities.

The first physical Nykaa store was opened in 2014, and at the time of listing, there were 80 nationally. However, 97 percent of the company’s gross merchandise value is still derived via e-commerce, with 63 percent coming from tier 2 and 3 cities. India's rural communities have been attributed with the nation's relative economic stability during the pandemic. However, the rise of tier 2 and tier 3 cities has played a crucial role in growth.

Many have emerged as business hubs thanks to the return of millennials to their hometowns as a result of technological advancements that make it possible to keep up with the convenience of metros while retaining a small-town quality of life. Tier 2 cities, like Pondicherry and Ahmadabad, have populations of approximately 1 million, while tier 3 have less than this.

What Does the Future Hold for Nykaa?

These days the brand straddles the beauty and personal care segment as well as that of apparel and accessories. Anchit Nayar joined Nykaa after studying at Columbia University and almost seven years at Morgan Stanley in New York. He is the CEO of the beauty and e-commerce business. His twin sister, Adwaita, graduated cum laude from Yale and completed her MBA at Harvard. She is co-founder and CEO of the fashion side of the business.

Nykaa’s IPO made 5.6 million new shares available, in addition to shares being sold by a range of early investors. The funds will be used to increase the number of bricks-and-mortar stores, additional warehousing, and for enhancing brand visibility. Nayar also plans to take Nykaa international, initially to the Middle East and then Europe.

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