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Here’s why Nykaa’s products are a hit but its stock is not

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Here’s why Nykaa’s products are a hit but its stock is not

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Nykaa stock price: Shares of FSN E-Commerce Ventures (Nykaa), which had made a bumper debut on Dalal Street in November 2021, have shed about 32 percent since listing. Two things weighing the stock down are the burden of past expectations and fear of rising competition that may reduce the profit margin.

Here’s why Nykaa’s products are a hit but its stock is not
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Buy / Sell FSN E-Co Nykaa share

Beauty products retailer Nykaa has been able to increase its sales —  and its products are hardly cheap —  but the stock market is not as excited as its customers. FSN E-Commerce Ventures (Nykaa), which had made a bumper debut on Dalal Street last November, has shed about 32 percent since listing.
Two things weighing the stock down are the burden of past expectations and fear of rising competition that could reduce the profit margin. Some of the recent moves by the company —  including the appointment of Vikas Gupta, Flipkart’s head of marketing, as the CEO of the business-to-business (B2B) vertical — have led the market to believe that Nykaa may chase a bigger market share at the cost of profit margin.
The company will report its quarterly earnings this Friday.
To drive a 35-40 percent compound annual growth rate in the beauty and personal care gross merchandise value over the next 5-6 years, the beauty and wellness product retailer will have to go more mainstream, said a report by Mumbai-based broking firm ICICI Securities.
Nykaa has a strong focus on merchandising, brand assortment and exclusivity, focusing on premiumisation and upselling — as opposed to discount-led tactics adopted by its competitors — and an omnichannel strategy that gives customers options to browse and shop.
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Furthermore, Nykaa may risk tarnishing or losing branding as a premium beauty destination as it expands its business model and offerings to include mass segments, non-luxury items or adjacent categories, the domestic brokerage firm had warned. 
(Source: Nykaa website)
Analysts fear that catering to a wider audience may squeeze margin and dilute the brand. “We would be concerned if Nykaa slows down on content or innovation, or even if it changes its strategy of not offering discounts to offering discounts in the interest of retaining market share,” said Morgan Stanley in its report dated January 30, 2022.
Nykaa currently has a 28.6 percent market share in the Indian online beauty and personal care market, as per ICICI Securities estimates.  
All fears notwithstanding, no one currently has rated Nykaa's stock under "sell".
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