According to the analysts who attended the event, the new age company intends to give priority to driving growth in the Beauty and Personal Care (BPC) segment and developing the Fashion & Superstore verticals. Initiatives such as Nykaa Man have taken a back seat, analysts added.
sees the stock at Rs 1,845, Kotak Institutional Equities at Rs 1,835, at Rs 1,730 and at Rs 1,300.
On Friday, the scrips trading was flat at Rs 1,432.85. At this price while IIFL’s target suggests a 10 per cent potential downside from here, other targets suggest 21-29 per cent potential upside.
For Kotak Institutional Equities, the key highlights from the meet include the fact that the BPC business currently has a healthy growth trajectory and personal care category can grow faster than make-up one. In addition, the apparel business of the company may break-even in FY2024, and driven by new verticals, B2B e-commerce can lead to higher near-term losses.
They said, “We cut FY2023-25 PAT estimates by 17-27 per cent as we bake in these losses; DCF impacts lower as we consider these businesses to be profitable over the medium-term. Retain BUY with a fair value of Rs. 1,835 from Rs 1,870 earlier. ”
Nykaa already deals in two divisions – beauty & personal care (comprising over 80 per cent of GMV sales) and fashion (comprising about 20 per cent of GMV sales in FY21). It owns six owned brands, which are available at Nykaa’s online and physical store, as well as MBOs.
Edelweiss said it continues to be constructive on Nykaa, given its growth potential and moats in place. Post analyst meet, it believes the profitability scale-up in core BPC is impressive with the segment touching 10 per cent Ebitda margin in Q4FY22. However, the brokerage said it would watch out for a few recent initiatives.
“While Nykaa mentioned that inventory should normalize, any structural increase in inventory because the regional warehouse strategy could negate the benefit from lower fulfillment costs. The superstore business, while not demanding working capital, is a low-margin business that would achieve profitability. Only at a significant scale. Watch out for losses in the business, “Edelweiss said.
IIFL Securities said it was not convinced about the superstore initiative. Superstore is an initiative toward distributing BPC products to retailers.
“Apart from providing some brands the route to market in the physical world in addition to the online realm, we do not see any rationale entering this business. There will be significant overlap with other providers such as Jio and Udaan, not to mention their own. distribution in some cases, “IIFL said
By Nykaa’s own admission, its Ebitda margin will be only 5 per cent in stable state. There is a possibility of cannibalization of its high-margin online BPC business, due to the non-availability of retail stores in the area being a reason to purchase online in small towns, “IIFL added.
JM Financial noted that Nykaa opened 5 new warehouses, thereby increasing capacity by 40 per cent. While these have lowered fulfillment expenses as a percentage of revenue to 9.7 per cent in Q4FY22, JM Financial expects this benefit to continue in FY23 as well as the inflationary impact of fuel hikes.
(Disclaimer: Recommendations, suggestions, views, and opinions provided by the experts are their own. These do not represent the views of the Economic Times)
General Chat Chat Lounge