Despite the optimism around new tech stocks in recent months, Saurabh Mukherjea, founder of Marcellus Investment Managers said he remains unconvinced about the moat around these companies. Mukherjea is best known for picking companies with strong market leadership and management, not worrying about the high price-earnings multiples. Yet, in an interview with Moneycontrol, Mukherjea said he remains unconvinced about investing in them after having evaluated some of them.
He said that FSN E-Commerce Ventures which operates Nykaa should be investing more and strengthening its position in the beauty and personal care segment where it has established leadership, rather than investing in apparels. “Beauty and personal care is Nykaa’s strong segment as the company has a first mover advantage in the segment. This is where the company should invest,” Mukherjea said. India’s premium beauty and personal care segment is estimated to be at 55 percent by 2026.
Nykaa, however, has expanded its focus into the apparel segment hoping to recreate its success in the beauty and personal care space. It has been much less successful in its pursuit. With Myntra already having established its leadership in this space, and competition only getting hotter with Reliance’s Ajio also emerging as a strong contender, establishing leadership may be a struggle for Nykaa and this would only stretch its path to profitability.
“Nykaa should ramp up its technical platform and focus on basic tech updates,” said Mukherjea. He said that the platform can't differentiate between a man and a woman, and it needs basic tech upgrades.
Mukherjea said that he’ll invest in the company after seeing how Nykaa allocates capital after it starts making some money.
Also read: China's belligerence causing a bull run in India: Marcellus' Saurabh Mukherjea
FSN E-Commerce Ventures has lost 62 percent since its listing. Nykaa had made a strong debut performance on the exchanges with a 71 percent premium and had listed at an issue price of Rs 2,001 on the Bombay Stock Exchange (BSE). The stock is currently trading around Rs 148 on the BSE.
Nykaa’s net profit for FY23 narrowed 53 percent to Rs 19.3 crore. But in the past quarter, its profits declined by over 70 percent year-on-year (YoY) to Rs 2.3 crore compared with Rs 7.6 crore in the same quarter last year.
Besides, during the quarter, the monthly average unique users for the beauty and personal care sector increased to 23 million, up by over 21 percent from 19 million in Q4FY22. The monthly average unique users for the fashion category, after remaining flat for about five quarters at 16 million, saw a jump to 19 million in Q3FY23, but settled at 17 million in Q4FY23.
Mukherjea alsosaid that he is “not particularly convinced” about Zomato’s growth prospectus despite the food aggregator being the leader in food delivery.
Zomato has bettered its financial performance although its acquisition of quick-commerce business Blinkit has been a cash guzzler, and some analysts are again much less convinced about the economics of this business. Zomato's consolidated net loss for the past quarter narrowed to Rs 188 crore from Rs 360 crore a year ago, much below the analyst expectations of Rs 356 crore. Its consolidated revenues increased 70% year-on-year to Rs 2,056 crore.
But Mukherjea's concerns are more around Zomato’s leadership. It is because the Open Network for Digital Commerce (ONDC) is taking away customers from Zomato as the cost of delivery on ONDC is lower.
Since its listing on the stock exchanges, Zomato has lost around 40 percent. The stock is up 26 percent since the beginning of the year.
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