Nykaa Shares Dip Below IPO Issue Price, Analysts Divided On Its Fate

Shares of the beauty ecommerce giant Nykaa dropped almost 3% to INR 1,110.6 on Tuesday (October 25) on the BSE, reaching below its IPO issue price of INR 1,125.

Continuing last week’s falling streak, the significant and ongoing plunge in its share price came ahead of Nykaa’s mandatory lock-in expiry on November 10. 

In fact, Nykaa failed to hold on to its last trading session’s gains. On Monday, its shares had gained 0.7% during the one-hour special Muhurat trading session. The ecommerce giant’s performance during that short trading period was in line with most other tech stocks and the broader bullish market sentiment.

However, after touching its all-time low at INR 1,128, Nykaa shares hit another record low of INR 1,107.20 on Tuesday. At the current level, its shares are trading 44.5% below their debut price of INR 2,001 on the BSE.

Most analysts are of the opinion that the impending lock-in expiry is resulting in such significant sell-offs and many are finding a Zomato-like pattern in it. Zomato shares were already in trouble since June-end after announcing its Blinkit acquisition and prior to the IPO lock-in expiry. After the lock-in expired, its shares fell to a record low of INR 40.55 in July this year.

Analysts Divided On Nykaa’s Fate

Speaking to Inc42, Kunal Shah, senior technical analyst at LKP Securities, said that Nykaa stocks are already trading at their 52-week low and a minor bounce back is expected from here. “However, there is no such confirmation right now,” he added.

Analysts’ views are still divided on Nykaa’s growth trajectory from here on, which is quite in contrast with the stellar debut it made in the bourses last year.

Last week, brokerage Nomura initiated its coverage on Nykaa with a ‘buy’ rating and a price target of INR 1,365, which implies an upside of 22.9% to their last close.

“With high medium-term growth potential and unique positioning, we believe risk-reward is quite favourable for long-term investors with potential for the stock to double over the next 5 years,” the brokerage said.

Indian brokerage JM Financial, which is rather bullish on the Nykaa stock otherwise has recently said that though Nykaa is a “differentiated play”, there are chances of sell-offs due to IPO lock-in expiry.

The highest cost of acquisition is about INR 202 among all the larger shareholders of Nykaa, which implies almost 6X returns at the current market price. Also, most of these shareholders have gained by selling during the IPO or in secondary sales prior, the brokerage noted.

“Of the 9 locked-in financial investors holding 1%+ share capital of Nykaa, only 3 have not generated any liquidity from this investment. Despite that, the size of gains might still be the cause of further selling in order to diversify the portfolio or to book profits,” JM Financial added.

However, it also noted that the short-term dip must be treated as an accumulation opportunity by investors looking to build long-term positions.

On the other hand, ICICI Securities remain more cautious in its approach towards Nykaa with a ‘hold’ rating on the stock. In a recent research note, the brokerage said that eB2B space would help the startup achieve scale but is likely to have lower value creation than its core business.

However, it is not only Nykaa that is hit badly ahead of its impending lock-in expiry. The shares of Delhivery and Policybazaar, whose IPO lock-in expires next month on the 24th and 15th, respectively, are also experiencing significant sell-off.

After last week’s slip, Delhivery shares fell 3.8% further to INR 383.75 on the BSE on Tuesday, while Policybazaar’s shares were down 3.6% at INR 384.55.