Weeks after initiating the coverage of FSN E-commerce Ventures, the parent company of Nykaa, ICICI Securities has revised the target price for the internet beauty and personal care (BPC) firm. The upward revision in Nykaa’s share price target comes days after the company reported its January-March quarter earnings. The target price is now set at Rs 1,300 per share, up from Rs 1,250 apiece earlier. “Nykaa’s Q4FY22 revenue performance was in line with our estimate. We like the higher investments in growing new businesses with resilient BPC margins,” ICICI Securities said in a report. The brokerage firm has, however, retained the ‘Hold’ rating on the scrip.
Results review
On Friday, Nykaa reported a 49% on-year decline in its consolidated net profit at Rs 8.56 crore for the January-March quarter. Revenue from operations during the period increased by over 31% to Rs 973.32 crore while total expenses during the quarter rose 35% to Rs 978.64 crore. During the previous financial year, Nykaa opened 49 new stores taking the total store count to 105 stores across 49 cities.
The average order value of Nykaa over the last fiscal year was down just 2% on-year basis coming close to the order value of the covid-struck financial year 2020-21. Fashion business AOV grew by 19% YoY driven by an increase in basket size and better contribution from the apparel category.
Nykaa’s share price has tanked 34% so far this year to now trade at Rs 1,367 per share.
Strong model
Analysts at ICICI Securities believe that Nykaa continues to present a combination of largest beauty and personal care (BPC) business in a growth market, that is India, good profitability metrics and prudent capital allocation, and omnichannel in the ‘true sense’ going online to offline. “ts strength of content-driven and inventory-driven models in BPC will continue to be key differentiators – the former is a long-drawn journey and cannot be built by a new entrant just on the strength of capital,” the note said.
However, ICICI Securities does expect competition to intensify from both vertical and horizontal peers. “While we expect BPC revenues to grow, we believe Nykaa’s journey could be different – it will have to go more mainstream to drive this growth (tougher decisions about brand stretch along the way),” analysts said.
What do others say?
JM Financial has maintained its ‘Buy’ rating on Nykaa with a June 2023 target price of Rs 1,730 per share. “We believe the investments in fulfillment capabilities, owned brands and brand building will drive strong operating leverage as the company gains further scale driven by 3,000/1,500 brand partnerships in BPC/Fashion,” JM Financial said. However, the brokerage firm has tweaked estimates with near term growth getting pushed further out as they continue to see inflation and rate hike risks rise globally.