Home / Markets / Stock Markets /  Nykaa shares plunge 2% after Macquarie sees 23% downside in stock

Shares of FSN E-Commerce Ventures Ltd, the parent of cosmetics-to-fashion retailer Nykaa, fell as much as 2 per cent on Monday after brokerage house Macquarie initiated coverage on the stock with an 'underperform' rating.

The brokerage firm kept a target price of 115 per share, signalling a downside of 22 per cent from Nykaa's current market price of 147.8 apiece.


Macquarie’s target price for Nykaa is the lowest among brokerages covering the stock. The brokerage firm's bear case target for Nykaa 70, half the price from the current levels.

According to Trendlyne data, FSN E-Commerce Ventures Ltd has an average target of 145.00. The consensus estimate represents a downside of 1.56 per cent (negative) from the last price of 147.30, it said.

What the Macquarie report said

Nykaa faces risk to its beauty segment margin as growth moves to smaller towns, offline channels and competition in the field increases, the brokerage house said in a note.

"With larger D2C brands increasingly looking to move offline and customers demanding more physical stores to experience products, we believe Nykaa would need to reinvest leverage gains to sustain growth," the note said.

The brokerage said that the entry of new players such as Reliance Retail (Tira) and Tata Cliq could exacerbate the problems for Nykaa at a time when competition in the segment is already tough.

"We remain concerned about Nykaa's ability to profitably grow in the fashion segment where the company offers a curated marketplace of third-party / newly developed own apparel brands," the brokerage note said.

"An analysis of offline retailers indicates that players using a curation-led approach with third party brands have seen limited success," according to the research note.

The brokerage also sees a difficult path to profitability with Nykaa entering the business of serving small mom-and-pop stores, and hence competing with a well-oiled distribution network that comes with very thin margin.

"Investments at Nykaa beauty need to increase. Thin margins in mom-and-pop store servicing opportunities. It has a limited operating history, and the need for growth investments makes us cautious," it said.

The stock currently has 16 Buy, 2 hold and 2 sell calls while the 12-month consensus target price stands at 201 per share, per Bloomberg Data.

Nykaa's stock, which is down 34 per cent in the last 12 months, has shed 5 per cent of its value so far this year. The scrip was trading 2 per cent lower on the NSE at 147.25 apiece over its previous day's closing price of 149.7 apiece.

Shares of Nykaa made a stellar listing on bourses on 10 November, 2021, rising 82 per cent to 2,054 on NSE against the IPO issue price of 1,125. The market cap of the company tumbled to 41,983 crore on BSE.

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