Nykaa hits new low; stock plunges 10% in two days on heavy volumes

Festivities in Q3FY23 did bring some cheer to internet companies but the mood remains relatively sombre with inflationary macroeconomic environment denting demand uptick, according to analysts

Shares of Nykaa's parent company - FSN E-Commerce Ventures - hit a new all-time low of Rs 132.55, down 5.5 per cent on the BSE in Tuesday’s intra-day trade, in an otherwise firm market. In the past two days, the stock has plunged 10 per cent, while it has slipped 15 per cent in the past four trading days.

At 11:07 AM, Nykaa was quoting 4.5 per cent lower at Rs 133.90, as compared to 0.51 per cent rise in the S&P BSE Sensex. Average trading volumes on the counter jumped nearly three-fold today with a combined 15.97 million equity shares having changed hands on the NSE and BSE.

In the past one year, share price of the beauty e-retailer has tanked 62 per cent, as against 1.5 per cent decline in the benchmark Sensex index. Moreover, it has corrected 69 per from its record high level of Rs 429, touched on November 26, 2021.

Nykaa is India's largest online beauty and cosmetics retailer. It was founded in 2012 by Falguni Nayar, and has a portfolio of beauty, personal care, and fashion products, including its owned brand products and international products. It also launched physical stores in 2014.

Analysts at HDFC Securities, in their November 2022 report, had said that the consumer base in beauty and personal care (BPC) market is highly diverse. As a result, the needs and preferences vary. Consumer can be discount-driven, value sensitive, have different preferences and personal requirements, fashion styles or possess a strong preference for luxury high-end products. If the company fails to deliver relevant, engaging products, it may fall behind in this important variable which could affect its business

Increasing competition from existing and new emerging companies in the BPC & fashion markets could lead to an increase in customer acquisition cost, which will impact margins or lead to market share loss. It will be a challenge to maintain margin with other emerging subsidiaries in its chain.

Nykaa's core business is its premium BPC and fashion market, focused on the premium segment range. For this business to scale up, it has to bring a diverse product portfolio for mass segment, which remains a question over time. This limits the scalability of the business.

That said, festivities in the October-December quarter (Q3FY23) did bring some cheer to fintech companies but the mood remains relatively sombre with inflationary macroeconomic environment denting demand uptick, said analysts at JM Financial.

"This quarter saw technical correction due to lock-in expiry in PB Fintech and Nykaa with the valuations continuing to be at the lower end of the range despite only 12-15 per cent of pre-IPO shares being sold. While supply could still be an overhang, we believe the downside to be limited and a robust set of quarterly results along with easing of regulatory pressure for the former could trigger a gradual uptick in share prices," the brokerage firm said in internet sector report.

Nonetheless, a sustained bounce back in tech stocks would only become imminent once we see NASDAQ stabilising and risk-on positions getting accrued again. We continue to believe that valuations are attractive and investors should be evaluating preferred new age companies to accumulate, analysts at the brokerage said. Nykaa is among their top picks considering strong downside protection.