This Company IPO Has Unique Business Model On The Cusp Of A Large Opportunity

Motilal Oswal Institutional Equities recently analyzed Nykaa's DRHP to understand the opportunity in the BPC and Fashion segments, the company's business model, and the competitive landscape. The company is likely to come-up with an IPO shortly and Motilal Oswal institutional Equities believes the company has a unique business model on the cusp of a large opportunity.

Large market opportunity

The brokerage conducted an online survey among the target demographics and presented its findings. According to the same, the Indian Beauty and Personal Care (BPC/Fashion market is expected to reach Rs 2t/Rs 8.7t by CY25 - posting a CAGR of 12.7%/18% from CY20. The online BPC and Fashion markets are growing at an even faster pace.

"While online channels account for just 8% of India's BPC market, it is pertinent to note that 70% of the market is estimated to be unorganized. Thus, online channels are estimated to contribute 27% to the organized space, and Nykaa is well-placed to lead the online/organized portion of this market growth with a proven business model," the brokerage has said.

According to Motilal Oswal one of Nykaa's key strengths lies in its inventory-led business model for the BPC segment. "While it assumes the risk of obsolescence and bears an inventory cost, it allows the company to offer authentication for all its products, ensure availability, and enable efficient distribution. Its technology is geared to enable fungible inventory across onlineand offline channels, allowing for efficient inventory management. As seen from our survey responses, the widespread availability of spurious products is a concern among online BPC consumers. Accordingly, a guarantee of authenticity offers comfort to customers," the brokerage has said.

Influencer network

With a network of over 1,300 influencers and 12.6m followers across leading social media platforms, Nykaa is able to drive widespread product and influencer-led education through creative and entertaining content across video and written formats.

"Nykaa creates and films the majority of its content in-house through the Nykaa Army. Moreover, it leverages influencers on a large scale through the Nykaa Affiliate Program, enabling external content creators to publish content on their behalf across several digital platforms. Endorsement by well-known influencers further strengthens the trust in the platform," the brokerage has said.

The pricing and the date of the IPO is not known, but, if you go by the Motilal Oswal report and the markets at record peaks, even this IPO should get a solid response. It will not be a surprise if the pricing in terms of p/e, privce to book remain hefty, given where the markets are.