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Jefferies Reiterates ‘Buy’ Call on Nykaa with a Target Price of ₹220

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Jefferies Reiterates ‘Buy’ Call on Nykaa with a Target Price of ₹220

Jefferies has reaffirmed its positive outlook on FSN E-Commerce Ventures (Nykaa), suggesting a ‘buy’ call with a target price of ₹220, indicating an approximate 28 percent upside from current levels. This optimistic projection comes after a compelling presentation by Nykaa’s management, represented by Anchit Nayar (CEO, Beauty E-commerce) and Namrata Penta (AVP, M&A & IR).

Growth Projections and Scenarios

Jefferies forecasts a robust compound annual growth rate (CAGR) of around 20 percent for Nykaa between FY24 and FY27. They outline three scenarios:

  1. Base Case Scenario:
    • Order Frequency: Gradual increase as the customer base matures.
    • Gross Merchandise Value (GMV) Growth:
      • Beauty and Personal Care (BPC): ~25% CAGR
      • Fashion: ~25% CAGR
  2. Bull Case Scenario:
    • Order Frequency and Average Order Value (AOV): Significant increases.
    • GMV Growth:
      • BPC: ~30% CAGR
      • Fashion: ~30% CAGR
    • Target Price: ₹250 (45% upside)
  3. Bear Case Scenario:
    • Order Growth: Moderate at ~15% CAGR.
    • GMV Growth:
      • BPC: ~15% CAGR
      • Fashion: ~10% CAGR
    • Target Price: ₹130 (24.5% downside)

Performance and Market Position

Nykaa has achieved a niche position in the Beauty and Personal Care (BPC) segment, differentiating itself from broader platforms like Flipkart and Amazon. Recent trends show an increase in customer transactions, order frequencies, and basket values as newer customer cohorts mature.

  • Stock Performance (Past Year):
    • Gained over 18%.
    • Flat in 2024 YTD with mixed monthly performance:
      • Positive in March (3%), April (9.4%), and June (5%).
      • Negative in January (-6.1%), February (-3.9%), and May (-7%).
    • Current Price: ~12% below the 52-week high of ₹195.40, but up 32.5% from the 52-week low of ₹130.

Financial Highlights

In FY24, Nykaa reported significant growth across its segments:

  • BPC Segment: GMV surged by 25% to ₹8,340 crore.
  • Fashion Segment: Expanded by 27% to ₹3,269 crore.
  • Others Segment: Grew by 59% to ₹835 crore, including the B2B division (Superstore) and media arm (LBB).

Nykaa’s management highlighted that about one-third of its product offerings are makeup products, another third are skincare products, and the remaining third are a variety of other products.

Market Insights and Strategy

Nykaa holds about 35% of India’s online BPC market and is expanding its offline presence, with stores achieving profitability on an EBITDA basis within a year and full payback within three years.

  • Market Context:
    • India has 70 crore internet users and 23 crore online shoppers.
    • Online BPC shoppers: 6-7 crore, with only 2.5 crore having shopped on Nykaa.
    • The BPC sector lags behind electronics in terms of market penetration.

Nykaa’s focus remains on increasing awareness, as affordability and availability are no longer significant barriers. The company aims to drive growth by improving order frequencies and basket values.

Jefferies notes that while BPC margins are expected to remain stable in the near term, the company’s strategy is to reinvest any cost savings back into growth initiatives. Additionally, profitability in the fashion and eB2B segments continues to improve.

Jefferies’ positive outlook on Nykaa reflects its potential for sustained growth and market leadership in the online BPC and fashion segments. The target price of ₹220 underscores confidence in Nykaa’s strategic direction and market positioning, with the potential for even greater upside in an optimistic scenario.

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Ahmed Mainul

My name is Ahmed Mainul Mondal, I'm the founder of the hospitality career profile website. I'm writing blogs and news posts as per user preferences.

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