Nykaa shares zoomed over 5 percent on November 20, keeping up the last week’s rally, to hit an 11-month high. Shares of the new-age tech firm sees a strong uptrend since it reported the September-quarter financials earlier this month. Though the company’s BPC business showed sluggish growth, the market turned positive on the stock on the back of a rebound in the fashion business.

Nykaa’s net profit jumped 50 percent on-year to Rs 7.8 crore in Q2 FY24, and its total gross merchandise value (GMV) increased 25 percent YoY to Rs 2,943.5 crore.

At 10:17am, the Fsn E-Commerce Ventures (operator of Nykaa) shares were trading 4 percent higher at Rs 174 on the National Stock Exchange (NSE). So far in 2023, the stock has risen around 12 percent, slighltly outperforming the benchmark Nifty 50 which has rallied around 8 percent.

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What do technicals say?

With strong gains, the stock has formed a sizable bullish candle to close at the highest point of the week. With this price action, the stock has decisively broken out of its “multiple resistance” zone at Rs 158 levels along with huge volumes. The stock has also experienced a trend reversal as it has confirmed higher tops and bottoms indicating bullish sentiments, according to Rajesh Palviya of Axis Securities.

“The stock is well placed above its 20, 50, 100, and 200-day SMA which reconfirms a bullish trend. The daily and weekly ‘Bollinger band’ buy signal suggests increased momentum. The daily, weekly, and monthly strength indicator RSI is in positive terrain, which shows rising strength. Investors should buy, hold, and accumulate this stock with an expected upside of Rs 200-220, and with a downside support zone of Rs 158-147 levels,” Palviya said.

Outlook

While Nykaa has seen a strong rebound in last few sessions, it has not been able to recover completely from the deep correction it saw in 2022. Nykaa may be a good investment at the right price, however, there will be a period of consolidation. When evaluating a consumer company, traditional metrics suggest that it will take time for revenue and market capitalisation to align.

Therefore, there may be a period of underperformance or negative performance until the company’s financials catch up, said Madhusudan Kela, founder of MK Ventures, at the Moneycontrol Diwali Party.

Nykaa created significant value for some over the past decade, as seen by profitable returns enjoyed by early-stage private equity investors. However, even successful companies with this kind of disproportionate return, experience periods of consolidation.

“This is a natural occurrence in the market and has been observed over the course of 30 years. To justify their valuations, companies like Nykaa must either demonstrate exceptional growth or endure a consolidation phase,” Kela added.

Also Read | Oberoi Realty shares rise 2% on company’s foray into NCR

Tailwinds and Headwinds for Nykaa

According to analysts, the Indian market has become more appealing to beauty and personal care (BPC) brands like Nykaa, leading to a rise in brand discounting in the BPC segment. Additionally, the higher growth of net sales value (NSV) reflects that the company has been successful in plugging leakages by undertaking line-by-line efforts such as reducing RTOs (return to origin), minimising returns, churning out abusive customers and pin codes.

The company increased cart charges, improved assortment and focused on women and premium categories to boost sales. It has experienced a reversal of advertising income on the new platform. However, rising competition and increasing debt are overhangs on longer-term visibility and potential reasons why Nykaa did not re-rate recently vis-a-vis other platform peers, analysts added.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

Nykaa shares zoomed over 5 percent on November 20, keeping up the last week’s rally, to hit an 11-month high. Shares of the new-age tech firm sees a strong uptrend since it reported the September-quarter financials earlier this month. Though the company’s BPC business showed sluggish growth, the market turned positive on the stock on the back of a rebound in the fashion business.

Nykaa’s net profit jumped 50 percent on-year to Rs 7.8 crore in Q2 FY24, and its total gross merchandise value (GMV) increased 25 percent YoY to Rs 2,943.5 crore.

At 10:17am, the Fsn E-Commerce Ventures (operator of Nykaa) shares were trading 4 percent higher at Rs 174 on the National Stock Exchange (NSE). So far in 2023, the stock has risen around 12 percent, slighltly outperforming the benchmark Nifty 50 which has rallied around 8 percent.

Follow our market blog to catch all the live action

What do technicals say?

With strong gains, the stock has formed a sizable bullish candle to close at the highest point of the week. With this price action, the stock has decisively broken out of its “multiple resistance” zone at Rs 158 levels along with huge volumes. The stock has also experienced a trend reversal as it has confirmed higher tops and bottoms indicating bullish sentiments, according to Rajesh Palviya of Axis Securities.

“The stock is well placed above its 20, 50, 100, and 200-day SMA which reconfirms a bullish trend. The daily and weekly ‘Bollinger band’ buy signal suggests increased momentum. The daily, weekly, and monthly strength indicator RSI is in positive terrain, which shows rising strength. Investors should buy, hold, and accumulate this stock with an expected upside of Rs 200-220, and with a downside support zone of Rs 158-147 levels,” Palviya said.

Outlook

While Nykaa has seen a strong rebound in last few sessions, it has not been able to recover completely from the deep correction it saw in 2022. Nykaa may be a good investment at the right price, however, there will be a period of consolidation. When evaluating a consumer company, traditional metrics suggest that it will take time for revenue and market capitalisation to align.

Therefore, there may be a period of underperformance or negative performance until the company’s financials catch up, said Madhusudan Kela, founder of MK Ventures, at the Moneycontrol Diwali Party.

Nykaa created significant value for some over the past decade, as seen by profitable returns enjoyed by early-stage private equity investors. However, even successful companies with this kind of disproportionate return, experience periods of consolidation.

“This is a natural occurrence in the market and has been observed over the course of 30 years. To justify their valuations, companies like Nykaa must either demonstrate exceptional growth or endure a consolidation phase,” Kela added.

Also Read | Oberoi Realty shares rise 2% on company’s foray into NCR

Tailwinds and Headwinds for Nykaa

According to analysts, the Indian market has become more appealing to beauty and personal care (BPC) brands like Nykaa, leading to a rise in brand discounting in the BPC segment. Additionally, the higher growth of net sales value (NSV) reflects that the company has been successful in plugging leakages by undertaking line-by-line efforts such as reducing RTOs (return to origin), minimising returns, churning out abusive customers and pin codes.

The company increased cart charges, improved assortment and focused on women and premium categories to boost sales. It has experienced a reversal of advertising income on the new platform. However, rising competition and increasing debt are overhangs on longer-term visibility and potential reasons why Nykaa did not re-rate recently vis-a-vis other platform peers, analysts added.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.