With its focus on content, curation and convenience, Nykaa has become the trusted platform for both customers as well as brands.
Nykaa shares are expected to rally 27 per cent from the current levels to Rs 2,480 per share. Research and brokerage firm JM Financial Services has initiated its coverage on the FSN E-Commerce Ventures, which runs Nykaa, with a ‘buy’ rating. It expects Nykaa to continue strengthening its market leadership in Beauty and Personal Care (BPC) with a sturdy ramp-up in Fashion. So far since listing, Nykaa shares have fallen nearly 2 per cent. While it has tumbled 27 per cent so far this month. The research and brokerage firm believes that Nykaa’s superior consumer engagement metrics in BPC/Fashion and over 13 million social media followers position Nykaa as the partner of choice for these brands’ advertising needs.
Key risks to Nykaa’s target price
However, on the contrary, JM Financial said that the key downside risks to its target price of Rs 2,480 apiece include failure of fashion business to ramp-up, margin dilution due to expansion coming at the cost of premiumisation and lower spends per customer, and a sharp rise in competitive intensity.
It said that omnichannel expansion is crucial for the firm. “Nykaa should continue to aggressively expand its retail store network as it helps the company in organic customer acquisition, providing touch and feel experience to online buyers, and also tap on consumers’ wallet share that was being spent in-person during travel/outings,” the brokerage firm highlighted. It also added that the company can generate 4.2-4.6% of GMV as advertising revenue, which will be a robust margin expansion driver.
With its focus on content, curation and convenience, Nykaa has become the trusted platform for both customers as well as brands, it said. “As of Aug 31, FY21, Nykaa offered 3.1 million stock keeping units (SKUs) from 4,078 brands with a cumulative transacting consumer base of 13.1 million, making Nykaa the largest specialty retail platform in India,” analysts at JM Financial Services said.
The research and brokerage firm said that Nykaa operates in the e-commerce segment where giants such as Amazon (in India) and Flipkart have continued to struggle to break even despite decades of operation and opportunity to amortise fixed costs across multiple categories. This has primarily been due to their inability to gain customer loyalty and dependency on discounting. “In contrast, Nykaa management had the strategic vision to solve critical customer pain points and keep customers on the platform even when they are not transacting and just reading or watching content. Nykaa has been the primary driver of increasing online penetration in the BPC vertical in India with 40% market share,” it said.
UBS: Buy Nykaa at Rs 2,750 target price
Last month, UBS Securities India also initiated its coverage on Nykaa with a 12-month target price of Rs 2,750 per share, implying an upside of 40 per cent from the current levels. Nykaa is one of few platforms that have positive EBITDA margins (6.6% in FY21). UBS Securities expects this to be 15.9% by FY26E, due to growth in private labels; scale up of the fashion segment; influencer-led growth; and operating leverage bene
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