Is it time to kick Nykaa out of your Portfolio?

Nykaa appears to be one of the worst wealth destroyers among the new-age tech stocks as the stock lost 16.9% of its value in a span of 8 trading sessions!

Although Paytm is still the worst performing new age tech stock today, having lost over 75% of its IPO value, Nykaa is no multibagger either. The IPO of FSN-Ecommerce, the parent company of Nykaa, was one of the most awaited public issues in 2021. Institutional investors were particularly eager to get a piece of the action as it happened to be one of the hottest investment opportunities at the time.

The company managed to raise the staggering amount of Rs 2,396 crores from anchor investors before the launch of its IPO! The IPO also saw major response from all investor classes, particularly the QIB and HNI classes which subscribed to their portions 91.18x and 112.02x times respectively!!

In line with the massive response to the public issue, the stock listed at a price of Rs 2,001 per share, providing listing gains of almost 80% on the listing day itself!! The stock traded well until December 2021 and gained 23.5% after which the stock began declining. It briefly fell below its issue price but managed to hover around the same by the end of 2021, leaving investors hoping for another climb in 2022.

However, the stock crushed all hopes into dust as 2022 began. The scrip saw major corrections during the first month itself as it fell 21.5%!! 24th January was a particularly bad day for the stock as it tanked over 13% in a single day as it was greatly affected by the global tech stocks’ sell off. Its market cap had fallen below Rs 85,000 crores by the end of January 2022.

February was no better for the stock as the company’s Q3FY22 results were well below expectations. Net profits had declined 59% while its EBITDA margins fell 697 bps!! Investors began selling the stock as it fell 29.4% in less than a month! Buyers tried to put up a fight as they drove up the stock during March & April, but when May 2022 came, all resistance was lost.

Nykaa’s stock was in a steady downtrend with only a few spurts of resistance somewhere in between. The company tried to slow down the imminent slump of its stock by announcing a bonus issue at the time of its lock-in period, but only managed to delay the decline by a few days. After the split, the stock last closed at Rs 150.75 per share, registering a 55.18% decline from its listing price!!!

New-age tech stocks are not in their best condition as 2022 comes to a close. Many other new age tech stocks have registered double-digit losses during the year as global sentiments continue to be against tech stocks. Paytm, Nykaa and EaseMyTrip are among the greatest losers during 2022.

What is the future outlook for Nykaa? 

Fundamentally, Nykaa had a consolidated net profit of Rs 5.2 crores, which was 330% higher on a YoY basis, but marginally better on a QoQ basis. Its GMV saw a significant improvement while the EBITDA margin improved. The revenue for operations also grew 39% in the latest quarter.

However, the outlook of the company seems bleak as there are several factors playing against the company:

  • The latest bonus issue which ‘happened’ to coincide with the expiry of the lock-in period of investors has drawn criticism towards the company, as the company was more focused on its share price instead of business.
  • Arvind Agarwal, CFO of the company, resigned recently.
  • Lighthouse India and Kravis Investment Partners, the company’s pre-IPO investors, sold out shares worth several crores in block deals in the past few weeks. 

Technically, the stock recently set a record lifetime low of Rs 139.40 per share as it breached through its previous support (marked in blue) at Rs 163.25 last week and has been declining consecutively and setting new lows. Today the stock showed some hope as it climbed back over Rs 150.

The RSI of the stock is near 30, meaning that the stock is neither overbought nor oversold. Moreover, the stock is trading below the 20,50,100 and 200 day averages but above the 5 day moving average. Therefore, if buying picks up in the coming weeks, the stock could reverse to retest its (now) resistance at 163.25 or go even higher to previous resistances (marked in yellow).

Interestingly, major FPIs and DIIs have picked up huge stakes via block deals in the company recently as they see healthy returns in the stock:

  • Goldman Sachs Investment Mauritius = Rs 220 crores
  • Mirae Asset MF = Rs 100 crores
  • ICICI Prudential Life = Rs 150 crores
  • Canada Pension Plan Investment Board = Rs 158 crores

It will be interesting to see how the stock will move in the coming weeks as buying is expected to pick up in the coming weeks.

Report by Jobaaj Group.