Share price of FSN E-Commerce Ventures (Nykaa) slipped below Rs 1,000 level for the first time ever on October 28, as the lock-in period for pre-IPO investors is about to expire soon. The stock has been reeling under heavy selling pressure, especially from foreign investors, in recent weeks. The lock-in period for Nykaa's pre-IPO investors ends on November 10.
At 9:30am, the stock dropped over 6 percent to touch a 52-week low of Rs 975 apiece on the BSE. The scrip has lost over half of its value in the current calendar year so far.
JM Financial is of the view that around 67 percent or 31.9 crore shares of Nykaa are likely to open for trade on the expiry day. Steadview Capital Mauritius Ltd, TPG Growth IV SF Pte. Ltd, Lighthouse India Fund III, along with HNIs like Harindarpal Singh Banga, Narotam Sekhsaria and Sunil Kant Munjal will be eligible to sell their holdings.
Over 12 percent shareholding in Nykaa is sitting on 100 times returns since their investment during the early phase. Some analysts believe this might even be a reason enough for these investors to diversify their portfolio that might be overweight Nykaa.
The sell-off in Nykaa shares is reminiscent of how investors dumped Zomato shares a few months back. The stock plunged to a fourth of its all time high levels in July amid investors’ onslaught. However, since then, the stock has recovered by over 50 percent.
Can investors expect the same for Nykaa?
Most analysts believe this is just a knee-jerk reaction and in the long-term Nykaa is a story that may deliver exceptional returns. For those looking for cheap deals, this may be a good opportunity to accumulate Nykaa shares.
“We expect a significant structural growth opportunity, due to India’s favorable demographics, rising affluence driving aspirational spending, increased women labor force participation and rising social media influence,” said Kapil Singh an analyst with Nomura Financial Advisory & Securities, while initiating coverage on the stock earlier this month.
He has a target of Rs 1365 on the stock that means a potential upside of 40 percent.
The confidence of analysts comes also from the fact that a majority of the investors whose shares are getting unlocked for trade did generate liquidity during the IPO and secondary sales prior to the IPO. Furthermore, 70 percent of the share capital that is getting unlocked belongs to patient capital such as HNIs and family offices, which might not be obliged to sell due to tenure of funds.
“We have a ‘BUY’ rating on the stock with a Sep’23 target price of Rs 1,780 and believe any short-term dip should be a great accumulation opportunity for investors looking to build long-term positions in Nykaa,” said Sachin Dixit of JM Financial. .
Thus, it seems, going by analyst commentary and anything we have learnt from Zomato’s case, it is time to be greedy, not fearful. Investors also need to ignore these short term volatile moves.
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