That said, the brokerage’s target price is far below the stock’s 52-week high of Rs 2,574.
Citigroup believes that Nykaa has built a strong platform along with brand presence among online shoppers, especially in its core cohort of 18-45-year-old urban women.
“We believe brand recognition, along with business model holistically target Nykaa’s core TAM (Beauty & Personal Care), giving it durable competitive advantages,” the report added.
Strong unit economics in core BPC business equips it to create a robust platform to leapfrog into the wider lifestyle retail opportunity, including fashion, home & general merchandising, said the report.
Nykaa will be included in the Nifty Next50 Index from March 31. The startup is expected to see an inflow of $9 million once the rejig is undertaken, suggests a report from Edelweiss Alternatives Research.
A few weeks ago, brokerage JM Financial had reiterated its ‘buy’ rating on FSN E-Commerce Ventures with a March 2023 price target of Rs 2,120, a 55 per cent potential upside.
Nykaa launched its Rs 5,352 crore IPO on October 28, 2021, at an issue price of Rs 1,125. The scrip had made a stellar debut on November 10, 2021, but fell prey to a meltdown in startup IPOs.
Citi expects Nykaa to retain its 35 per cent market share in the BPC market over the next 5-10 years. It has high hopes for the fashion vertical where it sees Nykaa capturing a 9 per cent market share in online fashion by 2030-31.
We value Nykaa based on 25x EV/gross profit multiple on FY24E, arriving at our Target price, Citi said, highlighting the key risks including rising competition, lower-than-expected actual TAM and low profitability in the fashion category.
“Our target price implies nearly 100 per cent premium to the higher-end of global e-commerce peers’ current valuations, but in line with three-four years’ average valuations for some of the high-growth EM e-commerce platforms,” it added.
