Nykaa shares nearly turn positive for 2023 after analysts see potential upside of 40%

Shares of FSN E-Commerce Ventures, parent of e-tailer brand Nykaa, nearly turned positive for the year on Tuesday, November 7, after analysts projected potential upside of up to 40% over the next 12 months.

For the September quarter, Nykaa reported revenue growth of 22.4% compared to last year, while operating profit or EBITDA increased by 32.1% year-on-year.

The company's beauty and personal care business grew by 19% during the quarter, while the fashion business, a relatively smaller part of the business, grew by 32% year-on-year.

ICICI Securities said in its note that the stock has de-rated over the last year primarily due to concerns on the fashion segment and that the September quarter results show material improvement in contribution margin for the said segment.

The brokerage expects the stock is likely to re-rate in the near term, further aided by a strong festive season in the December quarter. It has raised its price target on Nykaa higher to ₹185 from ₹165.

Morgan Stanley has maintained its overweight rating on the stock with a price target of ₹173. It believes that the shift in festive season will drive growth in the December quarter.

One of the four brokerages on the Street that expect shares of Nykaa to hit ₹200 per share over the next 12 months is Jefferies. It said that strong user growth in both key segments aided the topline but the gross margin was lower due to higher discounts in the beauty and personal care (BPC) portfolio.

Of the 23 analysts that track Nykaa, 13 have a "buy" recommendation on the stock, while five each have a "hold" and "sell" rating.

Shares of Nykaa are trading 2.1% higher at ₹150.40. The stock made an intraday high of ₹154.8 on Tuesday and needs to trade above ₹155.15 to turn positive for 2023.