Shares of FSN E-Commerce Ventures Ltd, the parent company of Nykaa, gained over 1.99 percent in early trade on February 7 after the brokerage firm Jefferies slashed the price target but maintained a 'buy' call on the stock.
The brokerage firm has reduced its target price to Rs 200 from Rs 275, still implying a potential upside of 41 percent from current levels.
"We reduce our PT to Rs 200 on lower multiples to factor in the pullback in valuation for retailers in the context of near-term slowdown concerns," Jefferies said in a note on February 6.
Explaining the rationale behind the target price cut, Jefferies said: "Concerns on urban demand are rising due to factors like high base and slowing IT hiring, and the impact is evident in certain segments."
The brokerage noted that Nykaa's meteoric rise has attracted a lot of players, both online and offline, to focus on the beauty and personal care (BPC) space. "Fashion brands like Myntra and Ajio have increased assortments as well as marketing spends," it said.
Jefferies also added that tight liquidity conditions are likely to impact ad income for Nykaa. "Tight liquidity conditions have pushed startups to focus on profitability. This has also impacted D2C players who have also been focusing on reducing their cash burn. This may impact brand investments, resulting in lower ad income for Nykaa, which enjoys high margins," it said.
It also highlighted higher investments, working capital days jump, share bonus issue, and supply pressure as headwinds in the near term.
The brokerage underlined that Nykaa remains a strong play on the Indian internet as well as discretionary consumption themes. "There are near-term pressures due to slowing consumption, which is a concern, as it is for other discretionary stocks, and this will weigh in the near term," it said.
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