Shares of FSN E-Commerce Ventures (Nykaa) slipped below its IPO issue price of Rs 1,125 per share, as weakness on the counter continued despite recent bullish brokerage reports.
The scrip tanked 3.03 per cent to hit a new all-time low of Rs 1,109.05 on BSE, taking its decline from 52-week high to 57 per cent. The stock, which got listed on November 10, 2021, at a 79 per cent premium over its issue price, has been on a downswing.
Kotak Institutional Equities in a note last week said that the cost of digital advertising is set to remain elevated for Nykaa, given high competition among brands to target specific customers and high cost of influencers.
“Nykaa’s BPC business should continue to be unaffected, as it is an advertising platform itself; the fashion business could see elevated ad spends. We bake in delayed profitability of this vertical, resulting in a 16-21 per cent cut in the FY2023-25 EPS and a new FV of Rs 1,640. The stock price correction is an opportunity to BUY,” it said.
Another brokerage Nomura India last week initiated coverage on the stock with a target of Rs 1,365, factoring in an 18 per cent revenue growth compounded annually over FY25-40 into its target.
The foreign brokerage, which sees Nykaa’s Ebitda margin stabilising at 18 per cent level, does not rule out the potential for the stock to double over next five years.
JM Financial said the stock has valuations that are at a premium to most loss-making new age companies.
Despite this, the brokerage expects the Nykaa’s premium to sustain, as not many companies are estimated to deliver gross merchandise value CAGR of 41 per cent, revenue CAGR of 39 per cent and Ebitda CAGR of 71 per cent over FY22-27 period.
“We have a ‘BUY’ rating on the stock with a September 2023 target of Rs 1,780 and believe any short-term dip should be a great accumulation opportunity for investors looking to build long-term positions in Nykaa,” the brokerage said.
It will be crucial to see if investors liquidate or continue to hold the stock, JM Financial said.
Nykaa’s pre-IPO shareholder lock-in is set to expire on November 10.
Also read: Nomura initiates coverage on Nykaa, says stock can double in 5 years
Also read: Has the Nykaa stock bottomed out? Here’s what investors should do
