Why most analysts are positive on Nykaa

FSN E-Commerce Ventures, the parent of Nykaa, has had a roller-coaster ride since listing last November.

The initial public offering (IPO) was priced at Rs 1,125 apiece, and the stock listed at a 96 per cent premium, closing the first day at Rs 2,205 apiece.

It subsequently hit a high of Rs 2,573 in late November, but has seen steady selling since, hitting a low of Rs 1,208 in May.

The online beauty and personal care (BPC) company is unusual among new-age businesses in that it was profitable before listing.

After the recent analyst meeting there have been a string of reports on the company.

Most analysts seem to be positive, but there’s significant variance in terms of valuations and target prices.

The target prices are in the range of Rs 1,300 to Rs 1,730, with the current price at Rs 1,436.

One analyst sees a downside risk till Rs 900, with an upside till Rs 2,300.

Here are some takeaways from these reports.

The online BPC industry is expected to grow in the double digits until financial year 2024-25 (FY25).

With GMV (gross merchandise value) at roughly Rs 5,000 crore (49 per cent growth year-on-year, or YoY) in FY22, Nykaa is the leader in the segment.

The company’s market share in GMV was around 6.6 per cent in FY22, and 7.5 per cent in Q4. It reported Ebitda (earnings before interest, taxes, depreciation, and amortisation) growth of 4.3 per cent, with net sales of Rs 3,774 crore (54 per cent YoY growth) in FY22.

The enterprise value/Ebitda was around 395.

Apart from its own brands, which contribute over 11 per cent in BPC and 8 per cent in fashion, it has relationships with many leading global names.

It is the importer or distributor for 22 leading global brands.

This could be a $3-4-billion GMV opportunity with mid-single-digit margin under its superstore model.

Physical retail contributed 7-8 per cent of GMV last fiscal, which exceeded pre-Covid levels, as it expanded to 49 cities with 105 stores.

Over 50 per cent of these were in tier-2 and 3 locations.

The company has a strong presence on social media with 47 million app downloads, 13 million followers, and 5,400 influencers.

The focus on logistics has reduced fulfilment (delivery) time to below 3 days with 23 warehouses across 11 cities.

This helped reduce fulfilment costs to under 10 per cent of revenues by Q4FY22.

Average order value increased to Rs 3,632 in Q4, compared with Rs 3,590 in Q3.

The focus on BPC helps to distinguish it from Amazon and Flipkart, which are horizontal platforms.

The transacting customer count hit 8.4 million in FY22, a growth of 50 per cent.

Average monthly unique visitors are in the range of 20.8 million.

However, though growth has met expectations, the competition is ramping up in this space.

Analysts are expecting revenue growth to remain in the 45-55 per cent range for the next two fiscals, with an assumption that the Ebitda margin will climb to 7.9 per cent in FY23 and over 10 per cent in FY24.