By: Varsha Gundu
"Take the right risks, don't chase rewards" - Falguni Nayar
Falguni Nayar launched the Indian e-commerce business Nykaa in 2012, and it has its headquarters in Mumbai. Products for beauty, wellness, and fashion are sold on its websites, mobile applications, and in more than 100 physical locations. By 2020, it will sell 200,000 goods from over 2,000 companies on all of its channels. Nykaa has raised money through many rounds of fundraising since 2012. It acquired 100 crores (about US$13 million) in March 2020 from Steadview Capital. On November 10th, 2021, it was publicly listed on the NSE and BSE. On opening day, the price increased by 89.2%, putting the business at close to US$13 billion.
Overview
Nykaa is an online retailer that focuses on selling cosmetics and beauty products. Nykaa, which was introduced in 2012, has emerged as the top choice for all cosmetic enthusiasts in India. Early trading hours on Friday (November 11) saw a 19% increase in Nykaa's stock price, taking it to INR 224.65. For pre-IPO investors, the lock-in period would be disastrous. But it also fell on the day the shares stopped being bonus shares. On November 15, the bonus shares are credited to the Demat accounts.
On November 10, the Nykaa share lock-in period came to an end. The record date for bonus issues was originally set by the corporation for November 3, however, it was then moved up by a week to November 11. In several significant deals on Thursday, around 0.9% of the company's shares were transferred. Large numbers of shares were sold over the last two days by pre-IPO investors in the firm, including Narotam S Sekhsaria, Mala Gopal Gaonkar, Lighthouse India, and TPG Growth. Bonus shares may deter investors from selling their shares by attracting short-term capital gain if held for less than 12 months. In order to prevent a fire sale, Nykaa made the decision to match the record date for bonus shares with the release of lock-in shares. The approach appears to be a great and a clever method to stop a stock price decline, but it comes at a hefty cost to current Nykaa owners.
The stock price of Nykaa had dropped over 20% in the previous month.
Dropped by 8% on November 9 as a result of the bonus problem, which has stabilised.
The stock gained more than 5% in an otherwise subpar market from its opening price of Rs 171 ex-bonus to its day's high of Rs 185.
A share that was paid Rs 100 will receive a 5:1 bonus; indicating that the investor will have six shares totalling about Rs 17 (Rs 16.66 X 6 = 100).
The cost of purchasing your one share will now be considered as your initial cost under income tax regulations, which is Rs 100. However, the share's value has now decreased, and your books will now reflect a capital gains loss.
There will be no change in the tax liability on the bonus shares if you choose to sell all of the shares, bonus shares included. They will only be counted as capital gains; thus, you will owe a larger tax. However, this is a good deal when you take into account the profile of early investors, who are mostly friends and close colleagues of the Nayar family. Private equity investors may decide to sell a portion of their Zomato holdings in order to reduce their tax liability, but they will be subject to a 15% short-term capital gains tax as a result. With a cost of purchase of Rs 76.7 for Lighthouse India Fund and Rs 117.7 for TPG Growth, and a combined stake of 3.5% between Steadview Capital and Fidelity Securities.
If shareholders sell their interests, Nykaa's decision to distribute bonus shares to them will result in a higher tax bill for them. On November 14, IPO investors would report a Rs 915 long-term capital loss if they sold their shares in Nykaa at Rs 210 each. Your net realised loss would be Rs 206.50 if you had sold one IPO share plus five bonus shares on November 10 at the going rate of Rs 175 per share. The share price (not bonus-adjusted) would have been between Rs. 1,260 and 1,125 if there had been no incentive issue. Long-term losses cannot, however, be offset against recent capital gains under Indian tax regulations.
Nykaa's owner, FSN E-Commerce Ventures, expected its shares to trade considerably higher on November 10. The stock price of FSN E-Commerce Ventures, the company that owns Nykaa, is scheduled to trade at a substantially lower denomination. This is so that it will accurately reflect the value when the corporation issued bonus shares. The one-year lock-in period for pre-IPO investors is also scheduled to end on the same day, which might lead to some of them selling their shares.
Conclusion
A business day prior to the record date is typically the ex-date of a share or stock. As a result, the Nykaa bonus ex-date would occur one trading day before the record date, which is November 11. The ex-date for Nykaa shares would be November 10 (Thursday), which means that the stocks of the cosmetics company would trade one day ahead of the record date.
A person will not be qualified to benefit from corporate actions like a bonus, split, dividend, and more if they purchase shares on or after the ex-date. One must purchase shares of Nykaa at least one business day before the ex-date in order to receive the bonus shares.
Good one!