Nomura India on Friday initiated coverage on FSN E-Commerce (Nykaa) with a target of Rs 1,365, suggesting a potential 19 per cent upside. The foreign brokerage does not rule out the potential for the stock to double over next five years.
Nomura India has factored in an 18 per cent revenue growth compounded annually over FY25-40 into its target. It sees Ebitda margin stabilising at 18 per cent level.
“With high medium-term growth potential and unique positioning, we believe risk-reward is quite favourable for long term investors with potential for the stock to double over the next 5 years,” the brokerage said.
On Friday, the scrip was trading 1.43 per cent lower at Rs 1,146.45 on BSE.
Nomura said Nykaa is commanding a 25 per cent market share in the online beauty and personal care (BPC) segment. It noted that the company is also expanding into the fashion segment.
“It is quite unique compared with most online companies due to its strong focus to curate brands and help customers in their discovery journey. Brands see it as a key partner in educating customers and driving adoption of premium products,” Nomura said.
Nomura said there is a rising share of online in BPC and cosmetics, led by India’s young demographics, aspirational spending, and improving availability of global brands.
Nykaa, with nearly 70 per cent of BPC revenue coming from skin products, is likely to be a key beneficiary, the foreign brokerage said.
In the case of fashion segment, “rising preference for branded fashion, improving online share (12 per cent in India vs 30-40 per cent in China) and aspirational rather than need-based buying. Its focus on curation, a wide portfolio, limited discount push and a fragmented market could help it drive strong growth in the long run,” Nomura India said.
Nomura said Nykaa has a strong moat, led by much higher scale, exclusive brand tie-ups, BPC-focused app, omnichannel and a strong influencer network. It sees the company maintaining its competitive edge and drive an 29 per cent revenue CAGR over FY22-25.
“As the fashion business breaks even, we expect Ebitda margin to improve from 4.3 per cent to 9 per cent over FY22-25F driving a 65 per cent Ebitda CAGR. Limited capex intensity should drive healthy free cash flow (FCF) and improve its return on equity (ROE) to 22 per cent by FY25,” Nomura India said.
