Nykaa stock has inched closer to its issue price of Rs 1,125 per share and has corrected 48% from its record high of Rs 2,574 per share. However, going forward, the stock may rally nearly 60%.
Nykaa share price surged over 3% on Wednesday, a day after the internet company informed that its litigation with L’Oreal S.A. has been settled. The share price jump comes after a steep correction in the stock over the past couple of days amid market sell-off. Nykaa stock hit a new low of Rs 1,218.80 after it slipped 8% on Tuesday. The stock has inched closer to its issue price of Rs 1,125 per share and has corrected 48% from its record high of Rs 2,574 per share, touched on 26 November 26 2021. However, going forward, the stock may rally nearly 60% as “data trends and Nykaa’s strategic choices indicate that the company is positioned perfectly to sustain its profitable growth trajectory”, said JM Financial in its report.
Unique shoppers base to grow up to 22 million by FY26:
Analysts at JM Financial forecast Nykaa to have 22 million unique shoppers in BPC and 10.9 million shoppers in Fashion. For BPC, this implies addition of an incremental 14.1 million shoppers. “According to BCG, India is expected to have 16mn ‘elite’ households with gross annual income above USD 30,800 and 33mn ‘affluent’ households with annual income between USD 15,400 and USD 30,800 in 2025. Assuming 60% penetration in elite households and 40% penetration in affluent households enables over 22mn unique shoppers for Nykaa by FY26. There remains potential upside from incremental users in a household or further penetration,” the brokerage said in its report.
No immediate threat from major competitors
According to analysts, Nykaa’s platform with focus on 3Cs – Content, Curation and Convenience with the focus on authenticity – has made it a dominant online BPC platform in the country. Since Amazon and Flipkart are prohibited from carrying inventory by India’s FDI policy and authenticity being tricky to promise in a marketplace model, these online retailers continue to focus on low ticket, massmarket items only. “Meanwhile, large conglomerates that are ramping up their digital presence can certainly become a threat if they dedicatedly decide to pursue this vertical, but we believe they are too distracted by larger categories such as grocery and fashion and BPC still requires a specialised retail capability,” they said. Fashion, on the other hand, continues to be dominated by the horizontals. The brokerage estimates Nykaa to continue building a niche positioning and gain 6% market share in the Fashion segment by FY26.
Nykaa stock rating: BUY
Target price: Rs 2,120 (59.1% rally)
According to JM Financial, Nykaa remains a differentiated player with its focus on 3 Cs – Content, Curation and Convenience – creating a rapidly growing and loyal consumer base. “The company’s unique solutions to consumers’ and brands’ pain-points create long-term stickiness that is likely to endure Nykaa’s dominance in BPC while creating a niche positioning in Fashion,” it said.
“The recent market turmoil in tech stocks has also engulfed Nykaa with concerns arising over future growth and profitability. While the company is likely to face newer challenges to tackle and opportunities to explore in a post-COVID world, data trends and Nykaa’s strategic choices provide us the confidence to believe that the company is positioned perfectly to sustain its profitable growth trajectory. The recent share price correction provides an extremely encouraging risk reward,” the brokerage said. JM Financial reiterated its ‘BUY’ rating on Nykaa stock with target price Rs 2,120 (nearly 60% upside).
