Nykaa Shares Dip 3% As Macquarie Initiates Coverage with 'Underperform', Sees 22% Downside
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Nykaa Share Price Today: The stock of Nykaa fell almost three per cent on Monday, after Macquarie initiated coverage on the cosmetics-to-fashion retailer with an ‘underperform’ rating citing risks to the company’s beauty segment margin. The brokerage has set a target price of Rs 115, signalling a downside of 22% from the current market price of Rs 147.8 per share.
Macquarie’s target price for Nykaa is the lowest among brokerages covering the stock. The brokerage firm’s bear case target for Nykaa Rs 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.
According to the brokerage, the beauty etailer faces risks to its beauty unit margin as growth moves to smaller towns, which are mostly offline, and as the competition threat looms.
In the fledgling fashion segment, experience from physical retail makes the brokerage cautious on the company’s owned brand focus and curation-led positioning, Macquarie added.
“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,” Macquarie said.
“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.
Nykaa shares have lost more than 34 per cent of their value in the last one year, a period in which the Sensex has risen 14 per cent.
Mumbai-headquartered Nykaa is a beauty and fashion e-commerce company founded by Falguni Nayar in 2012. The company offers a well-curated comprehensive selection of makeup, skincare, haircare, bath and body, fragrance, grooming appliances, personal care, and health and wellness categories.
Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
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