Nykaa plunges 5% to record lows, analysts remain divided over the stock

Nykaa shares have been under pressure despite a bonus issue in November last year

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Shares of FSN E-Commerce Ventures, the parent company of fashion and cosmetics retailer Nykaa, plunged nearly 5 percent, hitting a record low level on January 17. The selling takes place along with a huge surge in volume.

As of 12.50am, the stock traded down 5 percent to a low of 132.55 on the BSE. The volume on the exchange was three times that of two week’s average volume of 4.25 lakh shares. Selling at heightened volume shows the intensity of bear pressure.

“(The) stock has corrected partly due to the global tech sell-off on rising yields and more recently due to the lock-in expiry on November 10, 2022,” said Amit Sachdeva, an analyst at HSBC Securities, in a recent report. “We believe valuations are now even more appealing and under-appreciate the structural growth opportunity in beauty and personal care.”

Nykaa shares have been under pressure despite a bonus issue in November last year. Many small shareholders felt cheated due to the bonus issue and some questioned corporate governance at the firm.

However, analysts are not discouraged by this. Sachdeva pegs the stock at Rs 361.67 in the next one year, meaning a potential upside of 174 percent from current levels. He has a ‘buy’ rating on the counter.

Jay Gandhi of HDFC Securities, however, has a ‘sell’ rating on the stock with the post-bonus issue target price at Rs 133 apiece, which the stock met today.

“In our view, Nykaa has the potential to be a hybrid, but as of now, it shares more characteristics with a busy, efficient, linear online pipeline than a platform. Additionally, Nykaa’s total addressable market seems to be oversold as well. Hence, valuation stencils must be realigned accordingly,” said Gandhi.

ICICI Securities has a ‘hold’ rating on the stock.

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