Nykaa shares have fallen 20% this month; analysts think the valuation 'palatable'

The stock of FSN E-Commerce Ventures, the parent company of fashion and beauty retailer Nykaa, fell another day on January 23, bringing the stock's monthly loss to more than 20%.

As of 12 p.m. on the BSE, it was down more than 2% to Rs 124. During the day, the stock touched an all-time low of Rs 120.75, but it recovered slightly. Last year, the stock dropped 62%.

The stock has been declining since the pre-IPO lock-in period, and the business issued a bonus issue to stabilise the share price.

However, as prices have dropped significantly and value has improved, some analysts have begun to upgrade their rating on the company.

"We had always appreciated Nykaa's business approach," ICICI Securities analyst Manoj Menon said. "However, since its listing on the Indian bourses, we've remained on the sidelines due to valuations beyond our comprehension."

The analyst upgraded the company to 'add' (from 'hold') with a revised DCF-based target price of Rs 145 (from Rs 175 before), noting that value was becoming more acceptable. He sees some significant dangers in his call. They include chasing growth at high levels, which can dilute gross margins, and success in the fashion industry can be challenging due to increased competition in the market.

Others have recognised opportunities in times of distress as well. "(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," Amit Sachdeva, an analyst at HSBC Securities, stated in a recent report.

"We feel values are now even more compelling, and we believe the structural growth opportunity in beauty and personal care is underappreciated."

Sachdeva has a 'buy' recommendation on the stock and expects it to trade at Rs 361.67 in the next year