Rating Rationale
February 06, 2025 | Mumbai
Nykaa E- Retail Limited
Rating upgraded to 'Crisil A/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.400 Crore
Long Term RatingCrisil A/Stable (Upgraded from 'Crisil A-/Positive')
Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Crisil Ratings has upgraded its rating on the long-term bank facilities of Nykaa E- Retail Limited (Nykaa E-Retail) to ‘Crisil A/Stable' from ‘Crisil A-/Positive’.

 

The revision in rating reflects similar rating action on the rating of the parent, FSN E-Commerce Ventures Limited (FSN, rated 'Crisil A/Stable’). The rating was upgraded basis further improvement in group business risk profile with sustained increase in revenues and steadily improving operating profitability and healthy financial risk profile.

 

On standalone level, Nykaa E-Retail’s business risk profile continued to remain strong driven by high revenue growth and healthy operating profitability. Sustenance of operating margin and gradual improvement over the medium term while maintaining growth will remain key monitorable over the medium term. Financial profile also remains strong with strengthening of networth and moderate debt levels. Liquidity remains strong owing to adequate net cash accruals against repayment obligation and moderate utilization of bank lines. 

 

The ratings reflect the strong support received from the parent, FSN, established market position in the e-commerce beauty products segment, diverse product range across categories, longstanding relationships with reputed principals, prudent risk management policies and above-average financial risk profile metrics. These strengths are partially offset by exposure to intensifying competition.

Analytical Approach

The ratings of Nykaa E-Retail factor in support expected from its parent FSN. Crisil Ratings believes that Nykaa E-Retail will, in case of exigencies, receive distress support from its parent for timely repayment of debt obligations, considering FSN’s ownership of 100% stake in Nykaa E-Retail, operational, managerial support from FSN, and corporate guarantees extended by FSN for Nykaa E-Retail’s debt obligations.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position of parent in the e-commerce space: Nykaa E-retail has established a strong market position in the e-commerce beauty products segment, backed by strong position of the ‘Nykaa’ brand. It has been able to establish and retain a large customer base, leading to repeat orders from a large part of its customers. FSN’s presence in offline beauty retail model through another subsidiary, helps in acquisition of new customers and ensuring timely delivery of products for the e-commerce segment. Increasing presence in the growing e-commerce segment has helped increase revenues steadily to Rs. 4,783 crores in fiscal 2024 from Rs 4053 crores in fiscal 2023. The revenues are expected to further increase to more than Rs 5650 crore in the fiscal 2025.

 

  • Longstanding relationships with reputed principals and wide product portfolio: Nykaa E-retail has longstanding relationship with the principals with which it has been associated for more than a decade. It has tie-ups with more than 3600 brands and has over time consolidated its position as one of the leading distributors for some of these brands. Direct purchases from brands ensures quality and genuineness of the products being sold. It has a large number of stock keeping units (SKUs) across various price categories in the categories of make-up, skin, personal care, hair, wellness, fragrance, among others. Hence, there is no dependence on any particular principal, brand, or product.

 

  • Prudent risk management practices: Nykaa E-retail has followed prudent risk management practices that have enabled it to mitigate risks inherent in the trading kind of business. Risks include vendor concentration have been mitigated by onboarding numerous suppliers/vendors, thus reducing revenue concentration on any single supplier. The quick cash conversion cycle and the strong relationship with vendors also ensures limited inventory-related risk. A robust management information system helps keep track of inventory levels and expiry dates. Adherence to such risk management policies whilst growing at a rapid pace will remain a key rating sensitivity factor.

 

  • Healthy financial risk profile and support from parent: Adjusted Networth was robust at Rs 595 crore as on March 31,2024 and estimated to be more than Rs. 800 crores for fiscal 2025. capital structure remains comfortable, with gearing and total outside liabilities to adjusted networth (TOLANW) ratios of 0.57 and 1.40 times as on March 31,2024 and expected (TOLANW) to further improve below 1 time in medium term. Debt protection metrics remains comfortable, on account of healthy cash accruals with interest coverage of around 9.68 times and net cash accruals to adjusted debt of 0.91 times in fiscal 2024. The debt protection metrices are expected to improve further with improved profitability. Moreover, Nykaa E-retail’s bank debt is guaranteed by FSN.

