Elon Musk, the richest man in the world, uses Twitter polls to determine if he should sell shares in the company he owns. India’s wealthiest self-made female billionaire however prefers to stay away from the platform- having tweeted just once in the 9 years since she started up. As one entrepreneur tweeted, Falguni Nayar has proved something that many doubted- it is possible to make a super-valuable startup without being on Twitter.
Nayar is the chairperson, CEO, and MD of Nykaa, a beauty and fashion eCommerce platform that had a blockbuster listing on the bourses on November 10. The shares of her company got listed with a massive premium of over 79 percent, against an issue price of Rs 1,125, making her net worth soar to $6.5 Billion.
A graduate of IIM Ahmedabad and a former investment banker, she turned entrepreneur in 2012, just a few months before turning 50 years old. Nykaa is also one of the most unique startups to hit the public markets in India- it is the only profitable unicorn going public, and a rare new-age firm where its promoter group still owns more than half the company.
Nayar is reticent by nature and doesn’t like wearing her emotions on her sleeve. In this interview with Moneycontrol, she opened up about what wealth means to her, the expectations from the huge valuation, what she learned from ace banker Uday Kotak and her advice for budding entrepreneurs.
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Apart from the fact that this has been a stellar debut for Nykaa, this has made you the wealthiest self-made female billionaire in India. What does wealth mean for you when you see yourself being described this way?
Personally for me nothing much changed between 2012 when I began this business and today. With the passion with which the entire team at Nykaa has been working, I don’t see any change based on any money tag that is put on the company. We are trying to build a fantastic brand that lives in the minds of consumers for a very long time and build a business that is very sustainable. I think those are the motivations that the firm and I have rather than any price tag we may carry.
Nykaa is valued 1,600 times P/E and even if it grows 10X from here, it will be valued at 160 times earnings which makes it very expensive. Do you feel the pressure to justify these valuations, the demand that it has seen from investors?
Industries like ours- beauty and fashion commerce are in very early stages of development and that leaves a lot of room for growth from here. And, investors assume that, as sales grow, profitability will grow multifold because of economies of scale. This is what investors may be assuming. They may assume that profitability that is small at the moment can change very dramatically as one moves forward.
Are you confident that Nykaa can do what it did in the Beauty and Personal Care (BPC) Space in the other segments that you are betting on? From fashion to men’s grooming to mother and children’s products. How are you going to replicate what you did in BPC? BPC also worked for you because you have an inventory-led model with complete control over the quality of products, with better margins.
We introduced fashion 2.5 years ago and it has been scaling up very rapidly. We are building fashion very differently than what has existed in the market. We wanted to bring products and brands which were high on-trend and fashion and premium than what was available because we believe Indian consumers wanted more on premium quality products and that has been validated. Fashion now accounts for almost 25 percent of our GMV (gross merchandise value).
We are also doing fashion business in a very prudent manner with a reasonable margin structure. We do fashion in a marketplace manner and what we book is only the commission and take rate as they call it. The comparison of net revenue in both categories (BPC & Fashion) is not the same but the inherent profitability and unit economics of both businesses are similar. That is what we are focussing on. To deliver additional categories. We do a very vertical focussed execution, where the discovery will be very unique and is why the consumer loves our platforms.
How are you going to balance expectations of profitability from the public markets with the need to invest and grow some of these newer categories?
Customer acquisition is very critical to companies like ourselves where the penetration is currently very low and over time we can have a lot more customers. As Nykaa continues on its customer acquisition journey, we are going to make sure that we do it in a measured manner that is justified by our size and scale of operations. I think Nykaa has been very patient in that even in the past. We are keen on building platforms but we will do it at a pace that makes sense. We are not saying we will choose growth versus profitability but we will try to achieve both.
Traditionally for Nykaa, the October-December and the January-March quarters are strong. Are you benefiting from the revenge shopping, revenge travel that seems to be playing out?
