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Nykaa’s Shares Plunge to Record Low Levels At Rs. 1,130; Trading Close to the IPO Issue Price of Rs. 1125; Investors Tread Cautiously.

Nykaa’s entry into the stock markets last year was nothing short of a grand entry when it debuted on the stock exchanges with its listing at Rs. 2001 on the BSE.

However, today things seem to be on a very different turf, with stocks of Nykaa trading at a record low at Rs. 1130 levels which is close to its IPO issue price of Rs. 1125.

Last year, Nykaa hit the peak price of Rs. 2574 in November and roughly almost at the same time this year, its stock price has plummeted 56% lower. 

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Nykaa’s current share is trading over 43% lower than their stock exchange debut price of INR 2,001 on the BSE; the stocks of Nykaa have been witnessing strong corrections since the very beginning of this year and have since then remained largely range bound. 

It is to be noted that when the beauty startup stocks hit the markets on November 10, its stock nearly doubled on the day of its listing at Rs. 2248.10.

Why are the Shares Of Nykaa Falling?

According to most analysts studying Nykaa’s performance, it is noted that investors have been dumping Nykaa’s stocks because of the rising competition in the e-commerce market. 

However, brokerages, by and large, are bullish on the stock looking at an average target price of Rs. 1691.5, which roughly translates to that the stock still has an upward potential of up to 46%.

Analysts also believe that Nykaa’s dominance in the Indian Markets is now challenged by other players in the market and the ones that have made their foray into this segment.

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What’s the viewpoint?

According to ICICI Securities – it has noted the business model of Nykaa with the underlying factor that Nykaa continues to invest in growing new businesses. Its unit economics of BPC is strong, and further to that, it has a fashion unit that is focused on driving higher conversion and quality traffic. 

Hence, its investments in the segregated value proposition of content, curation and convenience are showing results.

The domestic brokerage kept the stock’s hold rating with a target price of Rs. 1250.

Another leading brokerage, JM Financials – FSN E-Commerce Ventures, Nykaa’s parent company, has kept with its focus on expanding its omni – channel presence and also the business focus on Eb2b will give the company a significant opportunity to grow in the coming 3 – 5 years. 

Should you take the plunge?

It is often said that when it comes to value stocks or stocks of companies with growth potential (3-5 years, Nykaa), the best time to buy the stocks of the company is when it is trading at a lower price in the market.

Nykaa, at present, may be trading cheap, but it is still in the ten times price to sales category or ten times the revenue multiple, and hence things are not so easy. Therefore, to say that buying the stock makes sense may not be the case.

It is suggested that those who might be looking at this as an opportunity to capitalize on they need to watch the stock’s performance – the approach should be in a “very – very” staggered manner if looking to buy its stock.

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Nykaa’s Debut in the Indian Market

For those who may not know, it was Falguni Nayar who founded the company in 2012; the start of Nykaa was as an internet company soon branched out into an omnichannel strategy. 

Headquartered in Mumbai, Nykaa is known for its wide range of cosmetics and beauty products, later foraying into fashion and innerwear, which the company sells through its website, app and online storefronts. 

In its foray into the cosmetic and beauty products segment, its closest competitors were Ajio and Myntra; hence it needed to outdo the competition by adopting business strategies that were both unique and viable. 

Nykaa’s Growth Story

As per estimates, Nykaa has over 17 million monthly active users at present and processes over 1.5 million orders every month. 

As per figures in Oct 2021, according to Nykaa – 

  • It has more than 15 million users
  • It has 70 locations across India.
  • More than 4000 brands are available through Nykaa
  • Its app, website and stores have a presence of roughly 3.1 million SKUs.

 

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Covid – 19 and Nykaa

Nykaa, like all significant companies, suffered the impact of the pandemic and registered a 70% drop in sales in April 2020. However, the company recovered from the effects of the pandemic, and by the end of 2020, it had sufficiently recovered more than 90% of what it had endured during the pandemic.

Once it recovered from the effects of the pandemic, it also created an intimate brand of apparel called Nykd.

Nykaa and the Steller Debut on the StockExchange

On October 28, 2021, it came out with its IPO with a price range of INR 1085 – 1125 per share.

Nykaa’s IPO turned out to be a success, and as a result, the market valuation of the company exceeded Rs. 1 Lakh billion. 

At the end of the IPO, the company saw its shares oversubscribed by 81.78 times; hence, Nykaa’s market capitalization tripled on its first day on the stock exchange.

The success of the IPO also led to the success of the parent company FSN E-Commerce, which witnessed a record high in the value of its shares in the stock market, which led to a 96% return on the company’s investors’ capital. 

According to the Bloomberg Billionaires Index, Nykaa CEO Falguni Nayar’s net worth increased to $6.5 billion following the brand’s record listing.

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The Fall Starts 

With all the success written on the cards, Nykaa’s parent company reported a 96 % drop in profits on November 15 2021, which led to a decline in its share price. 

The company’s net income for the third-quarter ending in September was Rs 1.2 crore, down from Rs 27 crore the previous year.

It was stated that the company’s sales increased by roughly 47 per cent as a result of the 92 per cent increase in expenses. 

The company’s net income for the third-quarter ending in September was Rs 1.2 crore, down from Rs 27 crore the previous year. 

The company’s profitability dropped due to a spike in marketing costs in the quarter leading up to its initial public offering.

Conclusion: Nykaa had a stellar debut on the stock exchange; however, it’s currently trading at its lowest and close to the IPO issue price will definitely ring alarm bells for the company management.

Nykaa has headed in the right direction by recovering quickly from the losses incurred due to the pandemic by quickly reevaluating its strategy and taking stock of its inventory. 

The company also has forayed into new sectors by evaluating the opportunities presented in the market. 

However, at present, Nykaa’s stocks are taking a beating, and the cue for investors is to wait and watch and invest smaller amounts in a staggered manner. 

Whether Nykaa’s stock is taking a beating due to subdued market sentiments and the economic slowdown that has been predicted globally, the result of which is evident in the Indian stock markets too, will only be found out going forward.

Nykaa, in the present, sees not only its stock prices falling but also a dip in its profitability and market opportunities.

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