Shares of FSN E-Commerce Ventures (Nykaa) were trading nearly 3 per cent lower in Wednesday’s trade, taking its year-to-date fall to 44.78 per cent. This is even as a handful of brokerages see up to 83 per cent potential upside on the counter.
The company recently reported a 344 per cent (Y-o-Y) jump in net profit at Rs 5.20 crore for the September quarter. Consolidated revenue from operations increased 39 per cent year-on-year to Rs 1,230 crore, the company said. Margin improved to 5 per cent in the September quarter from 3.3 per cent YoY.
Read here: Nykaa Q2 results: Profit grows 344% on-year; revenue increases 39% to Rs 1,230 cr
On Wednesday, the scrip opened higher but failed to hold the gains. At 12:05 hours, the stock was trading 3 per cent lower at Rs 1,150.25 on BSE.
“Nykaa stock has a few things going on for it right now which are causing a lot of volatility and speculative trading. The company seems to have protected its margin while growing at a rapid pace which is commendable,” Sonam Srivastava, Founder at Wright Research told Business Today.
Srivastava said Nykaa also has the lock-in period for pre-IPO investors ending on November 10, which means that FPIs holding almost up to 10 per cent of the share capital will be free to sell its shares.
The company’s CEO Falguni Nayar seems confident that the investors will not sell, but one has to see what happens on the lock-in end date, Srivastava said.
“Interestingly Nykaa is also going ex-bonus on November 10th. There is a lot of speculative movement in the stock price which short-term traders trying to take advantage of the stock going ex-bonus on the lock-in end date and the delivery percentage of shares is quite low. This means that the speculation is high in the counter,” she added.
Nuvama Institutional Equities has maintained a ‘Buy’ rating on the stock after the Q2 performance with a target price of Rs 1,506 from Rs 1,743 earlier.
“We build in losses from the other segments, which drives an immediate Ebitda cut (23 per cent for FY23E) but is NPV neutral. While there are uncertainties related to the new segments, the strong BPC performance does make Nykaa a compelling story. At CMP, Nykaa trades at FY24E EV/sales of 8.2 times,” it said.
HSBC Global Research has also maintained its ‘Buy’ call with a target price of Rs 2,170. This target suggests a potential upside of 83 per cent over Tuesday’s closing price of Rs 1185.75.
HSBC believes that the stock has corrected partly due to the global tech sell-off on rising yields and more recently due to the imminent lock-in expiry.
“We believe valuation is now even more appealing and under-appreciates the structural growth opportunity in beauty and personal care,” it said.
The foreign brokerage added that the fashion business could also potentially surprise in the next five years and expects revenue to double every 2-3 years in the coming decade.
Foreign brokerage Nomura recently initiated coverage on the stock with a target of Rs 1,365.
“With high medium-term growth potential and unique positioning, we believe risk-reward is quite favourable for long-term investors with the potential for the stock to double over the next 5 years,” it said.
Elara Capital has also initiated its coverage with a ‘Buy’ call and a target price of Rs 2,211. This brokerage expects growth performance to continue in the medium term, as the company penetrates deeper into Tier 2/3 cities.
