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'I am FY41 guy': IIFL analyst takes on Twitter trolls, defends Nykaa estimates

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Percy Pathanki's beef with his critics is that instead of pointing out whether his estimates were high or low, he is being slammed for making estimates that far out.

'I am FY41 guy': IIFL analyst takes on Twitter trolls, defends Nykaa estimates
Last week, Percy Pathanki, an analyst at broking firm IIFL, unwittingly found himself at the centre of a troll storm after his report on fashion e-tailer Nykaa factored revenue, market share and operating profit margin estimates for the company all the way to the financial year 2040-41.
In a VUCA (volatility, uncertainty, complexity, and ambiguity) world where companies themselves are unsure of how the operating environment will be one year down the line, Pathanki’s forecast was clearly a leap of faith, but one based on discounted cash flow (DCF) method that analysts routinely use to value companies.
But that did not stop a section of Twitterati from ridiculing Pathank, some of who mockingly compared Pathanki to Albert Einstein, Sanjay (the charioteer from the epic Mahabharata who was blessed with a divine vision) and the likes.
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Pathanki chose to respond with a 3,000-word post, which starts by saying:
"This is FY41 guy. Yes, the same guy who forecast FY41 sales for Nykaa."
Pathanki's beef with his critics is that instead of pointing out whether his estimates were high or low, he is being slammed for making estimates that far out.
"In any debate, if a person questions another person's argument on merits, that is part of the rules of engagement, but if one questions the other's locus standi to make an argument in the first place, where do we go from there?"
Excerpts from the post:
"Ok, you might say, do the DCF, but why have such explicit forecasts till FY41? Isn't it a norm to make explicit forecasts for say 3 years, and then just directly forecast a growth rate in FCF for another ~15 years before plugging in the terminal growth? Yes, that indeed is the norm and that is what we do when we do a DCF for established consumer companies like say HUL, because we know what the growth rate is likely to be based on overall FMCG growth rate, which in turn is linked in some way to GDP growth. So if you were to ask me how much could HUL topline post FY25, I'd say 9-10% and you might say no, 12% and another might say, no 7%.
But that is the extent of disagreement. Nobody is going to say 20%, and nobody is going to say 5% either. However, in case of Nykaa, we are in uncharted territory. Nykaa is currently growing at over 50%. How long can it grow at this pace? When will it slow down? How much will it slow down? It depends on how many new customers they can acquire and how much a customer spends annually. Will the new customers spend the same as the old? If they spend lesser, will the growth in the annual spend of the old customers compensate for this?
These are all points worth pondering, and if you read my report fully rather than scoffing at one chart without reference, you will see that I have tried to think through these questions - whether you agree with the numbers I have arrived at is a separate discussion, but it is important for each investor to think about these aspects and arrive at his own conclusions."
Pathanki's has drawn a mixed response from other 'finfluencers’ on Twitter.
Amit Mantri of 2Point2Capital PMS, who was the first to call out the bogus financials of Manpasand Beverages tweeted in support of Pathanki.
"If you are trying to fundamentally value the business with high growth rates, you do need to look far into the future which is what he has tried to do.”
Deepak Kapur, who tweets from the handle @tapak7 has a more nuanced view on the subject.
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