Zostel asks SEBI to Reject OYO’s $1.2 billion IPO
As Oravel Stays, the company that owns and operates the OYO brand, gets set for its Rs.8,430 crore IPO, it is likely to face a roadblock from a 6 year old deal that had failed. This pertains to the proposed acquisition of Zostel and Zo Rooms by OYO in 2015. The deal finally fell through and subsequent to that Zostel had to shut down its business. Now Zostel has written to SEBI about the breach of terms by OYO.
Check - Oravel Stays (OYO) Files for Rs.8,430 Crore IPO
According to the letter written by Zostel to SEBI, OYO was required to transfer 7% of the equity to Zostel shareholders as part of the agreement. The agreement had also included a clause that till that agreement was executed, OYO would not be permitted to alter its capital structure. Zostel has alleged that this IPO, which was a combination of fresh issue and an offer for sale, was a clear alteration of capital.
In its letter to SEBI, Zostel has underlined that the IPO of Oravel Stays was in contravention of the ICDR regulations as OYO had not met the conditions for alteration of capital. Zostel also alleged that the investment bankers to the issue had done inadequate due diligence in putting up the IPO proposal to SEBI for approval.
Zostel and OYO have been fighting a pitched legal battle since the last 6 years. In Mar-21, a Supreme Court appointed arbitrator had ruled that OYO was in breach of the agreement for the acquisition of Zostel. It also added that Zostel was entitled to go ahead and execute the definitive agreement giving it legal sanction.
This arbitration order was challenged by OYO in the Delhi High Court and in response Zostel had filed an execution petition and a petition to restrain OYO from going ahead with the IPO. Zostel has already sent a notice to OYO to enforce the award which includes the transfer of 7% of shares of the current capital to the shareholders of Zostel. The case is coming up for hearing in the Delhi High Court on 21-Oct.
While OYO has dismissed these claims of Zostel as being fictitious, SEBI is likely to be wary of approving the DRHP if there are pending legal orders pertaining to the essence of the IPO. It looks like challenging times for OYO in the days ahead.
OYO IPO - 7 Things to Know About
Open Demat Account
Free Demat account, No conditions apply
- 0%* Brokerage
- Flat ₹20 per order
Nykaa IPO – Another e-tailer to debut on Dalal Street
Should you invest in Nykaa IPO?
The success story of Zomato has motivated a lot of new age start-ups to file DRHP. Start-ups lining up in IPO queue includes big names like Paytm, Policy Bazaar, Delhivery and Nykaa. In the upcoming IPO, Nykaa plans to raise Rs. 4000 Crores from the IPO, targeting a valuation of $5 billion - $5.5 billion
Among these big names what makes Nykaa standout?
Well, chances are that if you have bought makeup in the past five years or so, it was probably from Nykaa.
In a short span of 9 years, Nykaa has achieved what not many Indian e-commerce startups have. Not only has it achieved unicorn status, it’s also the only profitable startup to file for a DRHP. It is also the biggest women led unicorns in the country.
Nykaa, the leading beauty e-tailer is stepping into the stock market.Though they do not provide discount, the quality of the products offered makes Nykaa to stand out.Lets deep dive into the success story of Nykaa and discover the reasons to invest in the upcoming IPO.
Success story of NYKAA
FSN E-Commerce Ventures (Nykaa) was incorporated in 2012 to provide beauty & personal care platform to their potential customers.The company has 2 major segments beauty&personal care and fashion. Nykaa has around 2476 brands in the former segment across the make-up, skincare, haircare, bath&body, fragrance, grooming appliances, personal care and health and wellness categories. Apart from all these Nykaa’s own brands including Nykaa cosmetics, Nykaa Naturals and Kay Beauty are also available in this platform. Nykaa also reached out to customers through offline stores as well in 2014 by opening first of this king in the T3 International airport New Delhi. The company has spread to 73stores in 38cities including an exclusive fashion store as of March 2021.Nykaa Stores are operated under three formats – Nykaa Luxe, Nykaa On Trend and Nykaa Kiosks. In 2018, the company launched ‘Nykaa Fashion’. As of March 2021, Nykaa Fashion sells 1,350 brands with fashion products across four consumer divisions – women, men, kids and home. Nykaa clocked the highest average order value (AOV) among leading online fashion retail platforms in India, in FY21.Nykaa Fashion has six owned brands, which are available at Nykaa’s online and physical store.
