Will Nykaa go down Zomato's way as pre-IPO investors’ lock-in period nears? Brokerages recommend this

Nykaa Share Price: Despite witnessing an over 46 per cent correction on the year-to-date basis, several brokerages are bullish on FSN E-Commerce Ventures (Nykaa) share price. They gave a Buy rating on the back of a better growth outlook, aiming that the share price has the potential to grow up to 61 per cent on the long term. 

The stock of the beauty and fashion e-commerce company fell below its initial public offer (IPO) price of Rs 1125 for the first time in its history. On Tuesday, it hit a record low of Rs 1107.2, down 3 per cent on the BSE intraday, as the pre-IPO investors' lock-in period is about to end on November 10. 

Nykaa's Stellar Debut 

Nykaa shares made a stellar debut on exchanges on November 10, 2021. The stock got listed at a premium of over 82 per cent at Rs 2,054 per share on the exchanges against Rs 1,125 apiece issue price. It had touched a 52-week high of Rs 2,574 apiece on November 26, 2021, days after listing. 

Will Nykaa Go Zomato Way 

With pre-IPO shareholders’ lock-in set to expire on November 10, 2022, it will be crucial to see if these investors liquidate or continue to hold for further gains, JM Financial pointed out.  

It added that around 70 per cent of the share capital that is getting unlocked belongs to patient capital such as HNIs and family offices, which might not be obliged to sell due to the tenure of funds. 

If, by any chance, Nykaa follows Zomato’s suit, then a further fall in the stock is most likely. Zomato shares on July 25 fell over 13 per cent to touch its record low after 78 per cent of its shares came out of the mandatory one-year lock-in for pre-IPO investors. 

What Brokerages Say 

At its current price, Nykaa is trading at 4.9x/53.9x FY25E Revenue/EBITDA multiple and though that is still at a premium to most of the loss-making new-age companies, this premium could be sustained as not many companies are estimated to deliver, JM Financial said in its comment. 

“We have a ‘BUY’ rating on the stock with a target of Rs 1,780 (61% upside) and believe any short-term dip should be a great accumulation opportunity for investors looking to build long-term positions in Nykaa.” 

Global brokerage Nomura said, FSN E-Commerce (NYKAA) is India’s largest player in the online BPC (beauty and personal care) segment and is expanding into fashion as well. It is quite unique against most online companies due to its strong focus to curate brands, it added. 

“We believe Online BPC could record a 25 per cent CAGR over FY22-FY32F and Nykaa is distinctly positioned to benefit, given its wide customer reach, strong user experience, influencer network, direct brand tie-ups, and owned brand portfolio,” Nomura said giving Buy call with a target of Rs 1365 (23% upside). 

Similarly, Kotak Institutional Equities also give a Buy stance with a target price of Rs 1,640 per share (48% upside). It said, Nykaa’s BPC business should continue to be unaffected, as it is an advertising platform itself; the fashion business could see elevated ad spends.  

Share Price History 

Nykaa shares have become the latest entrant in the declining party after Delhivery, Paytm, and Zomato among other new-gen companies. The stock in the last one year has dipped around 50 per cent, down 35 per cent in the last six-month and almost 13 per cent lower in the previous one month. 

On Tuesday, the stock of Nykaa witnessed a record closing low of Rs 1110 per share, down nearly 3 per cent on the BSE as compared to a 0.48 per cent fall in the S&P BSE Sensex.