Brokerage firm Macquarie has initiated coverage on FSN E-Commerce Ventures (operators of Nykaa retail chain) with an ‘underperform’ rating and a target price of ₹115 a share, implying a downside of 23 per cent from the current levels. Macquarie’s target price for Nykaa is the lowest among brokerages covering the stock.

Nykaa, that hit a low of ₹145.55 in early intraday trade following the report, recovered to close flat at ₹149.55 against the previous day’s close of ₹149.70 on the BSE.

Analyst concerns

Macquarie has said it remains concerned about Nykaa’s ability to profitably grow in the fashion segment, where the company offers a curated marketplace of third-party/newly-developed own apparel brands.

“An analysis of offline retailers indicates that players using a curation-led approach with third-party brands have seen limited success,” the brokerage firm said in a report.

“With larger D2C brands increasingly looking to move offline and customers demanding more physical stores to experience products, we believe Nykaa would need to reinvest gains to sustain growth,” it said and added, “The need may be exacerbated by the entry of new players like Reliance Retail and Tata Cliq.”

Macquarie, however, remains optimistic on the potential of the Indian beauty market, as rising per-capita income drives a shift from basic lip-and-eye focused products to skincare regimens (as seen in developed markets like in China/Korea). “However, we believe the sharp growth in e-commerce salience (at 15 per cent in 2022 vs 8 per cent in 2020) suggests the near-term growth would moderate from the earlier highs,” it added.

“The apparel brand space is crowded with strong players and is highly competitive. This makes brand creation a long-gestational and arduous process, it said.

Other downgrades

Recently, Ambit Reserach also featured Nykaa as one of its biggest EPS downgrades after it came out with its quarterly numbers.

Similarly, HDFC Securities had cut its FY24/25 EBITDA estimates by 8 per cent each to account for higher gestation in fashion/B2B biz. “Downgrade the stock to Sell with a target price of ₹125 a share (implying 86x FY25 EV/EBITDA),” it said in its February 13 report.

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