Nykaa, a leading online beauty retailer in India, has been facing a slump in its share price since its initial public offering (IPO) in November 2021. The company’s shares are currently trading at Rs 119.95, which is close to it’s all-time low of Rs 118.55 and far below its listing price of Rs 1,125.
The company has recently announced some key appointments in its finance and technology teams to strengthen its operations and growth prospects. Nykaa has hired P Ganesh as its chief financial officer (CFO) and Rajesh Uppalapati as its chief technology officer (CTO). Both of them have extensive experience in their respective domains and have worked with reputed firms such as Amazon, Flipkart, Reliance Jio and Tata Consultancy Services.
However, these new appointments have not been able to boost the investor confidence in Nykaa, which has been facing several challenges in the post-IPO period. Some of the factors that have contributed to the decline in Nykaa’s share price are:
- High valuation: Nykaa had priced its IPO at a premium valuation of 19.5 times its FY21 revenue and 312 times its FY21 earnings. This was based on the expectation of strong growth and profitability in the online beauty segment, which is estimated to grow at a compound annual growth rate (CAGR) of 18% from FY21 to FY26. However, some analysts have argued that Nykaa’s valuation was too high compared to its peers and did not factor in the risks and uncertainties in the market.
- Competition: Nykaa operates in a highly competitive and fragmented online beauty market, where it faces competition from both online and offline players. Some of its major competitors include Amazon, Flipkart, Myntra, Purplle, BigBasket and Reliance Retail. These players have been investing heavily in expanding their product offerings, customer base, delivery network and marketing strategies to capture a larger share of the market. Nykaa also faces competition from emerging direct-to-consumer (DTC) brands, such as Sugar Cosmetics, Plum and Mamaearth, which have been gaining popularity among the young and urban consumers.
- Regulatory issues: Nykaa has also been facing some regulatory issues related to its business model and operations. The company has been accused of violating the Foreign Exchange Management Act (FEMA) by receiving foreign direct investment (FDI) through a complex web of entities. The Enforcement Directorate (ED) has initiated an investigation into this matter and has issued notices to Nykaa and its founder Falguni Nayar. The company has also been accused of selling counterfeit products on its platform by some of its customers and brands. Nykaa has denied these allegations and claimed that it follows strict quality control measures and complies with all the applicable laws.
Nykaa’s management has expressed confidence in its long-term growth potential and has stated that it will continue to focus on enhancing its customer experience, product innovation, technology development and brand building. The company has also stated that it will use the proceeds from the IPO for expanding its physical stores, increasing its working capital, repaying debt and making strategic investments.
However, it remains to be seen whether these initiatives will help Nykaa recover from its post-IPO blues and regain the trust of its investors.