Nykaa share price hit a new 52-week low of ₹114.25 on Wednesday. HDFC Securities analysts feel the stock could go even lower from here as its current success in the business has been partly due to the absence of a potent competitor. This factor is gradually seeing changes as more firms enter the BPC and Fashion segment, the firm noted.

The Nykaa Analyst: The analyst team at HDFC Securities led by Jay Gandhi maintained their ‘reduce’ rating for the stock slashing the price target to ₹110 from ₹115.

The Nykaa Thesis: The analysts who recently met up with the company’s management, said that their thesis about the total addressable market seeming oversold and the fact that ad revenue will be closely contended for, still stands.

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The brokerage firm estimates that growth in the company’s flagship Beauty and Personal Care segment will slip to 33% in FY23 (April 2022-March 2023) vs 46% in FY22 (April 2021- March 2022). The firm noted that despite the introduction of "Pink Love" campaign in Q4, the company has been finding it difficult to add new consumers. The analysts also highlighted that the tech startup intends to hit a mid-double digit EBITDA margin in BPC over 3-4 years, from 10-11% currently.

Talking about the company’s fashion segment the firm noted that despite all the efforts of the Falguni Nayyar-led startup, the segment still remains a ‘work in progress.’ The firm highlighted that the omnichannel retailer’s competitors in the segment Myntra and Ajio are extremely aggressive on customer acquisition and have significantly higher ad spend budgets. The firm highlighted that Nykaa’s customer acquisition cost in will remain high in the medium term going by the competitive landscape. This, the firm noted will hurt the company’s margins in the segment.

Price Action: Nykaa shares rebounded slightly in the late hours of trading on Wednesday to end the day in the green. Nykaa’s share price was up 0.04% to close at ₹117.

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