Nykaa shares: Over 56% upside seen as brokerage gives 'Buy' tag
Premium- Nykaa share price has declined more than 35% in 2022 (YTD) so far, trading near its all-time low level
The recent market turmoil in tech stocks has also engulfed Nykaa with concerns arising over future growth and profitability. The recent share price correction provides an extremely encouraging risk-reward, as per brokerage house JMFinancial which has reiterated its Buy rating on Nykaa shares.
In a note, the domestic brokerage and research firm attempted to provide objective answers to the top 5 investor concerns by parsing through macro-economic as well as company specific data and metrics. Its ‘Buy’ rating comes with a Mar’23 target price of ₹2,120 (around more than 56% upside from CMP).
“While the company is likely to face newer challenges to tackle and opportunities to explore in a post-COVID world (finally?), data trends and Nykaa’s strategic choices provide us the confidence to believe that the company is positioned perfectly to sustain its profitable growth trajectory," the note stated.
Nykaa remains a differentiated player with its focus on 3 Cs – Content, Curation and Convenience – creating a rapidly growing and loyal consumer base, JMFinancial highlighted. The company’s unique solutions to consumers’ and brands’ pain-points create long-term stickiness that is likely to endure Nykaa’s dominance in BPC while creating a niche positioning in Fashion, it said.
Nykaa’s Q3FY22 GMV raised concerns that growth in Fashion has started to taper off already. However, it needs to be understood that, unlike BPC, the Fashion vertical doesn’t see as much seasonality.
“Going forward, as Fashion’s mix in overall GMV continues to rise, GMV to revenue conversion would continue to look lower as revenue only includes take-rate in case of the marketplace business model and Fashion segment is predominantly marketplace."
However, the same reason would also result in overall gross margin and EBITDA margin increasing with rise in mix of Fashion as marketplace business does not have a COGS component, the brokerage note added.
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The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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