Nykaa Hits Fresh All-Time Low Today, Falls 20% So Far This Month; Should you Buy?

Nykaa Share Price: The share price of FSN E-Commerce Ventures, the parent company of fashion and cosmetic retailer Nykaa, fell 5.11 per cent in Monday’s trade to hit their fresh one-year low. The stock today slipped to a 52-week low of Rs 120.75 over its previous close of Rs 127.25. The scrip has been consistently hitting fresh lows, particularly on the back of bulk deals, marking the exit of large pre-IPO investors who offloaded their stake after the expiry of mandatory lock-in. On a yearly basis, Nykaa has plunged 57.42 per cent.

The stock has been on a decline ever since the lock-in period for pre-IPO investors and the company brought a bonus issue to stabilise the share price.

The counter’s 14-day relative strength index (RSI) came at 20.36. A level below 30 is defined as oversold while a value above 70 is considered overbought. The company’s stock has a price-to-equity (P/E) ratio of 429.83.

The stock was last seen trading lower than 5-day, 20-, 50-, 100- and 200-day moving averages. Nykaa has an average target price of Rs 145, Trendlyne data showed, suggesting a potential upside of 17.41 per cent. The stock has a one-year beta of 0.98, indicating average volatility.

But now, some analysts have started upgrading their rating on the stock as prices have fallen a lot and the valuation is turning favourable.

“We had always liked Nykaa’s business model,” said Manoj Menon, an analyst at ICICI Securities. “That said, after its listing on the Indian bourses, we’ve been staying on the sidelines due to valuations beyond our ability to comprehend.”

The analyst upgraded the stock to ‘add’ (from ‘hold’) with revised DCF-based target price of Rs 145 (from Rs 175 earlier), adding valuation was turning palatable now. He sees some key risks to his call. They include chasing growth at elevated levels that can dilute gross margin, and success in fashion business can be difficult given higher competition in the category.

“We believe cyclical slowdown in BPC and fashion businesses is somewhat priced in. We believe Nykaa continues to present a combination of (1) the largest beauty and personal care (BPC) business in a growth market (India), (2) good profitability metrics and prudent capital allocation, and (3) omni-channel in the ‘true sense’ (going online to offline).”

That said, competition may intensify from both vertical and horizontal peers and while ICICI Securities expects BPC revenue to grow, it believes Nykaa’s journey could be different – it will have to go more mainstream to drive this growth. Growth trajectory in fashion will be keenly watched out for.

A few others have also seen opportunity in crisis. “(The) stock has corrected partly due to the global tech sell-off on rising yields and more recently due to the lock-in expiry on November 10, 2022,” said Amit Sachdeva, an analyst at HSBC Securities, in a recent report.

“We believe valuations are now even more appealing and under-appreciate the structural growth opportunity in beauty and personal care.”

Sachdeva pegs the stock at Rs 361.67 in the next one year and has a ‘buy’ rating.

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