Bank of America has downgraded FSN E-Commerce Ventures Ltd, the parent company of Nykaa, to 'Underperform' from 'Neutral,' reducing its target price from Rs 225 to Rs 150. This adjustment reflects concerns over slower-than-expected margin growth and limited traction in the quick commerce segment, indicating a potential downside of nearly 12% from the current market price.
BofA anticipates that the uptake of quick commerce in urban areas will negatively impact Nykaa's revenue growth, compounded by subdued near-term growth in the apparel industry. The brokerage also highlighted that the entry of global competitors like Shein is expected to intensify the competitive landscape, further challenging Nykaa's market position.
As of 9:30 AM, Nykaa's shares were trading 1.4% lower at Rs 167, marking a slight decline of over 1% year-to-date, in contrast to the Nifty 50's 7.5% increase during the same period. The stock has faced a downward trend, dropping 5% in November, following declines of 6% in September and 7% in October.
The adjustment made by Bank of America reflects concerns over slower-than-expected margin growth and limited traction in the quick commerce segment. BofA anticipates that the uptake of quick commerce in urban areas will negatively impact Nykaa's revenue growth, compounded by subdued near-term growth in the apparel industry. The brokerage also highlighted that the entry of global competitors like Shein is expected to intensify the competitive landscape, further challenging Nykaa's market position.