MC Interview | Nykaa may a good addition to portfolio with consumer-facing ideas, says Piyush Nagda of Prabhudas Lilladher

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Piyush Nagda, Head of Investment Products at Prabhudas Lilladher, believes Nykaa can sustain a CAGR of around 35 percent in sales, 50 percent in EBIDTA over the next few years with double-digit margins.

“These factors, combined with increasing Gen-Z and millennial population, provide strong headroom for growth in fast-growing Beaty, Personal care and fashion market,” he says in an interview to Moneycontrol.

Apart from Nykaa, Policybazaar is another great play, he feels, in the current primary market. “Policybazaar enjoys highest market share in online insurance distribution space and growing at a fast pace in under-penetrated insurance market,” he says. Excerpts from the interview:

Why do you think investors should go for the Nykaa IPO?

Investors are chasing Nykaa as it’s a profitable e-commerce player, a one-of-its-kind lifestyle consumer-tech play with 55-million-plus app downloads and 80 stores enjoying 70 percent repeat purchase orders. It will be a good addition to the portfolio of investors looking for consumer-facing ideas.

Do you think Nykaa is overvalued at a price band of Rs 1,085-1,125 per share? What are the criteria, according to you, that one should consider for valuing Nykaa-like companies?

Nykaa’s key operating metrics have improved significantly over the years, helping the company turn profitable. It has seen a strong ramp-up in its GMV (gross merchandise value) from Rs 1,650 crore in FY19 to Rs 4,050 crore in FY21. Despite stores remaining shut during Q1 of FY22, Nykaa recorded its highest GMV at Rs 1,470 crore. A sharp increase in GMV portrays strong scaling-up opportunity.

The number of orders has also increased significantly from 11.4 million in FY19 to 19.5 million in FY21. Total orders for Q1 of FY22 stood at 6.1 million despite the second wave of Covid, translating into annual orders of 24 million considering Q1 of FY22 run-rate. The average order value has also increased. We believe Nykaa can sustain a CAGR of 35 percent in sales, 50 percent in EBIDTA (earnings before interest, tax, depreciation and amortisation) over the coming few years with double-digit margins. These factors, combined with an increasing Gen-Z and millennial population, provide strong headroom for growth in fast-growing Beaty, Personal care and fashion market.

What would you recommend the investors from a bunch of IPOs – Nykaa, Fino Payments Bank, Sigachi Industries, Policybazaar, and SJS Enterprises?

Apart from Nykaa, Policybazaar is a great play. Policybazaar enjoys highest market share in online insurance distribution space and growing at a fast pace in the under-penetrated insurance market.

What are the key risks that investors have to consider while subscribing to the Nykaa IPO and the Fino Payments Bank IPO?

Many IPOs have got bunched together before Diwali. If the sharp correction in markets continue, then the sentiments may impact listing gains. Long-term investors need not worry.

What could be the final subscription figure for the Nykaa issue?

It is difficult to predict but looking at the trend, we expect massive oversubscription in Nykaa.

Should one look at a grey market premium while subscribing to an IPO?

Yes, the grey market premium helps gauge investor interest and market demand for IPOs.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.