Nykaa shares in secular downtrend; pullback rally likely near Rs 110, say analysts

Shares of FSN E-Commerce Ventures (Nykaa) fell 7 per cent in Wednesday's trade, taking their decline to fifth straight session. The scrip has been reeling under pressure, with the month of January seeing only three sessions when the stock ended higher on a closing basis. Analysts see more pain on the Nykaa counter, before the stock stages some recovery. 

Nagaraj Shetti of HDFC Securities said the stock has seen a sharp fall from Rs 150-odd levels. He said the stock has support at Rs 110 level. This is the level, Shetti said, could see some pullback and an 8-10 per cent rise is possible. That said, it's a 'sell on rise' stock, Shetti warned. 

Milan Vaishnav, founder of Gemstone Equity Research said the stock is in oversold zone, but there are no signs of bottoming out for now. He noted that the stock has seen exponential jump in volumes in three of last five trading sessions. Vaishnav said when one sees such high volumes along with a steep price fall, generally a stock forms a bottom. But for Nykaa, he said there is no signs of accumulation around current level, he said. 

The scrip is trading below all its moving averages.  Its 5-day EMA stood at Rs 137 level. On Wednesday, it declined 7.46 per cent to hit a new low of Rs 123.30 no BSE. Osho Krishan, Sr. Analyst- Technical & Derivative Research at Angel One said the stock is in a secular downtrend with no sign of respite. Technically, the stock is looking very weak as it hovers well below all its major moving averages on all time frames, he said.

"Until we witness any massive trend reversal, the negative view remains intact on the counter," Krishan said.

The recent correction in Nykaa stock was partly due to the global tech sell-off on rising yields and more recently due to the recent lock-in expiry on November 10, 2022, analysts noted. HSBC in a India equity strategy note said Nykaa valuations were even more appealing and under-appreciate the structural growth opportunity in beauty and personal care. It noted that Nykaa with its leading scale, reach, and broad product range is a rare combination of profitability and sustainable exponential growth, as it pegged its revenue to double every two to three years over the coming decade.

Nykaa may report a revenue growth of 39 per cent YoY in the December quarter, Kotak Institutional Equities said in a preview note. The growth would be led by flagship sale, festive season and continued growth in BPC (35 per cent YoY) and fashion business (27 per cent YoY), the brokerage said in a note.

JM Financial also felt that the December quarter growth for Nykaa will be led by the festive demand during holiday season, penetration in new channels and newer initiatives (eB2B superstore).

While there has been a tougher macro environment, JM Financial expects Nykaa BPC to still do well due to the relative inelasticity of Nykaa shoppers. Nykaa Fashion, however, might still not see market share gains due to heightened competitive intensity but can still deliver decent growth on the small base.

 
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