BofA, which has taken a neutral view on the counter, sees competition as a key downside risk while ICICI Securities downgraded the stock to ‘Add’ and advocated tighter corporate spend to meet margin expectations.
Notwithstanding an ‘Overweight’ stance by Morgan Stanley and a buy view by Jefferies and Nuvama, the selloff was amid high volumes as over 61.79 lakh shares changed hands on the NSE.
On Friday, Nykaa reported an 8% year-on-year rise in profit to Rs 5.4 crore in Q1. Revenue from operations during the first quarter rose 24% to Rs 1,422 crore, as against Rs 1,148 crore in the same quarter of last year.
Here is what brokerages recommended:
BofA: Neutral | Target: Rs 160
BofA remains neutral on Nykaa’s prospects and has cut the price target to Rs 160 from Rs 175 on the back miss in the Q1 earnings estimates, a slowing growth and less support to its valuation. The brokerage in a note said that the downside risk will remain if the competition pressure increases. The pace of margin will be slower going ahead. It said that the Nykaa shares are fairly valued. It has cut FY23-26 EPS by 17-39%.
ICICI Securities: Add | Target: Rs 165
ICICI Securities has downgraded the stock to ‘Add’ while keeping the target price unchanged at Rs 165. Cost-control initiatives yielded a 130 bps YoY contribution margin (CM) improvement in BPC despite a 60 bps YoY gross margin decline as the ad-income from D2C brands was soft as brands increased profit focus (in-line with our expectations). A new ad platform resulted in transition challenges for smaller brands, the brokerage noted, adding that the channel mix worsened. While the management commentary on B2B business achieving EBITDA breakeven in 2-5 years’ time was underwhelming, ICICI Sec believes a tighter calibration of corporate overheads may be needed for Nykaa to meet investors’ margin expectations.The brokerage has cut its earnings estimates by 9%/8% for FY24E/FY25E.
Morgan Stanley: Overweight | Target: Rs 175
Morgan Stanley remains ‘Overweight’ on the stock and has placed the price target at Rs 175. For its beauty & personal care (BPC), FY2Q trends are likely to be similar to FY1Q, in its opinion. Growth momentum has slowed in the fashion segment. Management is focused on driving up profitability metrics and expects to benefit from festive demand in the third quarter of the current financial year.
Jefferies: Buy | Target: Rs 200
Jefferies reduced its GMV (gross merchandising value) forecast commenting that the Q1 EBITDA was below its estimates. While retaining its EBITDA estimates, the US brokerage firm has retained a ‘Buy’ for a price target of Rs 200. The miss was on account of higher discounts, lower ad income, GM miss, among others, it said in a note.
Management is cautiously optimistic on growth across segments and focus is to improve profitability through measures like portfolio mix, cost savings etc, Jefferies note said.
Nuvama: Buy | Target: Rs: 180
Nuvama has retained a buy for a price target of Rs 180. The BPC has clocked stable growth with fashion turning out to be a big disappointment, it said in a note while lauding the BPC growth.
FSN E-Commerce (Nykaa) reported in-line performance with consolidated GMV growing 24% YoY. BPC GMV growth was in sync with historical trends while fashion GMV growth saw a sharp deceleration on overall slowdown.
“We factor in lower growth expectations for fashion, which drives a 5% cut in FY24E EBITDA. Rolling over to Jun-24E yields a DCF-based target price of Rs 180 from an earlier Rs 186 earlier,” the domestic brokerage said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)