Nykaa shares: Is this beaten-down stock headed for 98% upside or more correction left?

FSN E-Commerce Ventures (Nykaa), after a brutal sell-off in the last few months, has seen a mixed opinions from different brokerage firms ahead of the quarterly earnings. While some analysts see the stock almost doubling from current levels, while others see more downside left in the counter.

Fueling the bulls versus bears tussle, JM Financial sees stock almost surging about 100 per cent from current prices, while HDFC Securities see more correction in the counter.

HDFC Securities recently met Nykaa’s management to primarily track their core thesis and what it holds. The brokerage has maintained its 'reduce' rating on Nykaa stands with a target price of Rs 110 per share. The brokerage believes that Nykaa will find it tough to add new consumers.

"Our three-point thesis was total addressable market (TAM) seemed oversold; ad revenue will be closely contended for; and Nykaa seems more like an efficient pipe business than a platform. All three still hold," it said. "Management highlighted that BPC offers an upside from product cross-selling, purchase frequency and market share gains, its performance doesn’t quite add up."

HDFC Securities said that rising competition, more cost of acquisition, softening product margins are likely to dent Nykaa's prospects. This makes the operating levers more linear against a platform, said the domestic brokerage firm.

Shares of Nykaa see-sawed between negative and positive territory. The stock rose about 2 per cent to Rs 119.40 on Thursday before losing its entire gains to trade at Rs 116.40. The company was commanding a market capitalization less than Rs 33,500 crore and the scrip had settled at Rs 117 on Wednesday.

Shares of Nykaa have been in a free fall for quite some time. The stock is down 15 per cent in the last one month, while it has dropped 35 per cent in the last six months. It is down 25 per cent in the year 2023 so far, while the stock has lost about 60 per cent of its value in the last one year.

On November 10, 2022, FSN E-Commerce Ventures had announced a bonus in a 5:1 ratio as the company completed one year of its listing. Some analysts saw it as a clever corporate machination that prevented a fall in its stock price. The stock, on the adjusted price basis, has plunged about 72 per cent from its record peak around Rs 406.

"Nykaa’s stock price has fallen significantly over the past 20 days since the company released its revenue update for Q4FY23. We find this move quite surprising considering that the beauty business continues to grow robustly despite the poor discretionary spending environment and the company seems to be curtailing exorbitant investments to grow the fashion business," said JM Financial.

"We are appreciative of these trends and believe the company is making the right strategic calls. In this note, we highlight key discussion points with the investors and provide our perspective," it added with a 'buy' rating on the stock with a target price of Rs 230, suggesting an upside potential of 98 per cent. It believes that the stock should be accumulated generously.

Other than the quarterly business updates, Nykaa has been under the spotlight recently after it announced the exit of five senior executives after a slew of exits throughout 2022. Not only the executives, even the global funds sold the stock after the mandatory lock-in of one year expired.

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