JM Financial sees 55% upside in Nykaa shares; says company a strong play on India’s secular BPC growth

Nykaa share price: With assortment being a key reason for shopping online, Nykaa, with 3,400+ brand partners, is being used by 142 of the 203 survey participants, with 30 per cent of them buying more than 50 per cent of their beauty and personal care (BPC) needs on Nykaa, notes JM Financial in their latest report based on a consumer survey.

While 27 per cent of survey participants belonged to the 33–37 age group, they account for 39 per cent of shoppers spending over Rs 10,000 on BPC annually, with over 90 per cent online penetration. Users in this age group suggested higher 'dispensable' income and early signs of ageing are the primary reasons for their increased BPC spending from a few years ago, the brokerage said in its report dated September 4.

Additionally, the report added that 80 per cent of Nykaa users have an average order value (AOV) of Rs 1,000+, compared to only 32 per cent of non-Nykaa users. Nykaa’s owned brands have also garnered consumer affinity, with 50 per cent of shoppers while nearly 45 per cent of shoppers also purchase international brands on the platform. Furthermore, over 45 per cent of Nykaa users also use Nykaa Fashion, primarily due to its premium selection and latest season designs, and would be more likely to shop if it was available on the main app.

Amazon and Myntra emerged as the two other platforms of significance in participants’ beauty shopping. As expected, Nykaa remains highly popular with females (80 per cent penetration) with only 25 per cent of males shopping on Nykaa, the report said. 

"We reiterate our ‘BUY’ rating on Nykaa with a September 24 target price of Rs 210 and believe the company remains a strong play on India’s secular BPC growth," the brokerage added. 

Nykaa's share price and Q1 results 

At the time of writing this report, shares of FSN E-Commerce Ventures, the parent company of Nykaa, were trading over 2 per cent higher at Rs 137.70 on the BSE. The online beauty and fashion e-commerce major had posted an 8 per cent increase in its consolidated net profit at Rs 5.4 crore for the June quarter of 2023–24. The company had clocked a net profit of Rs 5 crore in the same period a year ago. Profit attributable to equity shareholders, however, declined by about 26 per cent to Rs 3.3 crore from Rs 4.5 crore in April–June 2022, PTI reported. 

Consolidated revenue from operations increased by about 24 per cent to Rs 1,421.8 crore during the quarter from Rs 1,148.4 crore in the corresponding period of 2022–23.