Who buy from Nykaa
As of FY21, Nykaa’s customer base has increased to 5.6million from 3.5million in FY19. Nykaa has around 35 million customers around the country which is growing larger. Potential customers of Nykaa are women and there are 663 million of women in India. Nykaa has launched ‘Nykaa Man’ exclusively for male grooming products. Nykaa is mainly focussed on tapping the potential customers from urban India and there are around 233million women in the cities. Nykaa products can be used by the customers aged between 15 to 45. Teenagers and youth are more benefited by the products of Nykaa contributing to 122million females in urban India. As the products of Nykaa has some pricing standards, 30% of the population can afford to buy the Nykaa products. Nykaa has around 35 million potential customers around the country which would grow more and more over the time.
How does Nykaa earn?
Revenue from sales – The Beauty & Personal Care (BPC) segment works on the
inventory model where the company buys the goods from brands and sells these to consumers. Thus, the cost of working capital and the risk of obsolescence is reduced.
Revenue from marketplace – The Nykaa fashion runs mainly on the
marketplace model (although some part of the business operates on
the inventory model). Here the company charges commission from vendors for listing and selling products on Nykaa platform.
Revenue from marketing support services – This is the revenue earned for advertising and promoting brands
on its platform and through surfing on the website or app.
Where do Nykaa stand in the market
Nykaa’s projected overall BPC market CAGR at 10.5% over FY21-41. Online channel contribution of 8% in FY21, can cross the 30% mark by FY41. Nykaa holds 2.2% market share in the overall BPC industry and 27.2% in the online channel as of FY21, per our calculations. By FY41, the company’s market share in the overall BPC industry could move up to 10.5% and to 33.5% in the online channel. In other countries such as the US and China, online penetration is currently much higher than in India.
Fashion, a relatively new business for Nykaa, is seeing rapid growth. In the Fashion segment, ‘apparel’ is the largest category with 35% sales contribution, followed by bags & footwear at 20-25%, jewellery & accessories and lingerie at 17% and 20% respectively, and electronics at 3-5%.Overall projected fashion market CAGR of 14% during FY21-41. Online channel contribution, which stands at 12% in FY21, couldcross the 40% mark by FY41. Nykaa holds 0.1% market share in the overall fashion industry and 0.6% in the online channel as of FY21. By FY41, its market share in the overall fashion industry could move up to 1.7% and to 4.5% in the online channel.
Why do we invest in Nykaa – Financial health and scope of investment in Nykaa
It is very important to have an idea on the financial health of a company before we invest.It helps us to reduce the risks involved in investing. A brief analysis on financial position of Nykaa is given here.
Let’s see some of the financial parameters which talks about the financial position of the company.
Total assets of the company - 13020 million(Mn) rupees as of FY21.
Total revenue - 24409mn rupees of FY21
Profit after tax (PAT) - 619mn Rupees of FY21.
Net Profit Margin - 2.5% in FY21.
ROE (Return on Equity) - 15.2% in FY21.
Debt to Equity is 2.6 in FY21.
Cost of goods sold (COGS) which (COGS=Starting inventory + purchases - ending inventory = cost of goods sold) can be only used in case of a business involving inventory model and not marketplace model. So we should, calculate COGS as a percentage of net sales. As a percentage of net sales, COGS was at 68.2% in FY21, a rise of 419bps over FY20 suspected reason may be product mix, forecasted COGS as a percentage of net sales, to be constant at 67.5% over FY21-41. 30% growth for the next 3 years, which may drop thereafter to 28% or 25% in FY25-26, as revenue growth moderates.
Nykaa reported EBITDA margin of 6.6% for FY21, and EBITDA of Rs1.6bn. . Nykaa will gradually increase its EBITDA margin from 6.6% in FY21 to 11.8% by FY26, and achieve EBITDA CAGR of 53.4%, an increase from Rs1.6bn in FY21 to Rs13.7bn in FY26.
Should you invest in Nykaa IPO?
The potential growth of the company is illustrated with statistical data, with growth of technology and e-commerce this company has the potential to attain huge and stable growth. Hope this article is helpful for you to make safe and wise investment decisions.
