Nykaa bakes in 'too much optimism': Credit Suisse

Mumbai: Credit Suisse has initiated coverage on FSN E-Commerce Ventures, parent of Nykaa, with an underperform and a price target of ₹1,100. The brokerage said the stock is pricing in 'too much optimism' with its valuations higher than established retail companies like Avenue Supermarts and Titan. FSN shares declined 1.3% to close at ₹1,435 on Wednesday.

Credit Suisse said the stock is trading at nine times EV (enterprise value) to FY24 estimated sales, giving no headroom for likely challenges in fashion.
"Nykaa lacks sufficient differentiation in Fashion (<1% share)," said the brokerage's analysts Alok Srivastava, Pratik Rangnekar and Krati Sankhlecha in a client note. "We expect marketing costs (CAC) to be high (20%+ of net sales value) due to competition from online incumbents (Flipkart, Amazon: >50% share) and expanding presence of Ajio and Tata."

Fashion is the second biggest segment in e-commerce after electronics with an FY22 market size of $11 billion, it said. The industry is expected to rise to $24 billion by FY27, a compounded growth rate estimate of 17%.


"Nykaa is a recent entrant in the space and is sub-scale with NSV (Net Sales Value) of $80 million in FY22 or <1% share in online fashion," the analysts said. "Nykaa also lacks differentiation in the space, other than the extension of the brand equity of Nykaa Beauty. We expect marketing expenses (CAC) to be high in the space, given multiple players will be vying for wallet share of the same set of customers (60-70 million high-income households)."