Nykaa stock fell 18% in seven trading sessions. What should investors do?

FSN E-Commerce Ventures or Nykaa, a leading electronics retailer from cosmetics to fashion, has been under pressure on the stock exchange in the last seven trading sessions. During this time, Nykaa stock has dropped nearly 18% and is currently near a record low late Jan. 20. Amid a sharp stock price correction, brokerage firm ICICI Securities has upgraded its outlook. for Nykaa.

On Friday, nykaa stock closed at $127.25 each down 1.36% on BSE. In the week of January 16-20, Nykaa stock fell nearly 14%. Stocks also hit a new record low of $123.30 per person on January 17.

But Nykaa stock has been going down since Jan. 12. Since then, the stock has plummeted 17.96% on the BSE in seven trading sessions.

Nykaa stock is in free fall after the expiration of the lock-up period for pre-IPO investors on November 9 of last year. In addition, the company divided bonus shares in the ratio 5:1. Notably, November also followed the resignation of the company’s Chief Financial Officer Arvind Agarwal. The fashion e-retailer has been criticized for launching bonus shares during expiration during the pre-lockdownIPO Investors.

Also, in mid-December last year, Nykaa saw a block deal. Major investors such as Mirae Asset Mutual Fund, Goldman Sachs Investments Mauritius, Goldman Sachs (Singapore), ICICI Prudential Life Insurance Company and the Canada Pension Plan Investment Board were among the buyers. Among the sellers is Kravis Investment Partners II.

Nykaa has yet to release third quarter results for fiscal year 23. However, in the second quarter of current fiscal year 2022-23, Nykaa posted a multifold increase in consolidated net profit at the same level. $5 cores vs $1 crore in the same period a year ago. Total consolidated merchandise value (GMV) increased by 45% year-on-year (YoY) to $2,345.7 cores in Q2 fiscal year 23.

In its latest research note on Jan. 20, analysts from ICICI Securities said: “We’ve always liked Nykaa’s business model. That said, posting its listings on exchanges trading India, we were left out due to a valuation that was beyond our understanding (at the highest stock price, the required revenue CAGR over the next 20 years is 23%).

Nykaa stock on BSE has dropped nearly 94% from its list price of $2,001 each, while shares have fallen by as much as 89% from the IPO issue price of $1,125 each.

The ICICI Securities note adds that after a 70% correction from the peak, in SoTP, the BPC (beauty & personal care) business now accounts for ~77% of current prices, assuming this is a defensive and high growth business in the medium term. The reverse DCF shows a 15% revenue CAGR claim with a 20% EBITDA margin (at TV). Regulated broker $100 per share for BPC business.

The broker believes the cyclical slowdown in the BPC and fashion businesses is somewhat priced in.

It added, “We believe Nykaa continues to represent the combination of (1) the largest beauty and personal care (BPC) business in a growing market (India), ( 2) good profitability metrics and prudent capital allocation, and (3) ‘true’ omnichannel (online to offline).”

That said, the broker also believes that competition can increase from both horizontal and vertical firms.

As a result, the broker’s note adds, “we expect BPC revenue to grow, we believe Nykaa’s journey could be different – ​​it will have to go more mainstream to drive this growth. The growth trajectory in the fashion sector will be closely watched.” ICICI Securities has raised its outlook to ADD for Nykaa stock from Hold with a target price of $145.

Disclaimer: The views and recommendations given above are those of individual analysts or brokerage firms, not those of Mint. We advise investors to check with certified professionals before making any investment decisions.

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