Drop in Retail Inflation, IMF Bullish on Indian Markets
On 12th October, 3 important macro data points were out in the market. The first two were domestic; consisting of September Inflation and August IIP. The third data point pointed to IMF estimates of India’s GDP growth.
How did retail inflation and IIP growth pan out?
Let us look at inflation first and then turn to IIP growth.
a) Retail inflation, or headline inflation, for Sep-21 fell to a 5-month low level of 4.35%. It was last at 4.29% in Apr-21. Inflation has fallen nearly 200 bps from 6.40% in May-21.
b) The sharp fall in food inflation from 3.11% in August to 0.68% in September triggered the fall in headline inflation. Most food items dipped lower on record Kharif and good Rabi promise.
c) Core inflation, which is structural inflation excluding food and oil, stayed elevated at 5.77%. The fall in inflation in Sep-21 was largely food driven with non-food items still running high.
d) With Brent Crude at $84/bbl, fuel inflation is at 13.5% and Transport inflation above 9.5%. These remain the big risks, more so because they have strong spill over effects on other items.
e) Industrial of industrial production or IIP growth for Aug-21 came in stable at 11.86% as compared to 11.5% in July. This data is YOY and comes with a one-month lag.
f) The growth in IIP has sustained at 11.86% despite the base effect of low IIP waning. So, this is more of genuine growth in output that is visible this time around.
g) The 2-year IIP growth (pre-COVID versus post-COVID) is finally positive at 3.88% and is a signal that the IIP has overcome the pressures created by COVID-19 and COVID 2.0.
h) High frequency indicators like GST, e-way bills and freight are robust but manufacturing IIP is yet to catch up with the pace of growth of mining and electricity.
The moral of the story is that the RBI may finally take comfort from the fact that IIP is back to durably normal levels. Hence soft rates and accommodative stance to boost growth may not be the need of the hour any longer. Now the action will purely shift to inflation as a deciding factor in RBI monetary policy.
What IMF said about India’s growth for 2021 and 2022?
According to the latest IMF report, Indian economy was projected to grow at 9.5% in calendar 2021 and at 8.5% in calendar 2022. Interestingly, the IMF has lowered the 2021 growth projections for the world economy from 6% to 5.9%. For China, the growth projections are lowered from 8.1% to 8% while US growth has been cut sharply from 7% to 6.1%.
TPG Invests $1 Billion in Tata Motors EV Business
In the last one month, the stock of Tata Motors has rallied close to 40%. One of the key drivers of this rally has been the proposed investment by private equity investors in its Electrical Vehicles (EV) business. On 12th October, the announcement finally came that TPG will be investing Rs.7,500 crore or close to $1 billion in the EV business of Tata Motors.
The investment will give TPG a stake of 11-15% of the Tata EV business depending on the final valuation arrived at. If one looks at the upper end of the valuation spectrum, this deal could value the EV business of Tata Motors at close to $9.1 billion. That will be value accretive to the valuation of Tata Motors as a whole, but that is a separate issue.
The whole intent of Tatas Motors, according to N Chandrasekharan, is to improve the EV mix in the overall automobile portfolio of Tata Motors from 3% to 20%. Tata Motors plans to launch at least 7 new EVs by FY26 in different sizes and different price ranges. This deal makes Tata Motors EV the most valuable EV property, at almost twice that of Ola Electric.
For the next 7 Electrical Vehicle products that Tata Motors is planning, it is considering a “Born Electric” model. These are the vehicles that are built as EVs from scratch. Tata Motors is already selling 1000 EVs each month from of its 2 existing EV models of Nexon and Tigor. For FY21, the EV business clocked a total turnover of Rs.600 crore and expected to grow big.
The EV business will see investments of $2.2 billion over the next 5 years and the company will even look to bring in more such PE participation or strategic partners as the need arises. What is important is that the EV business of Tata Motors is expected to turn EBITDA positive by FY23, which is the first important step to profitability.
While the exit route is not yet clear, it is reported that Tata Motors has offered multiple exit options to TPG for the future. These include a buyout by the Tatas or even an IPO of the hived off EV business when the market conditions are appropriate. While TPG will lead this $1 billion investment, ADQ is also expected to participate.
