Nykaa shares fall 15% in four sessions; hits fresh all-time low

Shares of Nykaa parent FSN E-Commerce Ventures continued losing streak for the fourth straight session on Tuesday, hitting a fresh all-time low on domestic bourses amid strong volume trade. The share price of the country’s largest online beauty and cosmetics retailer has tumbled 10% in two days and nearly 15% in the past four sessions as nervous investors resorted to selling.

On Tuesday, Nykaa shares opened 0.8% higher at ₹141.40 against the previous closing price of ₹140.25 on the BSE. However, the stock soon pared gains and declined as much as 6.25% from day’s high to hit a fresh all-time low of ₹132.55.

At 1:00 pm, Nykaa share price was down 4.5% at ₹133.9, while the market capitalisation stood at ₹38,181 crore. There was a surge in selling activities as 13.6 lakh shares changed hands over the counter compared with the two-week average volume of 4.25 lakh scrips. In comparison, the BSE Sensex was trading 272 points higher at 60,365 levels, led by capital goods and power stocks.

Shares of the beauty products e-commerce company, which made a stellar debut on the domestic bourses on November 10, 2021, had failed to impress investors so far. The stock has fallen 61% in the last one year, while it dropped 43% over a six months period. In the last one month, the stock has shed 18%, whereas it has lost 13.5% in a week. The counter has nosedived 70% against its record high of ₹429.86 on November 26, 2021.

On the financial front, the Falguni Nayar-led company has posted a 333% year-on-year (YoY) jump in its consolidated net profit at ₹5.19 crore for Q2 FY23, compared with ₹1.17 crore in the same period last year. However, on a quarter-on-quarter basis, the net profit rose marginally by 3.6% from ₹5.01 crore in June quarter of the current fiscal. The consolidated revenue from operations grew 39% YoY to ₹1,230.8 crore in Q2 FY23, against ₹885.26 crore in the year-ago period. On a sequential basis, the revenue climbed 7% from ₹1,148.4 crore in the June quarter of the current fiscal (Q1 FY23).

What fuelled the recent sell-off in Nykaa shares?

Expiry of lock-in period

Nykaa shares have witnessed surge in selling activities after lock-in period for pre-IPO investors ended on November 10, 2022, even after the company issued bonus shares, which was intended to encourage investors to stay invested post expiry of the lock-in period. Nykaa parent issued 237.4 crore bonus equity shares of ₹1 each in the ratio of 5:1, i.e. five bonus shares for every one share held in the company, which were listed and permitted to trade on the exchange with effect from November 16. 

Following the expiry of the lock-in period, private equity firm Lighthouse India, TPG Capital, Narotam Sekhsaria, and Mala Gaonkar offloaded their stake in the company through block deals,, while Morgan Stanley, Aberdeen Standard Asia Focus, Canada Pension Plan Investment Board, and Norges Bank brought shares in the company.

Resignation of CFO Arvind Agarwal

Besides, the sudden resignation of the company’s CFO Arvind Agarwal also triggered a sell-off in the stock. The resignation came soon after the company’s controversial bonus was issued on November 11, a day after the lock-in period of the pre-IPO investors ended. The decision to issue bonus shares to shareholders failed to impress investors as some raised questions over the timing of issue and alleged that it would deny them a fair exit. The move is being seen as a ploy by the management to stop investors from selling their holdings due to taxation structure.

Analysts view on Nykaa shares

In a latest India Equity Strategy note, foreign brokerage HSBC has given a price target of ₹362 for Nykaa for long term prospects, saying that the cosmetics-to-fashion retailer is well positioned to benefit from the structural growth story in the beauty and personal care products space. 

Domestic brokerage JM Financial also remained confident about Nykaa’s prospects, citing the company's dominant market position in the online fashion products space. The firm’s international foray can lead to incremental value for the company, it said.

On the contrary, HDFC Securities maintained a bearish stance on the stock, saying that Nykaa is not a platform company on the back of which it commanded such high valuations.