Brokerage firm JM Financial has initiated coverage on FSN E-commerce Ventures, known as Nykaa, with a “buy” rating and a target price of Rs 2,480.
This indicates a 24 percent upside from its current levels of Rs 1,999 on the BSE.
The e-commerce beauty and personal care (BPC) platform had listed at Rs 2,018 on November 10, an 80 percent premium to its issue price of Rs 1,125. However, it is currently trading below its listing price after the recent market rout affected investor sentiment and the anchor lock-in opened on December 8.
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JM Financial, though, is bullish on the company’s growth prospects and expects Nykaa to continue strengthening its market leadership in BPC while enhancing market share in the larger fashion segment.
“We are excited about the company’s aggressive omni-channel strategy that would provide the touch and feel experience along with organic customer acquisition. We trust Nykaa has built durable moats by becoming a reliable partner for brands as well as shoppers,” the brokerage said in a note on December 21.
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It expects CAGR of 38%/86% for Nykaa in the BPC/fashion gross merchandise value over FY21-26, and EBITDA margin to reach 15.4 percent (7.6 percent as percent of GMV) in FY26.
In FY21, the company generated 4.8 percent of total GMV in advertising revenue and EBITDA margin of 6.6 percent.
“Our proprietary analysis of Nykaa’s customer engagement metrics and advertising trends of BPC/Fashion brands suggests that Nykaa is likely to become the preferred RoI driven advertising platform for partner brands that will enable robust margin expansion,” the brokerage said.
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It expects rising digital penetration, disposable income and greater awareness through social media to drive rapid growth in the BPC space, leading to a CAGR of 17 percent to Rs 10.6 trillion by FY26, thus doubling Nykaa’s addressable market.
However, it said downside risks to its target include failure of the company to ramp up its fashion business, margin dilution due to expansion at the cost of premiumisation and lower spends, and a sharp rise in the competitive intensity.
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Recently, the brokerage initiated coverage on other listed platform stocks as well, including Zomato, PB Fintech and Paytm. While it hasn’t assigned a recommendation for Paytm, it has a “buy” rating on Zomato and “hold” on PB Fintech.
The four stocks have seen a volatile journey since their listing, with all of them except Zomato trading below their issue price currently.
At 10:16 hours, Nykaa was trading 1.6 percent higher from the previous close at Rs 1,999.75 on the BSE.
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