Centrum and BharatPe Get Small Finance Bank License
Four months after the RBI gave in-principle approval to Centrum Financial Services to float a small finance bank (SFB), the RBI has granted the SFB license to the consortium of Centrum and BharatPe. The SFB promises to be India’s first pure digital small finance bank offering an open architecture experience to customers.
To understand a bit of background, the consortium of Centrum Financial Services and BharatPe had expressed their interest in acquiring PMC Bank. The cooperative bank board had been superseded by the RBI after PMC bank had teetered on the verge of default. However, RBI insisted that Centrum should first seek an SFB license to take over PMC Bank.
Check - Centrum Group to Takeover PMC Bank
The SFB floated by Centrum and BharatPe will be called the Unity Small Finance Bank. It will start operations with a small loan book of Rs.1,500 crore and will take over the assets and liabilities of the beleaguered PMC Bank. Centrum Financial is listed on the BSE and is headed by former Standard Chartered India head, Jaspal Bindra. He will also drive the SFB.
The Unity SFB plans to become operational before the end of 2021 as a pure digital only bank. To begin with, Centrum will merge its SME lending portfolio and its micro credit portfolio into the portfolio of Unity SFB for a consideration of Rs.426 crore. These businesses are currently being run by two subsidiaries of Centrum.
Apart from Centrum Financial, BharatPe will also move its loan assets and integrate them into the overall loan book of Unity SFB. In addition, Centrum Financial Services and BharatPe have also jointly decided to infuse capital to the tune of Rs.1,800 crore into Unity SFB to ensure that the small finance bank is adequately capitalized.
To begin with, the big challenge for Unity SFB will be to integrate the operations of PMC Bank. The cooperative bank has total deposits of Rs.10,727 crore, total advances of Rs.4,473 crore and gross NPAs of Rs.3,519 crore. Withdrawal of deposits from the bank have been under RBI restrictions since September 2019.
The Unity SFB is likely to have a strong board with former SBI Chief, Rajneesh Kumar taking over at the helm of BharatPe. However, the real battle for Unity SFB may have just about begun.
Airlines Finally Allowed to Operate at 100% of Capacity
After a gap of almost 17 months, airlines were allowed to operate flights at 100% of pre-COVID capacity. That effectively means all restrictions on flying have been lifted. The Ministry of Civil Aviation has not yet removed the caps on fares that it had announced. The 100% capacity flying will be effective from 18th October.
In May 2020, due to the airlines being a contact-intensive business, the flying capacity was cut to 33%. Between May 2020 and December 2020, the capacity was gradually increased to 80%, where it stayed till June 2021. In Jun-21, due to COVID 2.0, the capacity was again cut to 50% and had been scaling up gradually. Last month it was raised from 72.5% to 85%.
Check - Ministry of Civil Aviation allows Airline Companies to Fly with 85% Capacity
There were two reasons for the restoration of 100% flying capacity in India. Firstly, the vaccinations had crossed 95 crore and the incidence of COVID or its variants had substantially come down. Secondly, the government wanted to ensure enough flying capacity available to travellers during the prolonged festival season in India.
The results of higher capacity permission is already visible in the numbers. For the first seven days of October, a total of 17 lakh passengers took domestic flights in India. That is 10% higher compared to the first 7 days of September. Currently, airlines are operating at 70-75% capacity while passengers are at 60-70% of pre-pandemic levels.
India’s largest airline, Indigo Airlines with domestic market share of 55%, as it operates nearly 1200 flights a day and can restore peak capacity. Its average PLF (passenger load factor) is in the range of 75-80% and the restoration of capacity will give a further boost to the numbers and to the PLF of Indigo. This will apply to other airlines too.
Indian airline companies have been stuck between the devil and the deep sea for some time now. ATF prices are rising and low PLF has meant that the gap between the CASK and the RASK has been dipping deeper into negative zone. While ATF prices are not in their control, flying at full capacity will enable better absorption of fixed costs.
Apart from the market leader, Indigo Airways, this announcement is also likely to be positive for the Tatas who have just acquired Air India. It also may be good tidings for Rakesh Jhunjhunwala, whose Akasa Air will take off next year.