Nykaa shares suffer selling pressure as lock-in period expires tomorrow

During a lock-in period, promoters and investors cannot liquidate the pre-IPO securities held by them. On November 9, almost 67 percent of Nykaa’s shareholding will be released from the lock-in, setting 310 million shares free to be traded

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The lock-in for Nykaa shares expires on November 10. Private equity funds and high networth individuals (HNIs), who were early investors in cosmetics-to-fashion retailer Nykaa, are the biggest winners as the stock still trades below IPO issue price.

During a lock-in period, promoters and investors cannot liquidate the pre-IPO securities held by them. On November 9, almost 67 percent of Nykaa’s shareholding will be released from lock-in. That is equal to about 310 million shares.

Steadview Capital Mauritius, TPG Growth, Lighthouse India Fund, and HNIs like Harindarpal Singh Banga, Narotam Sekhsaria and Sunil Kant Munjal will be eligible to sell their holdings. Promoter Falguni Nayar and family will also be able to sell a 32.4 percent stake, which is around 145 million shares. Banga is sitting at a return of 160 times, Sekhsaria at 120 times and Mnjal at 20 times.

The company’s founder and chief executive officer Falguni Nayar in a post-earnings analyst call said HNIs tend to be long-term investors. “But we won’t be able to speak on their behalf and we are not privy to the decision they make,” she said when asked whether pre-IPO investors would hold their stakes or sell.

The stock has been under heavy selling pressure ahead of the lock-in expiry. The counter slipped to a record low of Rs 975 before recovering to Rs 1,100 levels. It is still down 47 percent year to date (YTD).

On November 9, the stock traded down 2 percent at Rs 1,100.

Analysts believe the structural story of the company’s business has strengthened after the Q2 earnings. They said this dip in price is good opportunity to buy Nykaa shares.

“The stock has corrected partly due to the global tech sell-off on rising yields and more recently due to the imminent lock-in expiry,” said Amit Sachdeva, India Equity Strategist at HSBC Securities and Capital Markets. “We believe valuation is now even more appealing and under-appreciates the structural growth opportunity in beauty and personal care.”

He is among the most bullish analysts on Nykaa, with a price target of Rs 2,180 in the next one year.

Jefferies has upgraded the FY23-26 EBITDA estimates by 24-33 percent on better margins but JM Financial tweaked estimates as it sees revenues declining by 11 percent and EBITDA margins marginally improving by 10-100 basis points over FY23-27. It said its downgrade factors in the flat performance in unique visitors and just 1 lakh incremental transacting users in the fashion segment.

Kotak Institutional Equities, which has a ‘buy’ rating with a target of Rs 1,615, also trimmed FY23-25 revenue estimates by 2.5 percent on account of slow growth in the fashion vertical. “However, we increase FY23-25 EBITDA by 4-15 percent on account of cost optimisation, related to lower ad spends in line with the reduction in growth in the fashion segment. Higher offline expenses drive higher interest and depreciation charges, resulting in modest FY2023-25 EPS changes,” it said.

HDFC securities seems to be the only broker having a ‘sell’ rating on Nykaa with target at Rs 800.

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