Shares of Nykaa (listed as FSN E-Commerce Ventures Ltd ) fell today after three days of gains as brokerage firm Macquarie initiated coverage on the beauty e-retailer with an underperform rating. It has assigned a price target of Rs 115. Macquarie's price target on Nykaa is the lowest on the street. The price target translates into a potential downside of 23 percent from the current level. Macquarie's bear case target for Nykaa Rs 70, half the price from the current levels.
Nykaa stock fell up to 2.77% to Rs 145.55 against the previous close of Rs 149.70 on BSE. The scrip has lost 4.81 per cent in 2023 and fallen 41.23 per cent in a year. Market cap of the firm slipped to Rs 41,883 crore on BSE. Total 3.66 lakh shares of the firm changed hands amounting to a turnover of Rs 5.39 crore on BSE.
Nykaa shares hit a 52-week high of Rs 315.86 on April 11, 2022 and a 52-week low of Rs 120.75 on January 23, 2023.
In terms of technicals, the relative strength index (RSI) of the stock stands at 57.3, signaling the stock is neither oversold nor overbought. The stock has a one-year beta of 1, indicating average volatility during the period. Nykaa stock is trading higher than the 5 day, 20 day and 50 day moving averages but lower than 100 day and 200 day moving averages.
The brokerage in a note said Nykaa faces risk to its beauty segment margin as growth moves to smaller towns, offline channels and competition in the field increases.
However, Macquarie is positive on the potential of the Indian beauty market as rising per capita income drives a shift from basic lip and eye-focused products to skincare regime. The sharp growth in e-commerce though, may see moderate in the near-term due to a high base.
"With larger D2C brands increasingly looking to move offline and customers demanding more physical stores to experience products, we believe Nykaa would need to reinvest leverage gains to sustain growth," the note said. The brokerage also said that problems for Nykaa may also exacerbate by the entry of new players like Reliance Retail and Tata Cliq.
"We remain concerned about Nykaa's ability to profitably grow in the fashion segment where the company offers a curated marketplace of third-party / newly developed own apparel brands," the brokerage note said.
"An analysis of offline retailers indicates that players using a curation-led approach with third party brands have seen limited success."
A gradual expansion in beauty margin and higher losses in fashion business have resulted in Macquarie's financial year 2024 and 2025 operating profit estimates being 20-30 percent lower than consensus.
Higher profitability in the beauty business and lower losses in fashion are some key risks to the downside projection, added the note.
Shares of Nykaa made a stellar listing on bourses on November 10, 2021, gaining 82 per cent to Rs 2,054 on NSE against the IPO issue price of Rs 1,125. Since listing, the stock has plunged over 93 per cent till date.
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