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Edelweiss initiates coverage on Nykaa with 'buy' rating, shares gain over 1%

Edelweiss initiates coverage on Nykaa with 'buy' rating, shares gain over 1%

Edelweiss initiates coverage on Nykaa with 'buy' rating, shares gain over 1%
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By Akanksha Upadhyay  Mar 22, 2022 1:18:30 PM IST (Published)

A few days after Jefferies initiated coverage on Nykaa with a 'buy' rating and a target price of Rs 1,650, Edelweiss initiated coverage on the online beauty marketplace with a ‘buy’ and a target price of Rs 1,859.Shares of FSN E-Commerce Ventures Ltd, the parent company of Nykaa, rose as much as 1.77 percent on Tuesday on the BSE. However, the stock gave up most of the gains during afternoon trading.

A few days after Jefferies initiated coverage on Nykaa with a 'buy' rating and a target price of Rs 1,650, Edelweiss initiated coverage on the online beauty marketplace with a ‘buy’ and a target price of Rs 1,859.

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Shares of FSN E-Commerce Ventures Ltd, the parent company of Nykaa, rose as much as 1.77 percent on Tuesday on the BSE. However, the stock gave up most of the gains during afternoon trading.
"Nykaa, globally a one-of-a-kind profitable and management-owned new-age business offers a multi-decade growth opportunity, driven by: i) a large TAM, supported by profitable unit economics; and ii) strong moats via its pillars of AAE: Authenticity, Assortment and Engagement. We expect this to translate into an EBITDA CAGR of 48 percent over FY21-26E with RoCE moving from 14 percent to 37 percent, reflecting its asset-light scalability," Edelweiss said.
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According to the brokerage, the recent stock correction is a reflection of the risk-off on consumer tech and a miss on customer addition last quarter, which they believe is a one-off and will reverse as management focus on growth remains clear.
Nykaa is a rare new-age platform company that has achieved profitability and is also management controlled and driven (promoter share: 53 percent) giving visibility on execution. Given the opportunity size and Nykaa’s moats, we bake in a 4x/14x increase in GMV in BPC/Fashion, respectively over FY21-26. This translates into a 37 percent/48 percent revenue/EBITDA CAGR with RoCE improving from 14 percent to 37 percent, a reflection of the asset-light scalability of the business, the brokerage added.
Meanwhile, Jefferies, last week said the company's platform has been able to carve out a niche in the beauty and personal care segment, which differentiates it from horizontals.
It forecasts Nykaa's gross merchandise value (GMV) to rise at a 32 percent CAGR to $2.7 billion by FY26.
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