Nykaa Shares Hit Record Low Of INR 114.3 In Intraday Trading On Wednesday

Shares of beauty ecommerce player Nykaa hit another record low at INR 114.3 on the BSE during the intraday trading on Wednesday (April 26), falling 2.2%.

While the shares managed to recoup the losses to close the session marginally higher at INR 117, the trend seems to be on the weaker side. On Tuesday, Nykaa touched an all-time low of INR 115.5 on the BSE.

It is important to note that while Nykaa’s market performance has been highly volatile, the slump in share price came after the beauty ecommerce startup announced onboarding new senior leaders across its technology, business, finance, and marketing teams earlier this week.

Amid macroeconomic headwinds and increasing competition, reports emerged last month that five senior executives quit Nykaa. 

Meanwhile, Nykaa also published its revenue update for Q4 FY23 earlier this month in which it noted that consumer pullback in discretionary spends impacted its fashion business. However, it said that the beauty and personal care (BPC) category saw sustained strong demand during the quarter.

In Q3 FY23, the startup posted a 71% year-on-year (YoY) decline in its consolidated net profit to INR 8.5 Cr. Nykaa’s executive chairperson, MD and CEO Falguni Nayar said that weak consumer spending due to the global economic slowdown hurt the company’s revenue and margin during the quarter. 

Reliance’s entry into the beauty ecommerce segment with its omnichannel beauty retail platform Tira has made the matters worse for Nykaa. 

Amidst all this, HDFC Securities today cut the price target (PT) on Nykaa to INR 110 from INR 115, implying a downside of about 6% to the stock’s last close. The brokerage maintained its ‘reduce’ rating on the stock.

HDFC Securities said that its three-point thesis on Nykaa – total addressable market (TAM) seems oversold, struggles with advertising revenue, and the company seems more like “an efficient pipe business than a platform” – still holds.

“While no one disputes Nykaa’s premier positioning in BPC, it is already over-indexed in terms of ad revenue it earns (in terms of % of revenue vs. other online deep-pocketed players). Also, with Myntra/ RR’s Tira/ Tata Cliq Palette getting aggressive in the BPC space, ad dollars are likely to be closely contented,” said the brokerage.

However, JM Financial in a research note termed the slump in Nykaa’s market performance post its Q4 revenue update quite surprising considering that the BPC segment continued its robust growth despite the poor discretionary spending environment. Besides, it said that Nykaa also seems to be curtailing investments to grow its fashion business.

“We certainly accept that Reliance’s entry should be a cause of concern but we remain unconvinced on Reliance’s agility and understanding of the end consumers, who prefer high quality experience and servicing over a marginal discount,” said the brokerage.

JM Financial noted that Nykaa has never acquired customers by pitching lowest pricing, hence, it is unlikely that its customer base will shift loyalty on the basis of discounts. 

Besides, given the relatively smaller TAM available in these sectors, it is not attractive enough for Reliance to put its best foot forward, the brokerage said.

“Hence, we believe that the capability to invest heavily might help Tira Beauty gain a large geographic footprint but gaining a significant market share of online beauty would require a change of approach, case in point being that despite 7 years of investment, Ajio still accounts for a single digit market share of online fashion,” it added.

JM Financial maintained its ‘buy’ rating on the stock and PT of INR 230, implying a 96% upside to the stock’s last close.