Nykaa’s Bonus Issue - A Management Lesson

The real emotion is – Damn!! What really happened?

Well they planned it really well and unlike recently listed startups, they planned not only for the IPO but they even planned after IPO events and they planned it to the Ts.

?Nykaa definitely watched closely what happened with other startup IPOs and in no time planned their 1 year strategy post IPO. Many people are calling it a corporate governance failure but I would rather compare it with tax planning and not tax evasion.

In my view, this is how the events unfolded:

1.??????Based on other startups post IPO performances, it was suspected that after the lock-in release the share price of Nykaa might get affected as well. My analysis is that the Nykaa management knew this and hence planned to issue 5 bonus shares before the end of their first IPO anniversary to prevent such a situation.

2.??????Now, to issue the bonus shares, Nykaa had to take shareholders’ approval where the shareholders need to approve the bonus issue by a majority of votes. So it needed 51% positive votes.

3.??????The issue was open for 30 days to vote – wherein shareholders had decent time to weigh the pros and con before voting.

4.??????As it’s a Bonus issue, so promoter is allowed to vote. Promoter & Promoter Group holds 52.38% (as per Sept 2022 shareholding details).

5.??????The Bonus Issue Resolution would have passed easily with 51% voting without worrying about the public shareholder’s approval.

6.??????But the Public Shareholders’ voted and they voted in favor of the resolution in huge numbers i.e 80% of the public shareholders voted in favor out of the total public shareholding.

7.??????Finally, the bonus shares were issued.?

Now, you can debate that Nykaa used the fine prints to overcome a possible threat and SEBI along with other government agencies should act. However, isn’t it the job of the Company Management to prevent a threat before it strikes them? Why some people are asking the management to penalize the team who is responsible to oversee and prevent a possible threat?

We need to understand basic facts and these cannot be ignored before you come to conclusions:

1.??????Large shareholders are well read and aware of the market and have a data driven approach.

2.??????They know what they are voting for or against and they know their bets.

3.??????Proxy Advisory firms are available to guide such investors on such occasions.

Conclusion:

It was a fair move by Nykaa to protect their and investors’ interest as well. The fact that 80% of the public shareholders voted in favor proves that it was a deal that everybody wanted to happen. In my view, SEBI may not take any action in this case as there was no corporate governance failure. In fact, this a good lesson for financial pundits and risk planners to analyze how to mitigate a potential threat.

Kudos to team Nykaa Falguni Nayar Anita Ramachandran Rajendra Punde

#nykaa #ipo #managementskills #riskmanagement #corporategovernance #corporatelaw