why nykaa pe ratio is high?
In terms of price to earnings (PE) ratio, which is considered as a key global benchmark for valuing the company, Nyakaa has a score of between 809 and 839 and earnings per share of 1.39 depending on the IPO price band. By a wide margin, Nykaa’s PE trumps even some of the world’s biggest listed beauty brands and fashion clothing and accessories companies, analysts told BusinessLine .
But, still Zomato and upcoming IPOs of fintech players like Policybazaar, MobiKwik and Paytm are loss making and hence nobody even knows their PE.
Zomato has a market-cap of more than ₹1- lakh crore, but analysts do not trust its roadmap for profits, which is why its stock has failed to get traction after a few days of listing. Zomato’s CFO recently said that its company was running out of cash and wanted an IPO desperately.
Market regulator SEBI has relaxed a parameter that required companies to show a three-year profitability for raising money through IPO. This has mainly favoured the start-up companies to tap the primary markets in India and analysts have started valuing them on the basis of sales rather than earnings as they are loss making. Nykaa, however, earned a net profit of over ₹62 crore for the first time during financial year 2021 compared to losses that it made in the preceding years.
At the upper end of the IPO price band of ₹1,125, the company will raise ₹5,320.4 crore. Those selling the Nykaa IPO want it to be valued at sales, which is more than ₹2,400 crore, rather than its earnings.
“New age fintech companies are all about platform creation but for that they are seeking unrealistic valuations. An investor has to consider what they would be making and how long they have to wait before they can exit with decent profits,” said Arun Kejriwal, founder of Kejriwal Research and Investment Services. “These so-called fintechs have no comparables, they claim. But eight out of ten companies are loss making and do not even have a definite roadmap to show profitability,” said Kejriwal.
Nykaa has reported a profit in FY21 and is also now projecting 32 per cent and 46 per cent growth for FY 2022 and 2023. Analysts were also surprised as the company has given growth projections for the next 20 years in its prospectus.
“Nykaa products are nothing unique that cannot be acquired elsewhere. Only difference is that it is selling them online like many other platforms. Nykaa should also be compared with online retail giants and even they do not command such valuation,” said Kishor Ostwal, MD, CNI Global Research.
Editor's note: After having a weak start in 2023, Nykaa shares have underperformed this week as well, touching their 52-week low on 25 April 2023.
The downfall was amid concerns over back-to-back exits of top-level employees and other management changes.
Nykaa, on 24 April 2023, announced the addition of several new senior leaders to its management team to drive the company's next phase of growth.
The company appointed Nihir Parikh as Chief Business Officer (CBO), Rajesh Uppalapati as Chief Technology Officer (CTO), and P Ganesh as chief financial officer (CFO), to strengthen its position in the Indian e-commerce market.
This move was made after the company witnessed the exit of five senior executives last month after a slew of exits throughout 2022.
These continuous changes in the management has escalated the negative sentiment in the market about the company's ability to retain talent as well as its future prospects, triggering a selloff in the stock.
A similar downward movement in this new-age tech stock was seen in January 2023. We discussed the probable causes behind the fall. Much has changed since then.
Read on to know more....
Succeeding in the beauty and personal care (BPC) market is not easy.
This is because of the varying needs and preferences of consumers. They can be discount-driven or value sensitive and have different preferences and personal requirements.
Having said that, Nykaa is incessantly focused on the premium BPC and fashion market, and it keeps working towards a diverse product portfolio.
Despite this, the share price is plummeting since it got listed in 2021. This beauty e-commerce giant continues to witness pressure in 2023 after falling over 60% in 2022.
In 2023 so far, the stock has fallen 16%. Let's explore the reasons why the stock is under pressure...
On 12 January 2023, an undisclosed player sold shares at Rs 148.9 apiece valued at US$ 26 million (Rs 2.1 billion) via a block deal.
Following this, Nykaa share price took a huge hit and fell on the bourses. As the session progressed, the company went on to touch its 52-week low of Rs 123.3 on 18 January 2023.
This is just one of the several aftermaths of the end of the lock-in period.
After the lock-in period expired on 9 November 2022, Nykaa offered bonus shares in the ratio of 5:1 to encourage investors to stay put.
However, it was not persuasive for several pre-IPO investors including Lighthouse India Fund, Kravis Investment Partners and TPG Capital.
This decision of the company raised questions over the timing and alleged that it would deny them a fair exit. It convinced investors that it was a ploy to stop them from selling their holdings due to the taxation structure.
The sudden resignation of the company's CFO Arvind Agarwal also dampened sentiment in some way.
It is safe to say that the future share price performance of a company will depend on how it performs on the earnings front. Nykaa is yet to announce its results for the December 2022 quarter.
The September 2022 quarter results showed a 39% YoY increase in its revenue, from Rs 8.9 billion (bn) to Rs 12.4 bn.
Profits on the other hand, saw over threefold-rise from Rs 11.7 million (m) to Rs 41.1 m on a year-on-year basis.
This was on the back of increased demand for premium beauty, personal care and wellness. Post Covid, accelerated investments in new store rollouts and store upgradation resulted in improved footfalls and higher same-store sales.
As we mentioned before, Nykaa share price witnessed a steep correction in 2022. In October 2022, we wrote a detailed editorial explaining why the stock was facing pressure back then.
It appears, the situation is more or less the same at present and the same reasons are dragging Nykaa lower even today.
Reasons like rising interest rates, high inflation, and its diversification strategy.
You can check out the entire editorial here: Why Nykaa Share Price is Falling.
Recently, we also covered a detailed editorial explaining what to do with the stock of Nykaa if you are a shareholder or looking to invest in it.
Here's an excerpt:
You can check out the entire editorial here: Zomato, Paytm, and Nykaa: Buy, Avoid, Hold, or Sell?
Nykaa shares have declined more than 20.6% in the last one month and more than 61.7% in the year gone by.
The company touched its 52-week high of Rs 344.7 on 20 January 2022 and its 52-week low of Rs 123.3 on 18 January 2023.
At the current price, Nykaa trades at a PE multiple of 435.8 and a price to book value multiple of 23.1.
As of September 2022, promoters owned 52.4% of the company, while FIIs owned 6.5%.
Nykaa is India's largest online beauty and cosmetics retailer.
Falguni Nayar founded the company in 2012. The company has a portfolio of beauty, personal care, and fashion products, including its owned brand products and international products.
It retails over 2,000 brands and 200,000 products across its platforms.
It launched physical stores in 2014. In 2020, it became the first Indian unicorn startup headed by a woman.
To learn more about the company check out, Nykaa's financial factsheet and quarterly results.
You can also look at Nykaa 2021-22 annual report analysis.
For more details about the company, you can have a look at these articles:
Nykaa vs Zomato
Nykaa vs Pace ecommerce
Nykaa vs Indiamart Intermesh
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...