Broker’s call: Nykaa (Accumulate)

Target: ₹200

CMP: ₹169.45

FSN E-Commerce Ventures (Nykaa) is on track to post healthy gross merchandise value (GMV) growth of 27 per cent y-o-y in Q3-FY24 in its online Beauty & Personal Care (BPC) segment, following: the positive impact of festival & wedding seasons, and the surge in November Pink Sale (about 30-35 per cent higher sales y-o-y).

Basis above, Nykaa BPC could report GMV growth of 24.8 per cent for 9M-FY24, which is largely in line with our annual estimates of 25 per cent in FY24. Increasing number of transacting users would continue to be a growth driver for Nykaa online BPC GMV, as average order value (AOV) will see growth of a mere 2-3 per cent y-o-y, and frequency-led growth too would be low, as most brands (D2C and large brands) make high volume packages (500ml and above).

Our checks show India’s online BPC market has about 40 million transacting customers across platforms (including e-commerce giants) whereas Nykaa has a mere 10.7 million, which, in turn, provides an opportunity to grow this base.

Given the stock has run-up 25% in the past month, there is limited upside from current levels. We retain our TP of INR but revise our rating to Accumulate from Buy, given concerns on increased competition and limited levers for margin improvement in the BPC space.