Nykaa Inches Up After Jefferies Maintains ‘BUY’ But Cuts Target Price

Under heavy stress, shares of beauty ecommerce startup Nykaa gained some ground on Tuesday (February 7) after brokerage firm Jefferies maintained a ‘BUY’ rating on the stock.

The brokerage, however, slashed the price target to INR 200 from INR 275, owing to concerns around ‘near-term slowdown.’

“… we reduce our PT (price target) to INR 200 on lower multiples to factor in the pullback in valuation for retailers in the context of near-term slowdown concerns. Our PT implies a premium to retailers, but is justified in the context of higher growth. BUY stays,” said Jefferies in a report on February 6. 

The aftermath saw Nykaa making gains during Tuesday’s early trading hours and closing 1.05% higher at INR 139.05 on the BSE. 

Underlining its concerns, the brokerage firm noted that Nykaa’s rise had attracted a lot of other players, including Flipkart-backed Myntra and Reliance-owned AJio, to the space. It added that these new competitors have increased product assortments and marketing spends.

It said that conglomerate-backed brands such as Reliance Retail via Tira, Tata Group and Shoppers Stop were looking to go online and grab a pie of the burgeoning market. 

“Tight liquidity conditions have pushed startups to focus on profitability. This has also impacted D2C players who have also been focusing on reducing their cash burn. This may impact brand investments, resulting in lower ad income for Nykaa, which enjoys high margins,” the report added. 

Jefferies also cited the bloodbath in the aftermath of the stock bonus and expiry of the lock-in period. It noted nearly a third of the ‘large’ pre-IPO shareholders have fully offloaded their stakes in the company so far. 

The brokerage firm said that while urban demand was rising, digital platforms such as Nykaa were witnessing a year-on-year (YoY) decline in app user traffic in the recent months. 

In Roiling Waters

The silver lining comes at a time when the beauty ecommerce giant is witnessing a massive selloff on the bourses. 

Late last month, Nykaa stock fell to an all-time low of INR 120.75, pointing to the overall volatility that has gripped the market. Since the announcement of the bonus share offer in November last year, Nykaa’s stock has plummeted more than 33% from INR 208.