We have seen a huge uptick in demand from the start of the festive season and we think it will sustain throughout this busy season which starts from festive and continues into the wedding season. We have seen in many years of our operations that our second half is much stronger than the first half in terms of the amount of business. That leads to better profitability. We end up making front-ended investments in marketing and creating warehouse capacity and a lot of that benefits us in the second half.
You started up at the age of 50, which was really going against the grain because it is perceived that one has a higher risk appetite and resilience to bounce back when they are much younger. What worked for you? Or did it help that you already established your street cred so you could plunge headlong and take those risks and recover if it did not work out?
As I think back, many years of working as a professional taught me a lot of things that may have come in handy in this leg of my journey. I always wanted to become an entrepreneur and I felt that I had more time and the ability to commit myself at a certain age and point in my life. Around 2009 is when I started itching to want to do more and Nykaa germinated out of that. I am glad that I did it. What it shows is that – whether gender, age, background, and education- none of that is a bar and you can do what you set your mind to do.
Does it help for women to start up late? They are done with all their other responsibilities and can focus on their venture?
To be honest, in my case, I did think like that. But, sometimes, I feel women put constraints in their minds which are not so necessary. Today, many women are managing their businesses cum young children. I don’t think there is one playbook. I did it when I did it, and I am glad that I at least tried it when I tried it.
Any words of advice from Uday Kotak, on running a publicly-listed company?
I didn’t really ask him. But, from watching him through many years that I worked for him, there are a couple of things that I learned from him. One, corporate governance remains important. The second is: don’t do anything which is financially not sustainable. So the right unit economics and the right financial incentives for consumers to buy on your website. You shouldn’t provide wrong incentives for consumers to buy on your website because that is not sustainable.
So many of these things I do believe I learned from him. I used to joke about it that if I do something wrong, like free shipping at any level, that is something that Uday would not approve of. So there are many lessons that stayed in my mind on whether I would or would not do something.
You also maintain a very low profile on social media. There is just one tweet from you in the last nine years. Has that helped in a sense, to just be able to put your head down and build, instead of getting distracted?
I don’t know. I think there is enough to gain on social media also. I am who I am and I can’t change myself. I think being active on social media has a huge amount of time and effort. And I am someone who spends my time a little differently. Numbers really motivate me and if I am sitting in front of a spreadsheet I spend a lot of time on it. I think it is what you like and it is always important to do what you love and I am glad that I can do that. But I think the firm does social media and it is a very important pillar of our strategy. So I believe in social media, it is just that I can’t keep up with it.
Give us a sense of what you felt today when you finally saw your baby (Nykaa) become a publicly-listed company. You don’t wear your emotions on your sleeve, so tell us what you were going through.
I have to say that yes, I don’t like to show my emotions outwardly. But today is a very important day where I feel an emotion that was quite strong. I felt pride in building a company that is so well appreciated by investors who really understand this business and their endorsement has meant a lot for me. Today was a culmination of that journey- through the hundreds of meetings we did with foreign investors and all the questions they asked.
All of that has been a very rewarding experience that has culminated into a very strong listing. I definitely feel elated and very happy and proud of my team which includes my children and the entire management team of Nykaa who have worked so hard to create and build a brand that we wish lives in the heart of Indian consumers for a very long time.
Has control always been very important to you? You still own a significant stake in the company post listing, whereas we typically see the founders getting diluted with every round.
I don’t think I built it with a view to be at any percentage of shareholding. I wanted to build with a lot of financial prudence and only dilute what is necessary.
What would your message be for entrepreneurs who want to create their own Nykaa someday?
Any entrepreneurship needs a lot of passion, hard work, conviction, and time. When I started, if I thought I would be here in three years or five years, it wouldn’t happen. It needs long innings. Somehow, I was very clear that I would need 10 years plus, and that is why I started before I turned 50. My suggestion to entrepreneurs is to choose what you love because you will have to do it with a lot of intensity, commitment, passion, and hard work for a pretty long time for it to reach the finishing line.
