The new-age stock which nearly doubled on listing day on November 10 last year is now down about 62% from its 52-week high at Rs 2,574.
Ahead of the expiry of the mandatory one-year lock-in period for pre-IPO investors, the stock has been under selling pressure and lost its status of an exceptional star performer in the pack of newly listed tech stocks.
Today’s sell-off in Nykaa, which is scheduled to announce its September quarter numbers on November 1, comes amid a carnage in US tech stocks with Meta sinking over 24% and Amazon nearly 20%.
What should investors do?
Unlike most of its peers in the list of India’s new-age tech companies, Nykaa is profitable.
“The concern that we see is that post IPO there was a huge run-up in the stock prices. The valuation is difficult to project or justify based on traditional metrics because these are new-age businesses. There was a huge demand from some global funds. Now global tech is not doing well. Some of these funds are waiting for or reducing their positions in these new-age businesses,” said Siddhartha Khemka, Head of Retail Research,
However, he is confident that the stock will do well in the long run.
Global brokerage firm Nomura, which had recently initiated coverage on the stock with a target price of Rs 1,365, said the risk-reward is quite favourable for long-term investors with the potential for the stock to double over the next 5 years.
“It is quite unique compared with most online companies due to its strong focus to curate brands and help customers in their discovery journey. Brands see it as a key partner in educating customers and driving adoption of premium products,” Nomura said.
Domestic brokerage firm
, which has given a buy call on the stock for a target price of Rs 1,780, said the risk-reward ratio for Nykaa is seen to turn favourable for the medium to long term.
“Nykaa’s BPC business is actually deserving of a higher multiple than DMart due to its better margin profile and asset-light nature. While the current market price of Nykaa still implies strong valuations when compared to most traditional companies, that does not factor in the growth seeds that Nykaa is planting by investing in Fashion and eB2B segments,” the brokerage said.
Out of 17 analysts with coverage on the stock, a majority 11 have buy ratings.
“Nykaa continues to invest in growing new businesses along with having resilient unit economics of BPC and fashion vertical driven by a focus towards driving higher conversion and quality traffic. Further, investments in the differentiated value proposition of content, curation and convenience are yielding results,”
The domestic brokerage has a hold rating on the stock with a target price of Rs 1,250.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)