will nykaa share price go up?
The Nykaa stock finished 0.1 per cent lower at Rs 149.6 apiece on BSE, having fallen as much as 2.8 per cent to Rs 145.6 apiece during the session. Nykaa shares have underperformed the benchmark indices so far this year, having lost 3.8 per cent of their value while the Sensex gauge has declined 2.7 per cent.
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Analysts are divided on the company, giving the bulls and the bears enough to engage in a tug of war. Zee Business research takes you through some of its findings about Nykaa:
Positives NYKAA shares have gone through a huge correction in less than a year. The stock has dropped from its peak of Rs 315.86 on April 11, 2022 to nearly half its current price. The decline in price has led to an unsustainable valuation. However, the group is likely to get support from the beauty and personal care (BPC) business, which supports 77 per cent of the current price.
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The BPC section is Nykaa's defensible and high-growth business in the medium term. A cyclical slowdown in BPC and fashion businesses is priced in.
The group can also draw some positivity from growth in its private-label business, which is a high-margin business. However, its current contribution to overall revenue is a mere seven per cent. It is estimated to get a shot in the arm in the near future and rise to 16 per cent by FY25. It will be more than the BPC's current contribution of 10 pe rcent.
Some other factors that work in favour of NYKAA include:
• a strong customer base
• prudent capital allocation
• good profitability metrics
Morgan Stanley recently maintained its 'overweight' on the Nykaa stock with a target price of 206. It can be seen as a positive sign and can reinforce shareholders' faith in the company. Negatives
The market for beauty products is shifting to small cities and offline stores, which can dent Nykaa's margin since the lion's share of the company's customer base comes from metros. With a limited history of operations, it will be a daunting task for the company to bridge the gap and reach out to customers in small cities.
With more players and intense competition in the market, Nykaa shares may go through an overhang and slide further.
If the company's fashion segment continues its lean patch, Nykaa's profit is most likely to take a hit. The company is known for its premium products, but such products form a much smaller market than its beauty and personal care (BPC) business. Even if the premium product section gains momentum, it can do little to rescue Nykaa's dwindling fortunes.
Like many other companies in the beauty and fashion product segment, it is an uphill task for Nykaa to keep customers loyal to its products. In a volatile market, customers are discount-driven and value-sensitive, have different personal requirements, fashion styles, or a strong preference for high-end luxury products. They can easily ditch an established brand and pose a threat to a renowned company like Nykaa.
The company went public in November 2021, with share price listing at ₹1,125. At the time of writing on April 18, the share price has fallen to an astonishing low of ₹125.60. This indicates a fall of over 89%.
Given such a dismal performance that has cost investors in Nykaa IPO massive losses, is it worth buying into the stock now? Can the share price go up tomorrow or down the line? Here’s what analysts are saying — but before that, it’s important to understand the background and financials of the company.
Mumbai-based Nykaa was incorporated in April 2012 under the name of FSN E-Commerce Ventures. The company, founded by former Kotak Mahindra Capital managing director Falguni Nayar, hoped to carve its niche in the e-commerce sector through a focus on beauty and wellness products.
The e-commerce sector was quite competitive at the time already with leaders like Jeff Bezos-founded Amazon, Sachin and Binny Bansal’s Flipkart and Kunal Bahl and Rohit Bansal’s Snapdeal.
In this tough landscape, Nykaa found its core competence in beauty and wellness anyway and has since expanded into several other segments.
Nykaa has over the years launched several brands and their sub-brands venturing into developing and selling its own products alongside national and international brands. Some of its brands when it went public included Nykaa Cosmetics, Nykaa Naturals, Kay Beatu, Twenty Dress, Nykd by Nykaa and Pipa Bella.
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The company has also launched several lines of brick-and-mortar stores including Nykaa Luxe, Nykaa On-Trend and Nykaa Kiosks.
The company expanded into fashion through Nykaa Design Studio, later renamed to Nykaa Fashion — selling all kinds of clothing and accessories.
In recent news, the company has further chosen to expand on the fashion foray by launching a sub-brand called MIXT — a “fashion-forward” brand targeting young buyers or “Gen Z.”
As of December 2022, promoter holdings in the stock stood at 52.34%. Foreign Institutional Investors (FIIs) held a 11.06% stake in the company. Public shareholding stood at around 30.24%. Mutual Funds held around 4.06% shares of the company.
Monthly mutual-fund shareholding data shows that funds have been cutting stakes in the company. Until February 2023, mutual funds were buying the dip in the company with 30 funds adding shares, but that trend has reversed come March.
To understand whether the share price of a stock has the potential to surge, it is required to study various factors, particularly around the fundaments surrounding the company. Trading history and analyst expectations can just be one among the several important cues — but still provide a good ground in understanding the price action and potention for a company.
Nykaa’s stock performance has been widely poor at the bourses since going public. The company’s stock price has fallen 34% from its IPO issue price of ₹187.50 and hit a new low of ₹120.50 on March 31, 2023, owing to intense competition and a series of exits from the company.
Nykaa also drew criticism for allegedly violating the “spirit of the law” when it announced a bonus issue whose record date coincided with the lock-in period of pre-IPO investors, thus prompting the Securities and Exchange Board of India (SEBI) to establish regulations to prevent such incidents in the future.
Back in December 2021, the stock reached an all-time high of ₹415.52, and it hasn’t come close to that level since then. In fact, Trendlyne data shows that the stock price has been below ₹150 a piece since mid-February.
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According to data from TradingView, analysts have a mixed outlook on Nykaa shares. Of the 20 analysts covering the stock, 15 rate it a Buy, 2 rate it a Hold, and 3 rate it a Sell. The consensus 12-month price target for the stock is ₹195.95.
The analysts consider several factors when evaluating Nykaa’s share price and prospects, including the company’s competitive position in the e-commerce sector, its ability to maintain its market share and grow its customer base, its financial performance and growth potential, and the overall economic environment and consumer trends.
The following are some of the ratings and target price set by top analysts who cover the Nykaa stock:
Nykaa has not declared any dividends since it went public in November 2021. As the company continues to expand its business and invest in new ventures, it may choose to retain earnings to fund its growth rather than distribute dividends.
That said, when the company ended the lock-in period of pre-IPO investors on November 10 of 2022, Nykaa announced a bonus issue at a 5:1 ratio with November 11 as the record date. The call was met with criticism as although the company stated that it intended to increase retail participation in the scrip, some investors saw this as denying them a fair exit.
According to data from TradingView, analysts have a mixed outlook on Nykaa shares. Of the 20 analysts covering the stock, 15 rate it a Buy, 2 rate it a Hold, and 3 rate it a Sell. The consensus 12-month price target for the stock is ₹195.95.
