Will Nykaa's performance tread the Zomato path?
FSN E-Commerce Ventures are expected to witness their next leg of performance riding on margin improvements which will be akin to Zomato, according to estimates by Nuvama. The domestic brokerage reiterated its buy rating on the Nykaa operator while marginally raising the price target to Rs 192 from Rs 189, as suggested earlier.
Zomato, which is purely a platform play versus Nykaa, an omni channel retailer, draws similarity in terms of online transacting users remaining the key TAM (Total Addressable Market), Nuvama said while suggesting that their unit economics also have similar drivers.
Zomato posted a significant improvement in unit economics/margins which were instrumental in driving upgrades and the consequent stock performance, Nuvama said.
From a low of Rs 49, Zomato has delivered multibagger returns of 258% in less than a year backed by back-to-back quarterly profits.
In Nuvama's view, a similar trajectory is foreseen for Nykaa where margins record a significant improvement and thereby drive the next leg of performance for the stock.
«We are building in a 390 bps improvement in consolidated EBITDA margins over FY24–26 driven by improvement in advertising income for BPC, driving a marginally higher contribution margin of 130 bps,» Nuvama said in its latest note.
Moreover, operating leverage benefits (180 bps), moderation in sales & marketing spending along with the likelihood of a normalised competitive environment and working capital, present tailwinds for this beauty and lifestyle company, the
