Nykaa shares fall 7% to hit new lifetime low; stock plunges 21% in a month; what should investors do-

Nykaa shares fall 7% to hit new lifetime low; stock plunges 21% in a month; what should investors do?

Nykaa (FSN E-Commerce Ventures) shares continued to reel under pressure on Friday and hit a new low in an otherwise firm market. Nykaa share price tumbled 7 per cent to hit a fresh low intraday. The stock fell to Rs 975 on NSE, the lowest level since its listing in November last year, and has fallen 21 per cent in the past one month. In comparison, benchmark NSE Nifty 50 has rallied over 5 per cent in the same period. With the recent fall, the market price of Nykaa has tanked 62 per cent from its record high level of Rs 2,574, touched on 26 November 2021.

The sharp sell-off in Nykaa stock has come ahead of the end of the one-year post-IPO lock-in period, which ends next month. Typically, selling pressure is seen whenever the lock-in period meant for IPO anchor investors ends, particularly in companies backed by private equity investors. The sharp decline in stock price in the last few weeks has pushed Nykaa out of the list of India’s 100 most valued companies in terms of market capitalisation (market cap). Nykaa’s market cap fell below Rs 50,000 crore to Rs 47,787 crore in intra-day trade. On Thursday, Nykaa stood at 100th ranking with a market cap of Rs 49,787 crore, the BSE data showed.

GMV to touch Rs 10,400 crore for BPC by FY25

Analysts at Nomura expect a 29% revenue CAGR over FY22-25, largely led by BPC, while fashion revenue is likely to clock a 35 per cent CAGR. They also expect Nykaa’s GMV to touch Rs 10,400 crore and Rs 3,900 crore for BPC and fashion respectively by FY25. New opportunities in areas such as B2B are further likely to add Rs 720 crore GMV by FY25. “We expect EBITDA margins to improve from ~4.3 per cent in FY22 to 9 per cent by FY25F. This will be led by operating leverage benefits, lower marketing costs and rising share of private labels,” analysts said.

What should investors do?

“The counter is witnessing a vertical fall after breaking down the key support of 1220. One should not catch a falling knife therefore investors should stay away from this counter. Those who already hold this counter can book out loss and look for other opportunities however if someone wants to take a risk then 920 will be a stop loss for existing positions,” said Pravesh Gour, Senior Technical Analyst, Swastika Investmart Ltd.

Keep patience; Rs 1800 and above levels expected

“Technically on the daily chart RSI is in oversold, there is not any positive divergence to trend reverse and also sustaining below the 50 and 200 DMA, which indicates negative biasness up to 900 levels, apart from this there are also chances of sell-offs due to IPO lock-in expiry next Month. Investors should keep patience and hold their positions, Over the long term 1800 and above levels are expected,” said Rameshver Dongre, Research Analyst – Equity Research, CapitalVia Research.

Nomura values Nykaa based on DCF. “Given the long headroom for growth, we expect an ~18 per cent revenue CAGR for FY25-40, with EBITDA margin stabilizing at ~18 per cent. Thus, we arrive at our target price of Rs 1,365,” it said, adding that significant growth opportunity for Nykaa and a sharp improvement in margins from 4.3 per cent in FY22 to 9% by FY25 will be key catalysts for the stock.

Stock price correction is an opportunity to Buy

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.

Also Read: Nifty may head towards 18100; ‘stick to buy-on-dip approach, look for stock specific opportunities’

Meanwhile, Nykaa on Thursday announced the appointment of Rajesh Uppalapati as its chief technology officer (CTO), with effect from 1 November. Sanjay Suri, the current CTO of Nykaa, will step down on 1 November and be replaced by Uppalapati.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)