Sunday, Nov 27, 2022

Why Is FSN E-Commerce, Nykaa's Parent Company, Issuing Bonus Shares?

Analysts say that unicorn is considering this move to increase its stock liquidity and present itself as a lucrative opportunity to investors 

FSN E-Commerce, the parent company of fashion and lifestyle direct-to-consumer brand Nykaa, informed the Bombay Stock Exchange (BSE) that its board will meet on October 3. On the agenda is a discussion to approve the issuance of bonus shares to its equity shareholders.

"We wish to inform you that a meeting of the Board of Directors of the Company will be held on Monday, October 03, 2022, to, interalia, consider and approve the issuance of Bonus Shares to the equity shareholders of the Company in the ratio, as it may deem fit," said FSN E-Commerce in a stock exchange filing.

If approved, this will be the first bonus issue of shares by the Falguni Nayyar-founded company post its much-spoken about initial public offering (IPO) last November. Nykaa shares crossed the Rs 1 lakh crore market capitalisation mark on the first day of trading after it was listed, which caught the attention of most industry watchers.

The Highs, Then The Lows

FSN E-Commerce shares opened for trading at Rs 2,018 on the National Stock Exchange, up 79 per cent from its issue price of Rs 1,125 per share on November 10 last year. On the BSE, the shares opened for trading at Rs 2,001, up 78 per cent from the issue price. This opening day performance is considered amongst the best from public listings last year.

However, since then, the brand's stock price has seen a massive decline. Falling down 63 per cent from its listing day opening price, it later picked up by 14 per cent from its IPO price of Rs 1,125 per share. These fluctuations notwithstanding, Nykaa shares remained in high demand during the share sale last year. Analysts were impressed that its public issue was oversubscribed 82 times. 

Why The Rush For A Bonus Issue?

According to analysts, the company is providing this bonus issue to increase liquidity in its stock and become more lucrative to investors. "They are not giving this bonus issue from the money they have earned. Instead, they will be giving it from their equity reserve, since Nykaa was listed at a huge premium," market sources told Outlook Business.

Interestingly, new-age tech shares have fallen out of favour in recent times. However, what works to Nykaa's advantage is that it is a profitable company. And while this profit is not huge, investors nonetheless find it an attractive bet to invest in, especially if the bonus issue comes through.

Once FSN E-Commerce's board approves the bonus issue in any given ratio, the bonus shares will be credited to shareholder accounts. The share price will also be adjusted accordingly.