Nykaa – The Make Up Company

Being a very few of the profitable Ecommerce firms, Nykaa was talk of the town at the time of IPO.

Like many other investors, I too wanted to own this profitable tech business.

The brilliant listing, the big guns minting money, I waited for my first buy and started following the firm closely.

Quick 10-11 months after listing, and near to the uplifting of lock in period, Nykaa bonus/split startes to make the noise.

Like many others I too found it to be a gimmicky move to uplift the sleeping giant, move the share price up and give a profitable exit to pre IPO investors.
I ignored and decided not to invest in the firm for shirt to mid term and stopped following the business.

And then today morning, I happened to go through the latest video from Think School YouTube channel and got aware about the ethical but not in good taste tactics from the company and here it is.

Suppose you owe 1 share of Nykaa at 1125 At IPO price , and plan to sell on 14th Nov at the price of 210
(Most of the pre Ipo investors wanted to do that after the 1 year lock in period)

Now see what happens if you exited your IPO holding on 14th Nov

So that 1 share of Nykaa has split into 6 shares of Nykaa each worth 210

5 bonus shares , 1 existing share.

Tricky part is only that 1 share is applicable for long term capital gain/loss, in this case loss and rest of the 5 shares are bonus shares and come under STCG

So LTCL = 210 – 1125 = -915

And rest of the freshly gained bonus shares come into short term capital gains(This complete holding is considered as bonus holding, so complete holding coming under profits)

So STCG = 5*210 = 1050
15%of 1050 = 157.5

So net short term profit = 1050-157.5 = 892.5

So total amount that would come to your account after selling 6 shares on 14th Nov.

210 from 1 existing share
892.5 from 5 bonus shares

Total amount that you own = 1102.5
So the net loss if sold on 14th Nov after taxes = 1125-1102.5 = 22.5

Now think about the pre IPO investors and many such big investors that get locked in for 1 year post IPO.

Basically Nykaa tried to stop them from selling post lockin period by this ethical but “not to be taken in good taste” tactics but they failed, many of the existing pre ipo investors still went ahead with selling the Nykaa shares.

Post this Nykaa’s reputation has surely gone for a toss.

P. S. : Not following the business any more, not invested.

Sources : Think school YouTube channel (latest video)