A star is born: Nykaa’s stellar IPO underscores the promise of the start-up economy – The Financial Express

Clipped from: https://www.financialexpress.com/opinion/a-star-is-born-nykaas-stellar-ipo-underscores-the-promise-of-the-start-up-economy/2367423/

We need many more entrepreneurs like Falguni Nayar

It would take several years of sustained performance to bring down the valuations. However, that is the nature of the beast.It would take several years of sustained performance to bring down the valuations. However, that is the nature of the beast.

It is Falguni Nayar’s moment in the sun, and she should savour it. Her beauty portal, Nykaa, which she has built from scratch over the last 11 years, has had a dream debut on the bourses, with a fetching market capitalisation of Rs 1 lakh crore. Nayar has shown us it is possible to build a sound, profitable business with little capital and without the backing of a large corporate house. To the thousands of budding entrepreneurs in this country, she is a role model.

To be sure, FSN-E Commerce Ventures, the company that runs the fashion and beauty portal Nykaa, is yet small; revenues in FY21 were Rs 2,441 crore and profits Rs 62 crore. But the standing ovation that she has received from the stock market—a market capitalization of Rs 1 lakh crore on debut—reflects the faith investors have in her and the business. Indeed, the new-economy businesses are valued at what would seem stratospheric levels; Nykaa trades at a multiple of some 1,600 times, which means even a ten-fold growth would leave it trading at a multiple of 160 times. It would take several years of sustained performance to bring down the valuations. However, that is the nature of the beast.

Online shopping is still a relatively new concept in India, and start-ups are betting on the fact that there is plenty of room to grow given purchasing power is increasing and lifestyles are changing. So are investors. Once customers are added and the top line grows, the costs, they say, will be defrayed over a much larger base, creating surpluses. To be sure, there are risks; in several sectors, the entry barriers are not so high and the competition could keep revenue growth slow. Nonetheless, there are early mover advantages to be had and investors are willing to back those like Nayar, who they believe have the skills to steer the business to new heights.

There can be nothing better for the Indian economy which, with the licence raj and crony capitalism, has stifled entrepreneurship and allowed mainly family-owned businesses to flourish. The start-up economy fortunately has found backers in private equity (PE) funds who enable entrepreneurs like Nayar to build businesses. It is allowing talent to come to the surface and contributing more than meaningfully to the economy, especially in terms of employment opportunities. Credit Suisse believes that if growth rates sustain, incremental revenues from this space could be 5.3% of the incremental GDP in five years.

One hopes many of the start-ups will be able to survive on their own and not be bought out by big conglomerates who are now desperate to be part of the new economy; of late, several start-ups have sold out to big corporate groups that are foraying into the online arena, which is a pity. India needs more entrepreneurs and thousands of companies, not a concentration of businesses in the hands of few that lead to monopolies. Unfortunately, though not every start-up is able to scale up to the desired levels and the owners are compelled to sell out. Nonetheless, the fact that India’s start-up ecosystem is so vibrant is cause for celebration; even if it breeds 500 solid businesses, that would be an achievement. Investors clearly are craving more start-ups and, with more large digital IPOs tipped to hit the markets, Goldman Sachs estimates the exposure to the new economy, in Indian equity indices, could more than double over the next 2-3 years. Nykaa’s debut is just the beginning.mail logo

Subscribe to FE Daily Newsletter for latest updates on markets, business, money, infra & more, right in your mailbox

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s