Shares of Falguni Nayar-led online beauty retailer Nykaa hit their all-time low today amid a rally in the broader market. The stock listed as FSN E-Commerce Ventures touched a record low of Rs 1,061.55, down 4.42 percent on BSE. The stock has been losing for the last two days. Nykaa stock is trading lower than 5 days, 20 days, 50 days, 100 days, and 200-day moving averages. The scrip lost 49.5 percent in 2022 and fell 8.73 percent in a week. The market cap of the firm fell to Rs 50,421 crore on BSE. A total of 0.33 lakh shares of the firm changed hands amounting to a turnover of Rs 3.53 crore.
Nykaa’s share price tanked more than 7% on Thursday morning, a day after the company reported its October-December quarter results. FSN E-Commerce Ventures the parent company of Nykaa saw a strong 36% on-year revenue growth but the net profit of the company fell sharply by 58% from the previous year. However, analysts are largely still bullish on the stock although target prices have been trimmed. Nykaa stock is down nearly 15% so far this year, falling significantly during the last few days of January amid the global tech rout. The scrip currently trades at Rs 1,716 per share.
Ahead of the expiry of the mandatory one-year lock-in period for pre-IPO investors, the stock has been under selling pressure and lost its status of an exceptional star performer in the pack of newly listed tech stocks.
Today’s sell-off in Nykaa, which is scheduled to announce its September quarter numbers on November 1, comes amid carnage in US tech stocks with Meta sinking over 24% and Amazon nearly 20%.
What should investors do?
Unlike most of its peers in the list of India’s new-age tech companies, Nykaa is profitable.
The concern that we see is that post IPO there was a huge run-up in stock prices. The valuation is difficult to project or justify based on traditional metrics because these are new-age businesses. There was a huge demand from some global funds. Now global tech is not doing well. Some of these funds are waiting for or reducing their positions in these new-age businesses,” said Siddhartha Khemka, Head of Retail Research, however, he is confident that the stock will do well in the long run.
Global brokerage firm Nomura, which had recently initiated coverage on the stock with a target price of Rs 1,365, said the risk-reward is quite favorable for long-term investors with the potential for the stock to double over the next 5 years.
Nykaa’s BPC business is deserving of a higher multiple than DMart due to its better margin profile and asset-light nature. While the current market price of Nykaa still implies strong valuations when compared to most traditional companies, that does not factor in the growth seeds that Nykaa is planting by investing in Fashion and eB2B segments,” the brokerage said.
Out of 17 analysts with coverage on the stock, a majority of 11 have to buy ratings.
Strong revenue growth
Nykaa’s 3QFY22 revenues grew by a solid 36% on-year driven primarily by a 49% on-year increase in GMV, aided by the festive season and flagship sale event,” said analysts at Kotak Securities. “Revenue growth trailed GMV growth as fashion GMV increased at a faster pace than beauty, and fashion has a much lower take rate than the beauty segment,” they added. The average order value of Nykaa increased by 24% from the previous year. The average order value stood at Rs 3,590, the same is expected to cool down in the January-March quarter.
Rating and target price
Analysts at Kotak Securities have trimmed the fair value of Nykaa stock to Rs 2,100 per share from Rs 2,150 apiece and have retained their “ADD” rating on the firm. IIFL Securities have upgraded the stock from a ‘Sell’ rating to ‘Reduce’ now. “We increase our BPC WACC, from 10% to 10.5%, taking into consideration an increasing interest rate scenario (the 50-bps increase reduces our TP by 13%) and arrive at a target price of Rs 1,650 per share,” they said. Buy rating on Nykaa with a target price of Rs 2,120 per share down from Rs 2,480 apiece. “We believe Nykaa will continue to remain the default online BPC platform in the country with increasing market share in online fashion.