 

Weakness:

  • Exposure to intensifying competition: Although Nykaa E-retail has established its market position in the beauty segment, it remains exposed to intense competition from other organized and unorganized players in the industry. Intense competition may require players to provide periodic discounts and attractive schemes in order to stave-off competition and retain customers. Aggressive expansion by existing competitors and emergence of new large players may impinge upon the profitability and revenue of Nykaa E-retail.

Liquidity: Strong

Nykaa E-Retail has strong liquidity available to it, driven by expectation of support from the parent FSN (rated 'Crisil A/ Stable) to provide ongoing and need based support, in case of exigencies. On a standalone basis, Nykaa E-Retail has sufficient liquidity driven by expected cash accruals of Rs.332-485 crore over medium term against term debt repayment obligations of Rs.62.5 crores each in FY 2026 and FY 2027 respectively. Nykaa E-Retail had utilized its fund-based limits, to the tune of 74% on an average over the 12 months ended November 2024. Crisil Ratings expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its incremental working capital requirements.

Outlook: Stable

Crisil Ratings believe that Nykaa E-Retail will continue to benefit from the extensive experience of its promoter.

Rating sensitivity factors

Upward factors

  • Upward change in the credit rating of FSN by one notch could have a similar rating change on Nykaa E-Retail.
  • Sustained increase in revenue and operating margin over the medium term.

 

Downward factors

  • Downward change in the credit rating of FSN by one notch could have a similar rating change on Nykaa E-Retail.
  • Any change in the support philosophy of FSN that may lead to a downward revision in the quantum and timing of support and, hence, the ratings of Nykaa E-Retail.
  • Decline in revenue or operating margin below 5.5% resulting in lower cash accruals.

About the Company

Incorporated in 2017, Nykaa E-Retail is a 100% subsidiary of FSN and is engaged in the business of selling of beauty, cosmetic and grooming products for different brands through own e-commerce sites- Nykaa.com and Nykaaman.com, as well as Nykaa mobile application.

About the Group

FSN, incorporated in 2012 in Mumbai, is engaged in e-retailing of beauty and fashion products through three web portals: nykaa.com, nykaaman.com and nykaafashion.com. It also has 210 retail stores across India under the Nykaa brand as on September 30,2024. It manufactures private label beauty products under various brands- majorly Nykaa and Kay Beauty. The company is also engaged in online distribution business for retailers. The group has collaborated with some major international brands such as Charlotte Tilbury, Elf Cosmetics, Urban Decay, Foot Locker, Revolve, and Cider. 

FSN is promoted by Mrs. Falguni Nayar and is managed by her along with her son, Mr. Anchit Nayar and her daughter, Ms. Adwaita Nayar. They are supported by professional management. FSN is listed on BSE and NSE.

Key Financial Indicators

As on / for the period ended March 31

Units

2024

2023

Operating income

Rs crore

4783

4052

Reported profit after tax (PAT)

Rs crore

226.83

191.22

PAT margin

%

4.74

4.72

Adjusted debt/adjusted networth

Times

0.57

0.74

Interest coverage

Times

9.56

7.33

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
Crisil Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Cash Credit & Working Capital Demand Loan NA NA NA 400.00 NA Crisil A/Stable
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 400.0 Crisil A/Stable   -- 07-02-24 Crisil A-/Positive 07-02-23 Crisil A-/Stable 03-08-22 Crisil A-/Stable Crisil BBB+/Positive / Crisil A2
      --   --   --   -- 07-07-22 Crisil A-/Stable --
      --   --   --   -- 13-05-22 Crisil A-/Stable / Crisil A2+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit & Working Capital Demand Loan 120 Kotak Mahindra Bank Limited Crisil A/Stable
Cash Credit & Working Capital Demand Loan 48 Axis Bank Limited Crisil A/Stable
Cash Credit & Working Capital Demand Loan 50 IDFC FIRST Bank Limited Crisil A/Stable
Cash Credit & Working Capital Demand Loan 20 HDFC Bank Limited Crisil A/Stable
Cash Credit & Working Capital Demand Loan 40 Citi Bank Crisil A/Stable
Cash Credit & Working Capital Demand Loan 40 ICICI Bank Limited Crisil A/Stable
Cash Credit & Working Capital Demand Loan 82 Axis Bank Limited Crisil A/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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