After a significant downfall of 38%, investors are questioning whether Nykaa stock can regain its lost charm anytime soon. While many new-age consumer technology companies experienced a rebound in 2023, Nykaa’s brand owner has failed to make the list. With negative returns of over 7% year-to-date and hitting a 52-week low of Rs 114.25 in April, Nykaa’s stock performance has been disappointing.
The underperformance of Nykaa’s stock can be attributed to a series of top management exits and challenges in improving profitability. Several key executives, including the chief commercial operations officer, chief business officer, chief executive of wholesale business, and business vice president of Nykaa Fashions, left the organization in early 2023. Although the company has recently appointed a new chief financial officer and senior leaders in various verticals, it has struggled to enhance its operational performance despite steady revenue growth.
Nykaa’s operating margin has contracted from 53.4% in the March quarter of 2022 to 20.3% in the September quarter. Although there has been some improvement, with profitability reaching 30% in the March quarter of 2023, concerns about stiff competition linger among analysts. The launch of two large independent beauty platforms in the last year has raised questions about Nykaa’s ability to compete effectively. Additionally, cash flow generation and debt moderation are crucial factors that could drive the stock’s re-rating.
While some analysts remain cautious about Nykaa’s valuations, others believe in its earnings growth prospects. Analysts at Jefferies India, Nomura Financial, Kotak Institutional Equities, Elara Capital, and Nuvama Equities have maintained buy ratings on the stock. The stock currently trades at approximately 5.1x FY25F EV/Sales, which is considered attractive considering the strong growth outlook. The average target price for the stock is Rs 200, indicating a potential upside of about 10% from the current levels.
However, it is worth noting that Nykaa still has a long way to go before retesting its historical high of Rs 429, reached in November 2021. The market continues to closely monitor Nykaa’s profitability trajectory and valuations in the coming quarters.
In conclusion, the Nykaa stock’s underperformance is attributed to management exits and challenges in improving profitability. While concerns persist, some analysts believe in the company’s growth prospects. Investors will closely watch Nykaa’s progression in the coming months and whether it can recover its lost charm.
