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Broker's call: FSN E Commerce (Nykaa) (Buy)

| Updated on December 21, 2021

JM Financial

FSN E Commerce (Nykaa) (Buy)

Target: ₹2,480

CMP: ₹1,964.1

Nykaa is a unique player with PAT level profitability while logging a robust 48.2 per cent FY19-21 CAGR. We expect Nykaa to continue strengthening its market leadership in Beauty and Personal Care (BPC) while enhancing market share in the larger fashion segment.

With its focus on 3Cs – content, curation and convenience, Nykaa has become the trusted platform for both customers as well as brands. Our proprietary analysis of Nykaa’s customer engagement metrics and advertising trends of BPC/Fashion brands suggests that Nykaa is likely to become the preferred RoI-driven advertising platform for partner brands that will enable robust margin expansion.

Furthermore, we foresee the aggressive omnichannel expansion to drive significant brand recall and organic customer acquisition for the company.

We initiate on Nykaa with a ‘Buy’ rating and Dec’22 target price of ₹2,480, projecting CAGR of 38 per cent/86 per cent for Nykaa in BPC/Fashion GMV over FY21-26, while expecting EBITDA margin to reach 15.4 per cent (7.6 per cent as % of GMV) in FY26. Key downside risks include: failure of Fashion business to ramp-up; margin dilution due to expansion coming at the cost of premiumisation and lower spends per customer; and a sharp rise in competitive intensity.

Published on December 22, 2021

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