Market Mix - What Next For The Likes Of Nykaa?

Good morning. Nykaa’s entry into India’s retail industry filled a missing gap — that of thousands of Indians, especially women, looking for easy access to good beauty products. Nykaa did that and even brought to India brands that earlier we’d have to ask our families abroad to bring for us. Now there are multiple players in the industry offering exactly the same thing. What will they do to keep Indians buying? Read on to know more. 

Meanwhile, the Indian markets are throwing in more surprises with IPOs and record investments. It is time to rein in investors? 

Correction: In our last edition we mistakenly said that the Indian Railway Catering and Tourism Corporation’s convenience fee generation is Rs 224 for the quarter, it should have been Rs 224 crore. The error is regretted. 

DECODE THE NEWS

Can Nykaa Keep Its Market Crown In This Beauty Battle?

What

Nykaa, once the dominant player in India's beauty and personal care (BPC) market, is facing increasing competition from both e-commerce giants like Myntra and new entrants like Reliance Retail's Tira. While Nykaa still holds a significant market share, the competition is intensifying with more platforms offering exclusive brand partnerships, deep discounts, and tech innovations.

Why

The BPC sector in India is expanding rapidly, projected to reach a market size of $660 billion by 2027. This growth has attracted numerous players, each trying to capture a slice of the market. Nykaa’s first-mover advantage is now being challenged as traditional differentiators like exclusivity and pricing become more widespread. As the battle for market share heats up, Nykaa must innovate and adapt to maintain its leading position.

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THE TAKE

Indian Investors Need To Be Reined In 

There are two ways to see things when a company operating two Yamaha motorcycle showrooms in Delhi with eight employees, raises Rs 12 crore in an initial public offering (IPO), is oversubscribed by 400 times already and has attracted bids worth Rs 4800 crore. This is either the brute power of free market capitalism or investors have lost their collective heads and are now indulging in casino-grade punting like there is no tomorrow. The answer may be somewhere in between.

The IPO price for this company Resource Automobile, pitched on the SME exchange is Rs 117 per share and apparently, there is a grey market premium of 72%, according to MoneyControl.

Pranav Haldea of Prime Database said that the average listing pop was 77%, meaning people who got shares in IPOs could sell at a 77% gain in the last financial year. Not only are people making some cool returns in a short period, but others are buying in at that point hoping for even greater returns. Data shows that in many cases all parties end up satisfied.

Haldea said that in 2019 the SME exchange used to see an average of 408 applications per IPO. This year the average is 2.13 lakh applications per IPO, including the motorcycle dealer. Overall, the IPO market is likely to see the highest raises ever and more than in recent years. Plus, there is more to come: 44 companies may raise around Rs 1 lakh crore if all filings get cleared and they decide to hit the market this year.

Investing in IPOs, like in many other market segments, only needs a swipe on a mobile phone. Many investors are first-timers and have got into the game only post-Covid. The lure of easy returns has only increased as anecdotal evidence piles up with most IPOs doing well and then shooting up further. It takes a year for investors to figure that the stock they had bought with such glee was a fundamentally weak proposition to start with. 

Paytm or One97 Communications was offered ​​around Rs 2,080 per share, listed at around Rs 1,950 in November 2021 and has never seen that level again, it's now down 65% since listing. Nykaa listed a few days before Paytm at Rs 2,001 on the Bombay Stock Exchange at a premium of 78% over the issue price of Rs 1,125, was down to Rs 406 in a few days and now quotes around Rs 226. There are several more such examples.

SME IPOs are regulated by stock exchanges and the Securities and Exchange Board of India does not play a role in regulation unlike in the larger mainboard IPOs. The exchanges have been tightening the norms gradually.

The problem is very fundamental. There is little connection between the person who takes a punt with a swipe on the mobile phone and an equity market cult with the larger objective of mobilising capital for productive use. To be fair that is happening too.  

We spent many years before and during Covid, inviting savers to invest in mutual funds in specific and the markets in general. Now, with high inflation and incomes not meeting aspirations, savers young and old are crowding into stock markets in desperation and with hope that small bets are okay because the returns are high. The need of the hour is to create more barriers to quick, app-based investing and educate investors to think more long-term and see the stock markets as a longer-term arena. For it is they who will suffer when they are caught, as many surely will. That is when the blame game starts, as it did when Nykaa’s share price slipped.

It's tough to preach free market dynamics to first-time investors who were in it for a sure shot, short-term gain. That is the feature of every bull market everywhere, since time immemorial.

CORE NUMBER

Rs 5,388 crore

This is the total amount of share buybacks from Indian bourses so far in August, the highest in 14 months. Business Standard reported analysts as saying that this was because of changes in the share buyback tax regime that will come into effect from October 1, 2024. Indian companies undertaking share buybacks currently pay 20% tax on net distributable income. From October, the entire amount received from buybacks will be treated as dividends and taxed accordingly.

FROM THE PERIPHERY

—🛒 Big Basket, a contender in the quick commerce space, wants to go all in with its instant delivery vertical — BB Now. One of the oldest players in the online grocery delivery space, Big Basket is seeing 50% of its business come from quick commerce, the founders told The Economic Times. In the coming weeks, they will completely move to the 10-30 minute delivery format. Earlier this year, the company had relaunched its slotted delivery format called BB Supersaver targeting value-conscious consumers. The Core wrote about why and how. Read here.

—🚗 Days after reports of car inventories with dealerships reaching record highs, India’s largest automaker has said it is expected to reduce by the end of the year. While car makers have earlier claimed that inventory was not as high as was being reported, Maruti chairman RC Bhargava reiterated this during the company’s annual general meeting on Tuesday. Bhargava said that Maruti dealers hold around 38 days of inventory and this will come down to 10 days by the end of the year, Business Standard reported. 

—🤝 Months after calling off the $10 billion merger, media giants Zee and Sony have call reached a settlement agreement. The Economic Times reported that the two companies have given up the rights to file claims or counterclaims against each other on this deal, terminating disputes over the deal. The merger was called off by Sony in January allegedly over Zee being unable to meet the financial terms of their agreement. Public remarks were made by both companies against each other. The settlement made a positive impact on Zee’s shares that closed 11% higher on Tuesday. 

—📱 Apple’s workforce in India is expected to reach six lakh by the end of FY25, with two lakh direct jobs and 70% women in the workforce, according to estimates and data submitted by the company as well as its suppliers to the government. The iPhone maker has ramped up its India operations of late and its three suppliers Foxconn, Tata Electronics, and Pegatron, have already generated 80,872 direct jobs. However, earlier last month concerns regarding discriminatory hiring practices which involved excluding married women at Foxconn were flagged. Foxconn has denied the allegations.

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