Nykaa, which is operated by its listed parent company FSN E-Commerce Ventures, is likely headed for an upside of 80 per cent, beleives Kotak Institutional Equities (KIE). The domestic brokerage firm is positive on the new age internet company and suggests investors to buy the stock. However, it has slashed its target price.
Nykaa, which is among the profitable new age internet companies, was among the worst performer of 2022 as the stock nosedived more than 60 per cent in the previous calendar, while the stock has wiped out two-third of its value till date from its adjusted price at Rs 355 on January 1, 2022. The stock was trading marginally lower at Rs 128 on Friday.
Compared to its adjusted record high, the stock is trading about 72 per cent lower, whereas it has corrected 17 per cent in less than three weeks of 2023 so far. The stock has been consistently hitting new 52-week low, particularly on the back of bulk deals, which mark exit of large pre-IPO investors, who offloaded the stake after the expiry of mandatory lock-in.
Nykaa’s stock price has corrected sharply on market weakness and worries of a slowdown in discretionary consumption, said Kotak Institutional Equities. "Our channel checks with apparel companies suggest this slowdown across both offline and online channels that may percolate to beauty and personal care (BPC) as well."
The brokerage believes that a slowdown a customer discretionary spends across various categories of consumption. Nykaa is unlikely to remain unscathed. "We assume a bigger slowdown in Nykaa’s fashion segment revenues on account of its mix, which is heavily dependent on high-priced products; this category may witness a sharper slowdown," it said.
Nykaa’s flagship Pink Friday sale, between 21-28 November 2022, recorded 8,00,000 orders in a day, a like-for-like growth of 40 per cent on a yearly basis. The first day of the sale also witnessed 10 million visits and 5.8 million unique visitors, KIE said. 57 per cent of the purchases were made by shoppers from tier II/III cities in the sale period, it added.
Falguni Nayar led FSN E-Commerce Ventures raised 5,352 crore from its primary stake sale which operates the onmichannel platform Nykaa It operated in beauty and personal care and apparels. The company was listed in November 2021 and issued bonus shares in 5:1 ratio on January 10, 2022, exactly after one year of its listing.
"Our thesis on Nykaa’s position of strength in the BPC segment remains unchanged, we do bake in a slower BPC gross merchandise value CAGR of 27 per cent over FY2023-26. Nykaa’s profitability metrics can see steady improvement, near-term slowdown notwithstanding," said with a buy rating and a target price of Rs 230, which was Rs 270 earlier.
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