stocks to buy: Buy, sell or hold? How to play Nykaa after strong show in June quarter

New Delhi: Brokerage firms are majorly positive on FSN E-Commerce Ventures, the parent company of , after the company reported a strong performance in June 2022 quarter.

Nykaa’s June quarter consolidated profit jumped 33 per cent YoY to Rs 4.55 crore against Rs 3.41 crore in the corresponding quarter of the last year.

The new age internet company’s Q1 revenue was up 41 per cent YoY to Rs 1,148.4 crore as against Rs 817 crore in the June quarter of the last fiscal year.

The gross profit margin improved 380 bps YoY in Q1FY23. The fashion retailer’s gross merchandise value, or GMV, also increased 47 per cent YoY to Rs 2,155.8 crore.

Citi maintained its buy rating on Nykaa with a target price of Rs 1,640 which translates into an upside of 16 per cent from Rs 1412 recorded on Friday.

The company reported strong core growth/margins. Contribution margins expanded 200 bps QoQ. The global investment bank values Nykaa based on 24x FY24E EV/GP.

Another brokerage firm, , has also maintained its buy rating on Nykaa but has trimmed its target price to Rs 1,743 from Rs 1,859 earlier, baking in a higher cost of capital and stiff competition as the key risks for the valuations.

“Overall, we remain constructive on Nykaa,” it said. “It is, globally, a one-of-its kind profitable and management-owned new-age business and offers a multi-decade growth opportunity.”

However,

has maintained its hold rating on Nykaa with a target price of Rs 1,400 citing the intense competition from vertical and horizontal peers. It expects BPC revenues to grow, but Nykaa’s journey could be different.

“We cut EBITDA estimates by 10-15 per cent for new two fiscals adjusting for higher investments in new businesses.” The brokerage sees chasing growth at elevated levels and low chances of success in fashion business due to high competition as key risks.