India Internet opportunity is attracting players across categories and growth is mostly at the cost of profitability. Nykaa enjoys leadership position in the online beauty space, and its positive EBITDA margin is a key differentiation, said Jefferies in a note.
“Product assortment, discovery & authenticity drive high repeats and the content ecosystem is engaging. Fashion is growing rapidly but right to win is yet to be proven. Initiate at Buy - pullback in tech valuation is a key risk,” the note added. Jefferies' Buy rating on Nykaa shares comes with a target price of ₹1,650 apiece, with its bull case upside scenaroio price target of ₹2,300 and downside scenario of ₹900.
Consumer stocks in India enjoy significant premium given the growth runway and this should likely continue for Nykaa although question remains on the fair valuation multiple, the global brokerage highlighted. Though, competition is set to rise in core BPC and late entry into fashion which has strong & deep-pocketed competiton as well as pull-back in tech valuations could act as key risks, as per Jefferies.
“It has a strong content ecosystem with Network, TV, Beauty Book, and Army among others. There are >3,000 influencers; YouTube based platform has >1m subscribers. BPC loyalty program, Nykaa Prive has >2m members. Existing customers drive c.70% of GMV and >60% of its GMV is from tier 2/3 towns. Learnings from platform has translated into own labels,” the note added.
Founded in 2012 by former investment banker Falguni Nayar, FSN E-Commerce Ventures Ltd, which runs an online marketplace for beauty and wellness products Nykaa, has its owned manufactured brand products under its two business verticals - Nykaa and Nykaa Fashion. The newly listed stock, which made its market debut in November 2021, is down over 27% in 2022 (year-to-date or YTD) so far.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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