Nykaa is raising Rs 100 Cr at Rs 5,000 Cr valuation: Why Falguni Nayar's brainchild is outlier

Nykaa has turned out to be an underdog in Indian e-commerce space and it can be gauged from its fresh round coming from TPG Growth. The five years old firm is raising Rs 100 crore from the Singapore-based investment firm at a valuation of Rs 5,027 crore ($724 million) (hat tip: paper.vc).

The round has come amidst Nykaa is negotiating a $200 million worth investment deal with SoftBank. While the round from TPG Growth was expected and may go in the range of $30 million, the valuation of the Mumbai-based firm is eye-popping.

Nykaa was valued at about Rs 3,000 crore when it raised Rs 75 crore from existing investors such as family offices of Mariwala and Sunil Munjal and special limited partner at private equity firm Warburg Pincus in April last year.

The firm’s valuation has jumped 66 per cent within a year. Importantly, Nykaa has achieved this valuation by raising about Rs 355 crore in total funding. The amount is way less than several vertical focused e-commerce companies such as Grofers (grocery) and Craftsvilla (fashion).

While Grofers was approximately valued about $425 million when it raised $60 million from SoftBank last month, Craftsvilla valuation pegged at $200 million after its Series C round in late 2015.

Comparatively, Nykaa seems to be overvalued but it’s not if we factor in its financial performance in FY18. With 166 per cent in its growth, the company had posted revenue of Rs 578 crore.  It also controlled losses by 28 per cent to Rs 28 crore in FY18 from Rs 36 crore in the previous fiscal.

For context, Grofers had a revenue of Rs 53.47 crore in FY18 (company counts commission income as revenue not overall earning)while Craftsvilla had Rs 30.35 crore revenue in FY17 (it’s yet to file financials for FY18). Byju’s had a revenue of Rs 503 crore in FY18 and projected to achieve Rs 1,400 crore revenue in FY19.

“Nykaa appears to be on track to joining Asia's Unicorn ranks. TPG Growth's Rs 100 crore investment gives it a spectacular jump in post-money valuation. Its extraordinarily high valuation is interesting given Nykaa's financial performance. But the valuation can be explained given Nykaa's recent financial numbers,” said Vivek Durai, co-founder and CEO paper.vc.

Nykaa’s revenue appears fantastic given its cosmetics and fashion brand. I can remember how detractors reacted when Nykaa began operations by citing an example of UrbanTouch. UrbanTouch was a brainchild of Abhishek Goyal (now co-founder of Tracxn) which was acquired by FashionandYou. The company had struggled to find firm foot and eventually died in 2013.

Rather than raising VC money in an early stage, Nykaa founded by ex-investment banker Falguni Nayar resorted on bootstrapping. She chose not to raise money for more than a year of operations before raising maiden Rs 20 crore round in 2014.

Nykaa also seems to be the first startup to gather eye-popping growth in valuation on the back of sales growth. Let’s assume if it continues to grow at the same speed as it did in FY18, the company would be posting revenue of at least Rs 900 crore in FY19 and Rs 2,000 crore in the next financial year. And if losses would keep going down instead of up then it means the firm will be profitable in two-three years.

Nykaa is also eyeing an IPO by 2020 and if it does so by next year. It probably would be rare firms in consumer internet space (founded after 2010) to go public within 7 years of inception. However, going public won’t be on a card in case SoftBank injects $200 million in the Mumbai-based firm.