NYKAA IPO Listing gain and capital gain tax on selling shares in IPO allotment | Capital gain on IPO

Incorporated in 2012, Nykaa is a consumer technology platform, delivering a content-led, lifestyle retail experience to consumers. The company has a diverse portfolio of beauty, personal care, and fashion products, including their own brand products manufactured by them. The company operates under 2 major verticals:

• Nykaa: Beauty and personal care
• Nykaa Fashion: Apparel and accessories

Under the Beauty and Personal Care Offering, the company has 197,195 SKUs from 2,476 brands primarily across make-up, skincare, haircare, bath and body, fragrance, grooming appliances, personal care, and health and wellness categories as of March 31, 2021. For beauty and personal care offerings, Nykaa’s business is mainly inventory-led. The company manufactures its owned brand beauty and personal care products through third-party manufacturers and are sold under their brand name such as “Nykaa Cosmetics”, “Nykaa Naturals” and “Kay Beauty”.

Apparel and accessories verticals consist of 1,350 brands and over 1.8 million SKUs with fashion products across four consumer divisions: women, men, kids, and home. Nykaa Fashion also has six owned brands.

The company provides an omnichannel shopping experience to its customers by providing both online and offline shopping channels. Online channels include mobile apps, websites, and mobile sites while offline channel consists of 73 physical stores spread across 38 cities in India.

The company is company with an IPO under the name: FSN E-Commerce Ventures.

 

Company Financials:

Summary of financial Information (Restated Consolidated)

Particulars	For the year/period ended (₹ in Millions)
	30-Jun-21	30-Jun-20	31-Mar-21	31-Mar-20	31-Mar-19
Total Assets	16,314.82	10,071.84	13,019.90	11,244.82	7,756.57
Total Revenue	8,217.14	2,910.46	24,526.37	17,778.50	11,163.82
Profit After Tax	35.22	(545.07)	619.45	(163.40)	(245.39)

It is one of the very few Start-up’s which has started earning profits.

Objects of the Issue:

• Investment of ₹ 420 million in certain of their subsidiaries, namely, FSN Brands and / or Nykaa Fashion for funding the set-up of new retail stores;
• ₹ 420 million towards capital expenditure to be incurred by the company and investment in certain of their subsidiaries, namely, Nykaa E-Retail, Nykaa Fashion and FSN Brands for funding the set-up of new warehouses;
• ₹ 1,560 million towards repayment or prepayment, of outstanding borrowings availed by the company and one of their subsidiaries, namely, Nykaa E-Retail;
• Expenditure of ₹ 2,340 million to acquire and retain customers by enhancing the visibility and awareness of the brands; and
• General corporate purposes.

 

Nykaa IPO Subscription Status

The Nykaa IPO is subscribed 81.78 times. The public issue subscribed 12.24 in the retail category, 91.18 in the QIB category, and 112.02 in the NII category.

Category	Subscription (times)
QIB	91.18
NII	112.02
RII	12.24
Employee	1.88
Total	81.78

 

The listing date for IPO is 11.11.2021.

The IPO is expected to list at a decent premium.

 

Capital gain tax on sale of shares received in IPO allotment:

 

Now, let’s talk about the taxability of gain earned if the shares are sold on the listing date itself to get listing gain by way of premium on listing and if the same is sold after some time.

 

There can be two types of gain’s: (i) long term or (ii) short term.

Since the shares are going to be listed on stock exchange hence, if the shareholder sell such shares on the recognised stock exchange, such shares will be considered as long term asset if they are held for more than one year and will be considered as short term if they are held for a period less than 1 year.

The taxability of such shares will be calculated based on section “111A for short term gain” and “112A for long term gain” wherein tax rate of short term gain is 15% of the gain and for long term gain the tax rate is 10% of the gain amount.

Looking at the current scenario we know that many people sell their shares on the listing day itself to earn the listing premium and hence the gain earned by such transaction will be considered as short term capital gain as the assessee held shares for less than one year period and hence he/ she shall be liable to pay tax at the rate of 15% on such gain under section 111A of the Income tax Act.

However if the shareholder holds the share for more than one year from the date of listing as the specialty chemical sector is likely to see boom in next year then he or she shall be liable to pay tax at the rate of 10% on the gain amount under section 112A of the Income tax Act.

 

Further, for long term capital gain no tax needs to be paid on the initial Rs. 1 lakh gain u/s 112A of the Income tax Act and no benefit of indexation will be available in case of long term gain since the shares are listed and sold on recognized stock exchange.

 

In case of long term capital gain one can claim exemption u/s 54F by investing the entire sale consideration in a new residential house and if the conditions mentioned under section 54F are fulfilled, other than section 54F there are no other way to save capital gain tax.

 

Also, the tax rates mentioned above are just base rates and surcharge and cess will also be added accordingly on such tax rates.

 

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