Nykaa Investor Day 2023: How analysts view the e-retailer's growth plans

They forecast up to 39.5 per cent upside from current levels over the next one year

Shares of FSN e-commerce Ventures, parent company of Nykaa, zoomed nearly 5 per cent in the intra-day trade on Monday as most brokerages reiterated their 'buy' calls on the stock post the company's 2023 Investor Day.

The stock, eventually, settled 4 per cent higher at Rs 150.45 apiece on the BSE, as against 0.34 per cent dip in the benchmark S&P BSE Sensex. Brokerages forecast up to 39.5 per cent upside from current levels over the next one year.

So far in this calendar year 2023, shares of the new-age company have declined nearly 3 per cent at the bourses, as against 3.8 per cent rally in the benchmark 30-pack index. The shares are still 83 per cent lower than its issue price of Rs 1,125.

According to analysts the stock could re-rate as growth in beauty and personal care (BPC) segment remains stable. Comfort from competition and cash flow generation, however, will remain key monitorables.  

During its 2023 Investor Day, held on June 16, Nykaa's management pointed out that the BPC business remains on a healthy growth trajectory; fashion business will sharpen its focus on private labels and customer stickiness will eventually drive lower marketing costs; and new verticals, driven by SuperStore (eB2B), will require continued investments to achieve scale.

"Unorganized retail was worth $59 billion as of FY22, forming the largest part of the BPC market. In the last 18 months, eB2B has progressed, with nearly 152,000 onboarded retailers as of March 2023. Nykaa seeks to not only target kiranas but also specialty retailers. This is reflected in 60 per cent of revenues coming from non-kirana retailers. Further, semi-served tier 2+ retailers are the main target set for Nykaa, which formed 84 per cent of the eB2B business," the management said.

Here's how key brokerages interpret the management's guidance:

Macquarie |Maintains Underperform |Target: Rs 115

Given no tangible medium-term growth/profitability targets, along with concerns around capital intensive growth, the brokerage chose to maintain its underperform rating.

Jefferies | Maintains Buy | Target: Rs 200

The brokerage retained its stance seeking comfort from the management's bullish commentary, hopes of premiumisation trend working in favour of the company, and healthy profit outlook.

Elara Capital| Maintains Buy | Target: Rs 210

Nykaa aspires to achieve revenue growth ahead of the industry average. We estimate revenue CAGR of 25.8 per cent in the online BPC segment, led by intensifying competition, near-to-medium term. Nykaa is also approaching the end of its peak investment cycle.

Nykaa's core BPC segment is trading at fair 63x FY25E P/E, just 25 per cent higher than traditional BPC peers' valuations. We expect steady valuation re-rating in BPC, led by strong earnings CAGR of 38 per cent in FY23-25E.

Any improved visibility for Ebitda break-even or profit in the fashion business may aid share price performance.

JM Financial | Maintains Buy | Target: Rs 210

We believe that Nykaa’s segments can grow at multiples of base industry growth rates with substantial margin expansion opportunity driven by higher BPC/Fashion consumption per capita and premiumisation.

With India’s GDP per capita expected to reach $5,500 by 2030, average BPC/Fashion spends per capita are expected to reach $50/160 from $15/54 in 2022.

Moreover, Nykaa aims to capture a more niche segment of the Fashion market with higher average order value (AOV) while becoming a preferred partner for brands to launch new season styles.

This will enable faster profitability (compared to the peers) due to the non-discounting led approach and higher AOVs generating enough commissions to compensate for the cost of higher returns in Fashion.  

Kotak Institutional Equities | Maintains Buy | Target: Rs 210

Nykaa incurred Rs 250 crore of losses in FY23 from fashion and the new verticals (eB2B, Nykaa Man). We believe this can go down to Rs 210 crore in FY25 as channel economics improve.