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Global brokerage Jefferies is bullish on Nykaa shares (FSN E-Commerce Ventures Ltd) as it believes the company's outlook is strong across verticals, with focus on growth alongside financial discipline.

At the time when most consumer & Internet firms find excuses for poor disclosures, sometimes under the garb of 'competitive reasons', Nykaa stands out, said Jefferies in a note, adding that the company adhered to strong disclosures since listing and its maiden analyst meet built on the same principle, with a promise from the management for more such sessions, covering different aspects of the business.

The brokerage house has a Buy rating on Nykaa shares with a target price of 1,650 apiece. It has an upside scenario price target of 2,300, implying a potential upside of 60% from current stock level, whereas it has a downside scenario target price of 900. The newly listed stock, which made its market debut in November last year, has declined about 31% in 2022 (YTD) so far. 

Nykaa provides end-to-end solution including entry strategy, registration, import logistics, warehousing and retailing to leading global brands (22 in FY22). It has also partnered with Estee Lauder (Aveda) to open premium salons (co-branded). The company has now decided to build offline presence for fashion.

“With scale, marketing expenses have been trending down to 9.5% in BPC while have increased to 27% in fashion. Management keeps an eye on visit to order conversion, which has marginally increased to 3.1% and the focus is optimise share of existing vs new customers. BPC exit Ebitda margins are at >10% led by efficiency gains and endeavour is improve trends in fashion as well," the note stated.

FSN E-Commerce, which operates under the Nykaa brand, reported a decline of about 57% in its consolidated profit to 7.57 crore for the fourth quarter ended March 2022, mainly account of new investments. Its revenue from operations increased by over 31% to 973 crore during the quarter under review, from 740.5 crore in the year-ago period.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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