Nykaa hits record low; slips below issue price with 15% decline in 1 month

Shares of FSN E-Commerce Ventures (Nykaa) dropped 2 per cent to hit a new low of Rs 1,121.60 on the BSE in Tuesday’s intra-day trade.

The stock has fallen below its issue price of Rs 1,125 per share. It hit the lowest level since its listing in November last year and has fallen 15 per cent in the past one month. In comparison, the S&P BSE Sensex was down 0.32 per cent at 59,639 points at 11:31 AM; gained nearly 3 per cent in past one month.

With the recent fall, the market price of Nykaa has tanked 56 per cent from its record high level of Rs 2,574, which it had touched on November 26, 2021. The company made its stock market debut on November 10, 2021. In the past three months, the stock has tanked 23 per cent as against a 7 per cent rally in the S&P BSE Sensex.

FSN E-Commerce Ventures, more commonly known as Nykaa, is a consumer technology platform, delivering a content-led, lifestyle retail experience to consumers through its diverse portfolio of beauty, personal care & fashion products including their own brand products.

The company’s maiden bonus issue announcement failed to cheer investors, which it had approved on October 3, in the ratio of 5:1 i.e. five bonus shares for every one share held in the company. Since then, the stock has declined nearly 8 per cent.

While current inflationary pressures will affect consumer discretionary spends in the near term, the medium term and long-term growth of beauty & personal care as well as fashion remains strong, the company said in its FY22 annual report. 

Nykaa continues to have the ‘premium customer base’ edge due to its compelling BPC play, which will help cross-sell, its fashion/NykaaMan offerings. Concerns persist in fashion – higher product returns, fragmented online fashion market, absence of first-mover edge and higher discounting, analysts at Elara Capital said in a report dated October 3.

But Nykaa’s impetus on private labels/niche offerings in fashion may aid healthy growth. Expect the fashion segment to break even in FY25E and to move to 10.5 per cent EBITDA margin through to FY28E, the brokerage said.

In Q2FY23, Nykaa’s growth will be led by festive demand (as demonstrated by guidance of FMCG companies), penetration in new channels and newer initiatives (B2B superstore). Despite current inflationary environment and global macro headwinds, analysts at JM Financial have not seen much impact on Nykaa consumers’ sentiment. The brokerage anticipates Nykaa to deliver 50 per cent/47 per cent YoY growth in GMV/revenue led by strong growth in fashion and new initiatives and some benefit of base effect due to Covid-19 impact in Q2FY22.

 “With incremental scale being achieved by growth across BPC, Fashion and Others (B2B Superstore primarily) verticals, we expect EBITDA margin to improve by 60 bps sequentially and 132 bps YoY due to lowering of fulfillment costs due to regional centres and operating leverage. The company continues to expand omni-channel presence with its focus on new initiatives such as eB2b, which it believes will provide a significant opportunity over the next 3-5 years,” the brokerage said in a report.