Nykaa shares at Rs 100 or Rs 260? Here are Jefferies' bull & bear case scenarios

FSN E-Commerce Ventures (Nykaa) has received a 'Buy' rating from Jefferies with a base target of Rs 200. The foreign brokerage sees the stock testing Rs 260 level in its upside scenario and a share price as low as Rs 100 in its downside scenario. Among key catalysts for Nykaa, Jefferies finds accelerated growth in transacting customers on digital adoption, a steady rise in average order value (AOV) and order frequencies and growth in the overall BPC market as disposable incomes rise.

Regulatory, along with rising competitive intensity from horizontal as well as vertical players, are key risks, it said.

Jefferies said the company management sounded positive on its industry outlook and Nykaa's strong "right to win" across business verticals. It said premiumisation trend plays well in favour of Nykaa given the platform positioning. Outlook on profitability is also positive, led by better customer retention, own labels - even in fashion, positive contribution is a must, unlike peers.

"A strong tech backbone is core to its success and the investments continue to augment tech capabilities.

Upside scenario

In its upside scenario, Jefferies build in strong order growth of 30 per cent compounded annually for Nykaa's BPC segment over FY22-26E. Order frequency and AOV are expected to see gradual growth as customer cohorts mature.

"BPC GMV is expected to grow strongly at 30 per cent CAGR over FY22-26E. Fashion is expected to continue ramping up from a low base. We build in 30 per cent GMV CAGR

for Fashion. We value Nykaa's BPC at 8.5 times FY25E sales and Fashion at 5x FY25E sales to arrive at a target of Rs 260.

Base scenario

In its base case scenario, Jefferies sees Nykaa's BPC segment growing 25 per cent-plus annually over the period mentioned. It sees BPC gross merchandise value (GMV) to grow 25 per cent CAGR over FY22-26E.

"Fashion is expected to continue ramping up on the low base. We build-in 30 per cent GMV CAGR for Fashion. We value Nykaa's BPC at 8 times FY25E sales and Fashion at 2.5 times FY25E sales to arrive at a target of Rs 200," Jefferies said.

Downside scenario

In the downside case, however, Jefferies sees Nykaa's BPC segment growing 20 per cent annually over FY22-26E. It sees order frequency and AOV to stay flat in the medium term on account of the potential dilution from new customers.

BPC GMV is expected to grow at 20 per cent CAGR over FY22-26E in this scenario. "We build

in 20 oer cent GMV CAGR for Fashion. We value Nykaa's BPC at 4.5 times FY25E sales and Fashion at 1 time FY25 sales to arrive at a price target of Rs 100."

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