Nykaa stock: FSN E-Commerce Ventures (Nykaa) has been given a “buy” rating and a base target of Rs 1,650, suggesting that Jefferies has limited single digit upside potential for the stock. The foreign brokerage sees the stock at Rs 900 in the worst case scenario and at Rs 2,300 in the most bullish outcome. India’s internet opportunity is attracting players in a variety of categories, with growth usually at the expense of profitability, Jefferies said in a March 16 research report.
The target price of Rs 1,650 for Nykaa by Jefferies marks a 10.3 percent increase 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 traded 2.3 percent higher at Rs 1,530.10 on BSE.
“Product range, discovery and authenticity drive high repeats and the content ecosystem is captivating. Fashion is growing fast, but the right to win has yet to be proven. Start on buy – pullback in technical valuation is a key risk,” the note added. Jefferies’ Buy rating on Nykaa shares comes with a target price of Rs 1,650 each, with its upward scenario price target of Rs 2,300 and downward scenario of €900.
Under the base case, the brokerage is building strong growth of 25 percent, compounded annually in orders for Nykaa BPC over FY22-26, which it says will be led by new client additions.
“Order frequency is expected to see gradual growth as customer cohorts mature. AOV is expected to remain flat over the medium term due to potential dilution from new customers. BPC GMV is expected to grow strongly at 25 percent CAGR in FY22-26. Fashion will expected to continue rising on the low base. We’re building in 35 percent GMV CAGR for fashion,” it reads.
Consumer stocks in India enjoy a significant premium given the growth curve and should likely remain so for Nykaa, although questions remain about the real valuation multiple, the global brokerage firm emphasized. While competition at core BPC will intensify and late entry into a fashion of strong and deep competition and a dip in technical valuations, Jefferies said could pose significant risks.
“It has a strong content ecosystem that includes Network, TV, Beauty Book and Army. There are >3,000 influencers; the YouTube-based platform has >1 million subscribers. BPC loyalty program, Nykaa Prive has >2 million members. Existing customers drive about 70 percent of GMV and >60 percent of GMV comes from tier 2/3 cities. The lessons of the platform have been translated into own labels,” according to the note.
Founded in 2012 by former investment banker Falguni Nayar, FSN E-Commerce Ventures Ltd operates an online marketplace for beauty and wellness products Nykaa and owns branded products under its two business verticals – Nykaa and Nykaa Fashion. The newly listed stock, which made its market debut in November 2021, is down more than 27 percent so far in 2022 (year-to-date or YTD).
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