They say beauty lies in the eyes of the beholder and that is truly what is happening with Nykaa. Where do you see headed post listing? Could it go to the Zomato way which is one a good listing and then it enters into a range or could it go the D-Mart way which is a great listing but the stock maintains its upper trend?
There is a lot of interest in companies like Nykaa which is a combination of a great start up with ecommerce play. Fashion being the key area where they are focussing upon, I definitely feel that post listing, there should be enough and more appetite for names where the promoter pedigree is extremely good and the company is showing consistent growth on many parameters. People would want to participate in such unique stories particularly because it is a new listing. The overall interest is relatively higher.
Now whether it will go D-Mart way or it will go Zomato way is very difficult to say but I definitely think that out of x number of companies which are getting listed at such crazy valuations, may be a few companies will eventually turn out to be big winners over the next two or three years like we have seen in the case of D-Mart. When D-Mart got listed, there were concerns on valuations and expansion. But we have performance in front of us and so Nykaa has that kind of promise and potential. We will have to see how things pan out over the next three or four quarters before we take a big call on it.
So what should one do with Nykaa because this is one of those tech IPOs which is a profitable company. That changes a lot of benchmarking for Nykaa. Falguni is an ex-merchant banker. She understands how to value, what to value and what markets appreciate. Would you advice our viewers to buy into Nykaa as it lists at over 70% premium?
People can definitely have some allocation depending upon their comfort and appetite in a company like Nykaa from a two to three year perspective. Given the pedigree of the promoter and the kind of business model that Nykaa has displayed, I think there is a long way to go. Some companies will eventually become too big even from the current market cap and valuations that they are trading at. This is one company where it will definitely make sense to have some allocation from a two to three year kind of a perspective.
Given the frenzy in the IPO market, the response to Paytm IPO so far is slightly underwhelming. Why is that?
The amount of money which is available for any IPO would be limited in terms of funding that has been done through IPO. Also in case of retail participation, there is going to be some limit in terms of how much they will be able to go for. Our sense is that no doubt in terms of fintech startup space, Paytm is an exciting story with very strong brands and the transaction growth has been exponential, but at the end of the day people do have concerns on what kind of valuations some of these start-ups are getting and what kind of business model they have, which would eventually turn into a sustainable and profitable company.
As of now, the wallet based and transaction-oriented companies are looking extremely impressive but there is a little bit of a concern about when the company turns profitable and how do they counter some of the big names like GooglePay and many other companies which are there and whether they will be able to actually cross sell and do something meaningful that will add value to the shareholders or justify the valuation that they are getting.
So we are a little cautious on Paytm and there are definitely points where we would really have some deep dive into the numbers going into the next two or three quarters. When we are convinced about the numbers and the profitability, we would turn positive. As of now, we have a neutral view.
