Nykaa Shares Trade Ex-Bonus; Lock-In Period Also Ends for Pre-IPO Shareholders; Key Details

Nykaa Trades Ex-Bonus: Shares of FSN E-Commerce Ventures (Nykaa) started trading ex-bonus on Thursday, a day ahead of its record date for the bonus issue of equity shares in the ratio of 1:5. Nykaa shares were trading nearly 3 per cent lower at Rs 175 apiece on the BSE in early deals. Also, the pre-IPO shareholders’ lock-in period coming to an end today.

Lock-ins end in November for four consumer-focused tech stocks, which have all slumped in the past month, which include One 97 Communications Ltd., operator of payments service Paytm, and Nykaa. Nykaa shares made a stock market debut in November last year.

“With pre-IPO shareholders’ lock-in set to expire on Nov 10th, 2022, it will be crucial to see if these investors liquidate or continue to hold for further gains. While Nykaa is certainly a differentiated play but the fact that 12 per cent+ shareholding is sitting on 100x returns might even be a reason enough for these investors to diversify their portfolio that might be overweight Nykaa,” said JMFinancial.

The brokerage also noted that a majority of these investors did generate liquidity during the OFS and secondary sales prior to the IPO. Furthermore, 70 per cent of the share capital that is getting unlocked belongs to patient capital such as HNIs and family offices, which might not be obliged to sell due to tenure of funds.

Nykaa Bonus Share Ratio

The company had on October 3 approved the issuance of bonus shares to its existing shareholders in the ratio of 5:1. It means that Nykaa shareholders will get 5 bonus shares for every one share.

The company had declared that the record date for the Nykaa bonus share would be November 3. But the e-commerce company which sells beauty, wellness and fashion products later postponed the record date by a week. The new record date for the Nykaa bonus share is November 11, according to the filing.

“We refer to our letter dated October 03, 2022 regarding issue of Bonus Equity Shares of the Company in the ratio of 5 (Five) fully paid-up Equity Shares of Rs 1/- each for every 1 (One) fully paid-up Equity Share of Rs 1/- each, subject to approval of shareholders by way of Postal Ballot and inform that pursuant to Regulation 42 of SEBI Listing Regulations, the Board of the Company has fixed Friday, November 11, 2022 as the ‘Record Date’ for the purpose of determining the members eligible for Bonus Equity Shares,” the company informed the exchanges.

The company said that the issuance of bonus shares will be out of Securities Premium Account available as on March 31, 2022. Bonus shares are fully paid additional shares issued by a company to its existing shareholders.

The actual number of bonus equity shares to be issued and post bonus issue share capital will be determined based on the paid-up share capital as on the record date, the company added.

Nykaa was founded by Falguni Nayar in 2012. The shares of the Mumbai-based company were listed on NSE and BSE on November 10 last year at Rs 2001, a premium of 77.87 per cent. Nykaa IPO was subscribed 81.78 times and the price band was fixed at Rs 1,085-1,125 per share.

FSN E-commerce Ventures Ltd last week said that the company has received approval from shareholders on the bonus shares issue and new employee stock options (ESOP) and employee stock unit plan (RSU) with an overwhelming majority.

The company believes that Bonus Shares will encourage the participation of retail investors in the long term, as well as see a wider shareholding.

Meanwhile, Nykaa has managed to improve its profitability parameters during the quarter ended September 2022 (Q2FY23). The company’s net profit was up nearly 330 per cent year-on-year (YoY). While margin performance was driven by growth in revenue, the company is also making structural changes that allow it to control cost better.

Should you Invest in Nykaa?

HSBC Global Research has a ‘buy’ call on the company’s stock, which has a structural attractiveness supported by a strong Q2 performance. “With its leading scale, reach, and broad product range, Nykaa is a rare combination of profitability and sustainable exponential growth in our view. We expect revenue to double every two to three years in the coming decade,” the brokerage said in a report.

According to analysts at HDFC Securities, Nykaa has the potential to be a hybrid, but as of now (85 per cent of net sales value (NSV) – inventory-led), it shares more characteristics with a busy, efficient, linear online pipeline than a platform. Additionally, Nykaa’s total address market (TAM) seems to be oversold as well. Hence, valuation stencils must be realigned accordingly.

The brokerage said in its initial coverage report said Nykaa is an efficient online business; its success in part is due to the absence of potent competitors (this is gradually changing). Ex-ad income, lack of non-linear monetization levers forces us to realign our valuation compass somewhere between a linear business and a pure platform, it added.

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