Homebusiness Newscompanies News

Nomura expects Nykaa to take five years to reach its earlier peak

Nomura expects Nykaa to take five years to reach its earlier peak

Nomura expects Nykaa to take five years to reach its earlier peak
Read Time
2 Min(s) Read
Profile image

By Hormaz Fatakia  Oct 21, 2022 10:41:51 AM IST (Published)

Nomura has cited a high medium-term growth potential, unique positioning, and a favourable risk-reward behind initiating coverage on the stock.

wealth-desk wealth-desk

Buy / Sell FSN E-Co Nykaa share

Recommended Articles

View All

Broking firm Nomura has initiated coverage on FSN E-commerce Ventures, the parent company of beauty and personal care brand Nykaa with a buy recommendation. The firm believes that the stock has the potential to double within the next five years.
However, its price target of Rs 1,365, implies a potential upside of 18.5 percent from Thursday's closing price and is 5.5 percent below the stock's previous peak of Rs 2,573.
The brokerage has cited a high medium-term growth potential, unique positioning, and a favourable risk-reward behind initiating coverage on the stock.
Nomura sees Nykaa as a key beneficiary of the rise in aspirational spending from India's young demographic on skincare and cosmetics as the company gets nearly 70 percent of its revenue from beauty and personal care products.
Nykaa's EBITDA margin is likely to improve to 9 percent from current levels of 4.3 percent by financial year 2025 as the company's fashion business breaks even, according to Nomura. The brokerage also expects the contribution of private labels to rise to nearly 16 percent of revenue in the same time period.
Earlier this month, Nykaa announced its partnership with online fashion retailer, Revolve to offer access to a range of fashion labels from across the world. The company also announced a partnership with Middle East-based retailer Apparel Group, to launch a new multi-brand retailer online and offline in the Gulf Cooperation Council (GCC) region.
The brokerage expects Nykaa to report compounded revenue growth of 29 percent over the next three years led by exclusive brand tie-ups, a strong influencer network and an omnichannel presence.
Here are some of the key risks cited by Nomura to its objective:
  • Failure to replicate the success in the fashion business as it is a highly contested market
  • Slower adoption of e-commerce may result in a much smaller target market for the company, thereby impacting revenue potential
  • Rise in competitive intensity
  • Regulatory risks surrounding private labels as final regulations of the Draft e-commerce regulations in 2021 may pose a key risk to Nykaa's growth
  • Shares of Nykaa are trading a percent lower at Rs 1,152.95. The stock is trading near its 52-week low of Rs 1,130. The stock is also in the news after it announced the issue of five bonus shares for every share held by shareholders.
    For the latest market action today (Oct 21), please click here
    Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!