Nykaa shares close 2% higher as Jeffries recommends ‘buy’, sees 33% upside

Shares of FSN E-Commerce Ventures Ltd, which operates the leading online beauty and fashion platform Nykaa, closed at Rs 150.45 apiece on BSE with a gain of 2.38 per cent on Wednesday following a positive outlook from global financial service firm Jefferies.

The brokerage has recommended a ‘buy’ rating on the stock with a target price of Rs 200 per share, indicating an upside of 33 per cent from Wednesday’s closing price.  

According to Jefferies, Nykaa's management has expressed confidence in its ability to succeed in the face of competition, a sentiment backed by a strong tech backbone that forms the core of the company's operations. The brokerage noted that Nykaa is well-positioned to take advantage of the industry's positive trends toward premiumisation and improving customer retention.

Per-capita BPC consumption in India currently lags at $15, but Jefferies anticipates that this figure will surge to $50 by 2030, reflecting a compound annual growth rate (CAGR) of 16 per cent, as India's GDP per capita doubles.

Jefferies' research also highlighted the increasing consumption of fashion items, which is projected to rise from the current $54 to $160 per capita by 2030, growing at a CAGR of 15 per cent. The firm believes that this growth will be driven by increasing e-commerce penetration, higher income levels, and demographic shifts.

Nykaa's target market, according to Jefferies, is the upper-middle and high-income customers, and with approximately 130 million households earning over $10,000 annually, the opportunity is significant. Jefferies suggests that these consumers are likely to continue their high spending habits, thereby providing a boost to Nykaa's revenues.

Within just a few years, Nykaa has grown rapidly, a fact that Jefferies attributes to the company's unique positioning in the online BPC and fashion sectors. With impressive stats such as over 100 million app installs and 125 million monthly visits, Nykaa has created a niche for itself that Jefferies believes will support the company’s continued growth.

Jefferies expects Nykaa to remain in a hyper growth phase in the medium term as the online BPC and fashion markets continue to expand. The firm has projected a strong order CAGR of over 25 per cent for Nykaa's BPC over FY22-26E.