Target: ₹145

CMP: ₹124.75

We had always liked FSN E-Commerce’s (Nykaa) business model. That said, post its listing on the Indian bourses, we’ve been staying on the sidelines due to valuations beyond our ability to comprehend (at peak stock price, revenue CAGR requirement over the next 20 years was 23 per cent).

Post nearly 70 per cent correction from peak, in SoTP, BPC (beauty & personal care) business now accounts for about 77 per cent of current price, assuming it’s a defensible and high-growth business in medium term. Reverse DCF shows 15 per cent revenue CAGR requirement at 20 per cent EBITDA margin (at TV).

We ascribe ₹100/share for BPC business. We believe cyclical slowdown in BPC and fashion businesses is somewhat priced in.

We believe Nykaa continues to present a combination of (1) the largest beauty and personal care (BPC) business in a growth market (India), (2) good profitability metrics and prudent capital allocation, and (3) omni-channel in the ‘true sense’ (going online to offline). That said, competition may intensify from both vertical and horizontal peers.

While we expect BPC revenue to grow, we believe Nykaa’s journey could be different – it will have to go more mainstream to drive this growth. Growth trajectory in fashion will be keenly watched out.