Nykaa dips 3% a day after CFO Arvind Agarwal quits; stock nears record low

Shares of Nykaa parent company - FSN E-Commerce Ventures dipped 3 per cent to Rs 169.30 on the BSE a day after the company’s chief financial officer (CFO) Arvind Agarwal resigned. Agarwal will leave the company and step down from his role on November 25, the beauty e-retailer said in a regulatory filing on Tuesday after market hours. The stock traded lower for the third straight day, falling 12 per cent during the period.

On Tuesday, private equity firm Lighthouse India sold 18.44 million equity shares worth of Rs 336 crore of FSN E-Commerce Ventures through a block deal. Domestic mutual funds including Aditya Birla Sun Life Mutual Fund, Axis Mutual Fund, ICICI Prudential Mutual Fund and foreign portfolio investors like BofA Securities, BNP Paribas Arbitrage and Society Generale were the buyers via block deals, the data shows.

Meanwhile, in the past three months, Nykaa has underperformed the market by falling nearly 25 per cent, as compared to 4 per cent rise in the S&P BSE Sensex. Further, in the past one year, the stock has tanked 52 per cent as against 5 per cent gain in the benchmark index. It has corrected 60 per cent from its record high of Rs 429 (adjusted to 5:1 bonus share), touched on November 26, 2021.The stock had hit a record low of Rs 162.59 on October 28, 2022.

According to analysts at HDFC Securities, Nykaa has the potential to be a hybrid, but as of now (85 per cent of NSV - inventory-led), it shares more characteristics with a busy, efficient, linear online pipeline than a platform.

Additionally, Nykaa’s total addressable market (TAM) seems to be oversold as well. Hence, valuation stencils must be realigned accordingly. Sales/EBITDA/PAT CAGRs of 35/65/113 per cent over FY22-25E and a full recovery in return profile by FY25 is built in (From 5 to 15 per cent over FY22-25).

Nykaa is an efficient online business; its success in part is due to the absence of potent competitors (this is gradually changing). Ex-ad income, lack of non-linear monetization levers forces us to realign our valuation compass somewhere between a linear business and a pure platform, the brokerage firm said in its initial coverage report dated November 2, 2022.