Shares of beauty and lifestyle retailer Nykaa (FSN E-Commerce Ventures) jumped over 4 percent on Monday, rising for the second straight session, after the company in its 2023 investor presentation announced that it sees a total addressable market (TAM) of $100 billion and targets over $180 billion by 2027. Meanwhile, bullish views by multiple brokerage houses also kept the investor sentiment positive.
The stock rose as much as 4.8 percent to its intra-day high of ₹151.35 on Monday and ended 4.2 percent higher at ₹150.45. It has jumped 9 percent in 2 sessions.
It has shed 37 percent in the last 1 year and around 3 percent in 2023 YTD. It has been on a downward trend since announcing its March quarter results and hit its 52-week low of ₹114.3 on April 26, 2023. However, just in June so far, the stock has surged a massive 20 percent.
In the presentation, Nykaa highlighted that its premium fashion market in India is expected to grow 3.5 times by 2030. Also, its store count jumped from 350 in FY22 to 1000 in FY23 and is estimated to cross 2000 in FY24.
Despite inflationary pressures and short-term challenges to discretionary spends, the company has been getting into newer areas, it said, adding that Nykaa is also betting big on the premium fashion and beauty segments backed by an exponential growth in these markets and growing aspirations of consumers.
It also noted that the share of the premium segment of beauty and personal care (BPC) products will grow to an estimated 55 percent of the total BPC market in the country by 2026 versus 45 percent currently. It pointed out that the consumer preference in the BPC category is shifting from personal care to beauty products.
It further informed that it has posted around $80 (about ₹6,500) per customer spend in the BPC category in the past 12 months, significantly higher than the $15 per capita (about ₹1,200) spend on BPC in India.
It further mentioned that the contribution from the company’s mainstay beauty and personal care (BPC) segment to consolidated gross merchandise value (GMV) sales has fallen to 68.2 percent in FY23 from 98.3 percent in FY19.
Meanwhile, the company's fashion segment has seen its contribution to sales grow to 26.4 percent in FY23 from 1.7 percent in FY19, it said.
Post the investor presentation, brokerages retained their positive outlook for the company. They believe that the stock is likely to see a re-rating if the growth in its BPC segment remains stable.
Jefferies retained its ‘buy’ call on the stock with a target price of ₹200, indicating an upside of 33 percent. It noted that the company management sounded positive on its industry outlook and Nykaa's strong right to win across business verticals. Also, premiumisation trend plays well in favor of Nykaa given the platform positioning, it stated.
A strong tech backbone is core to its success and the investments continue to augment tech capabilities, said the brokerage.
Nomura also has a ‘buy’ call with a target of ₹183 for the stock, indicating an upside of 22 percent driven by the strong growth outlook.
"We continue to estimate a strong 25 percent CAGR for BPC over FY23-30F. However, we factor in fashion CAGR at 13 percent with a terminal year mix of 5 percent to NSV. We factor in overall revenue CAGR of 25 percent over FY23-30F and Ebitda margin to expand to 12.7 percent by FY30F (from 5.4 percent currently). With major expenses on employee costs and warehousing behind, we believe the steady margin expansion should continue over the next few years," it said.
Kotak Institutional Equities also has a ‘buy’ call with a target of ₹210, indicating an upside of 40 percent. It noted that the company incurred ₹250 crore of losses in FY23 from fashion and the new verticals (eB2B, Nykaa Man). However, the brokerage believes this can go down to ₹210 crore in FY25 as channel economics improve.
JM Financial also has the same target price for Nykaa. It said that Nykaa’s segments can grow at multiples of base industry growth rates with substantial margin expansion opportunity driven by higher BPC/fashion consumption per capita and premiumisation.
"We continue to believe in Nykaa’s right to win in BPC (both B2C and eB2B) while expecting the Fashion segment to focus on sustainable growth in premium fashion and hence reiterate our ‘BUY’ rating with Jun’24 target price of ₹210," JM Financial stated.
Meanwhile, Nuvama, which has a target price of ₹186 for the stock, highlighted that stable growth in BPC along with profitability improvement is admirable. Going forward, comfort on competition, given two large independent beauty platforms have been launched in the last one year, and cash flow generation (debt moderation) can drive re-rating, it said.
However, HDFC Securities has a target of ₹120, indicating a downside of 20 percent.