Nykaa’s Shares Plummet to All-Time Low of INR 114.3 During Intraday Trading on Wednesday

• ByStartupStory     |    April 27, 2023

Nykaa, the beauty ecommerce player, witnessed a 2.2% fall in its shares, hitting a record low of INR 114.3 on the BSE during intraday trading on April 26. Although the shares slightly recovered to close at INR 117, the trend appears to be weak. The previous day, on April 25, Nykaa had touched an all-time low of INR 115.5 on the BSE.

It should be noted that Nykaa’s stock market performance has been volatile, with its share price hitting a new low following its recent announcement of bringing new senior leaders to its technology, business, finance, and marketing teams. Despite facing macroeconomic challenges and growing competition, Nykaa has seen several senior executives leave the company last month. Furthermore, Nykaa recently reported its Q4 FY23 revenue update, highlighting that its fashion business was affected by consumer pullback in discretionary spending, but its beauty and personal care (BPC) category saw strong demand throughout the quarter.

Nykaa witnessed a 71% YoY decrease in its consolidated net profit, amounting to INR 8.5 Cr, during Q3 FY23. Falguni Nayar, Nykaa’s executive chairperson, MD, and CEO, attributed the decline to weak consumer spending caused by the global economic slowdown. Nykaa faces further challenges due to Reliance’s entry into the beauty ecommerce sector with its omnichannel beauty retail platform Tira. To add to its woes, HDFC Securities reduced Nykaa’s price target to INR 110 from INR 115, indicating a potential 6% downside to the stock’s last close. Despite this, the brokerage has maintained a ‘reduce’ rating on the stock.

According to the brokerage, while Nykaa’s position in the beauty and personal care (BPC) industry is indisputable, its ad revenue is already over-indexed compared to other well-funded online players in terms of revenue percentage. Additionally, with Myntra, RR’s Tira, and Tata Cliq Palette becoming more competitive in the BPC space, advertising dollars are likely to be hotly contested. On the other hand, JM Financial found the decline in Nykaa’s market performance following its Q4 revenue update to be quite unexpected, as the BPC category experienced strong growth despite poor discretionary spending. Furthermore, it noted that Nykaa appears to be limiting investments to expand its fashion business.

According to JM Financial, Nykaa’s customer base is unlikely to shift loyalty based on discounts since the company has never acquired customers through offering the lowest prices. Additionally, the relatively smaller total addressable market (TAM) in the beauty and personal care (BPC) sector is not attractive enough for Reliance to give it their all. The brokerage believes that while Tira Beauty has the capability to invest heavily and gain a large geographic footprint, capturing a significant market share of online beauty would require a change in approach. As an example, despite seven years of investment, Ajio still only holds a single-digit market share in online fashion. JM Financial maintained a ‘buy’ rating on Nykaa’s stock and set a price target of INR 230, implying a potential upside of 96% to the stock’s last close.

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