No offense to anybody being high on Nykka. Valuations look sketch, period! After a big sell off in May, Nykaa’s stock price is staying still on weak retail participants. Given that we have entered a bear market, I could see a strong selloff in Nykaa in the future.
My guess for high valuations in Nykaa might be a ‘big market delusion’ and ‘ecommerce disruption potential’.
The business is good as an investment point of view, don’t get me wrong! But I would start seeing Nykaa as fair value stock, when it comes down to around 500 (aka around 23,000 cr Market Cap).
Certainly this is not IT kind of business where there is no proper path to profitability yet. To me this is a new age retail business. The new age dynamic team working on various possibilities and disruptions in retail.
Regarding margins, make up might have less because it is inventory based model. I guess in fashion, they should have more eventually. Also they are expanding their own private label brands in both make up & fashion so that piece should also add up eventually. Regarding their B2B business - where they would act as distributors, margins maybe lesser…however that part of business would give them strong hold on the entire make up ecosystem…
Having said that, i am not sure of what ideal margins are in Make up, fashion & distribution of make up business. Would be prudent to compare with Fashion margin of Trent and maybe make up margins of established global players like Sephora
Also, the distributors you checked with, are they associated with any brands? I would think Nykaa might have different margins for different brands they sell and also there may not be distributors in middle for some now or eventually as they themselves would act as one and directly buy from brands…so as compared to any other player in this business they should have best margins…
Disc. Above thoughts only for academic purposes. I can be completely wrong in all my asessments
I don’t have any detailed idea about the products or the product categories Nykaa in present in, so is the market fragmented and there are lot of generic and local brands that Nykaa has to compete with in order to increase market share?
Are the prices of Nykaa’s products affordable by all of their target customers so that it has a pan India presence? Or Nykaa is more of an urban story, and targeting a specific set of customers, providing them with premium quality with wide varieties and these customers will not shift to other players?
Dmart is not a margin story, it is a sales story, expanding presence story, strengthening its presence story, and capturing market story, with a successful business model. Does Nykaa belong to this category?
To me Nykaa is a discretionary spend, but, if sales are increasing and if one believes the management and also sees their products everywhere in physical stores and/or online, then may be it is not a discretionary spend and part of lifestyle.
Looks like research needs some scuttlebutt and checking online reviews, a granular research unlike established business like FMCG, because I think things can change quickly with the arrival of new brands. People who can spend 1000, can spend 1200 if they think they are buying a more premium product. One’s appearance to one’s own self is subjective, unlike taste, it may change, given more options.
As with many things in our country, perhaps there has come a change with lifestyle too, I don’t know, at least in the urban areas, in indeed that is true, this business if run properly and successfully can have a lengthy road ahead, prone to all the threats that exist for all businesses.