Nykaa Stock: FSN E-Commerce Ventures (Nykaa) has been given a ‘buy’ rating and a base target of Rs 1,650, suggesting limited single-digit upside ahead for the stock by Jefferies. The foreign brokerage sees the stock at Rs 900 in its worst-case scenario and at Rs 2,300 in the most bullish outcome. The India Internet opportunity is attracting players across categories, with growth mostly being at the cost of profitability, Jefferies said in a research report dated March 16.
The target price of Rs 1,650 for Nykaa by Jefferies marks a 10.3 per cent upside from Wednesday’s closing level of Rs 1,496.2. The brokerage says Nykaa is “a unique combination of growth and profitability”. On Thursday, the scrip was trading 2.3 per cent higher at Rs 1,530.10 on BSE.
“Product assortment, discovery & authenticity drive high repeats and the content ecosystem is engaging. Fashion is growing rapidly but the right to win is yet to be proven. Initiate at Buy – pullback in tech valuation is a key risk,” the note added. Jefferies’ Buy rating on Nykaa shares comes with a target price of Rs 1,650 apiece, with its bull case upside scenario price target of Rs 2,300 and downside scenario of Rs 900.
In its base case, the brokerage builds in a strong 25 per cent growth compounded annually in orders for Nykaa BPC over FY22-26, which it said will be led by new customer additions.
“Order frequency is expected to see a gradual growth as customer cohorts mature. AOV is estimated to stay flat in the medium term on account of the potential dilution from new customers. BPC GMV is expected to grow strong at 25 per cent CAGR over FY22-26. Fashion is expected to continue ramping up on the low base. We build-in 35 per cent GMV CAGR for Fashion,” it said.
Consumer stocks in India enjoy a significant premium given the growth runway and this should likely continue for Nykaa although the question remains on the fair valuation multiple, the global brokerage highlighted. Though competition is set to rise in core BPC and late entry into a fashion which has strong & deep-pocketed competition as well as a pull-back in tech valuations could act as key risks, as per Jefferies.
“It has a strong content ecosystem with Network, TV, Beauty Book, and Army among others. There are >3,000 influencers; the YouTube-based platform has >1m subscribers. BPC loyalty program, Nykaa Prive has >2m members. Existing customers drive c.70 per cent of GMV and >60 per cent of its GMV is from tier 2/3 towns. Learnings from the platform has translated into own labels,” the note added.
Founded in 2012 by former investment banker Falguni Nayar, FSN E-Commerce Ventures Ltd, which runs an online marketplace for beauty and wellness products Nykaa, has its owned manufactured brand products under its two business verticals – Nykaa and Nykaa Fashion. The newly listed stock, which made its market debut in November 2021, is down over 27 per cent in 2022 (year-to-date or YTD) so far.
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