Nykaa shares get an upgrade from Nomura, who sees the stock rising another 18%

Brokerage firm Nomura has upgraded shares of FSN e-Commerce Ventures Ltd., parent company of beauty and fashion e-tailer Nykaa, to a "buy" rating in its latest note on Friday, February 6, after its December quarter results.

Nomura has upgraded Nykaa to a "buy" rating from its earlier rating of "hold" and raised its price target to ₹305 from ₹261 earlier. The revised price target implies a potential upside of 18% from Thursday's closing levels.

Nomura's upgrade comes after Nykaa reported strong results for the December quarter, with operating profit surpassing street expectations. The brokerage sees the company's EBITDA sustaining at a Compounded Annual Growth Rate (CAGR) of over 25%, even after growing at a 45% CAGR in the past.

Nykaa's growth remains on track, with margin improvement across its Beauty and Personal Care (BPC) and Fashion verticals supporting sustainability across businesses, the brokerage wrote in its note.

According to Nomura, the stock is trading at 4.7 times its financial year 2027 estimated enterprise value to sales, which, according to the brokerage, is attractive.

Nykaa reported a 142% year-on-year growth in its consolidated net profit

to ₹63 crore, from ₹26 crore it reported during the same quarter last year. EBITDA grew by over 60%, and margins also expanded.

Jefferies echoed the positive outlook, saying that Nykaa reported an exceptional result "at a time when several firms across consumption categories have blamed tough macro, GST rollout & shift in festive season for a weak 3Q performance."

The brokerage said Nykaa’s growth has been strong across verticals, aided by margin expansion across segments, with break-even in the fashion business now "seemingly in sight".

Jefferies added that the company's "Own brands continue to have the dream run on growth," noting that Dot & Key's EBITDA margins are in the high-teens.

Jefferies has maintained its "buy" rating on the stock, with a price target of ₹315.

26 analysts have coverage on Nykaa, of which 13 have a "buy" rating, six have a "hold" rating, and the other seven have a "sell" recommendation. The consensus estimates of price targets imply a potential upside of only 3% for the stock.

Shares of Nykaa have gained for three days in a row, having gained another 3% on Monday to end at ₹258.29. The stock has gained over 8% in the last three trading sessions.