'Add' Nykaa Shares, Maintains HDFC Securities, Hikes Target Price — Here's Why

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HDFC Securities Institutional Equities

FSN E-Commerce Ltd.’s core BPC online annual unique transacting customers/orders are likely to grow at 20/21% CAGR along with rising order frequency over FY25-27E vs a soft 17% in FY24 as focus has decisively shifted toward customer acquisition in core BPC.

Teething issues in its new ad tech stack now seem to have settled. Ergo, ad/shipping income (non-linear) which bottomed out in FY24 is normalizing upwards (8.6% to 9.8% of net sales value in 9MFY25). What is more encouraging is that despite the step-up in customer acquisition (core online BPC), purchase frequencies, annual order values and customer engagement have only improved.

On the margin front, BPC (despite the rising eB2B skew in gross merchandise value) has maintained its margins (8.6% of NSV) over 9M FY25. Fashion losses continue to ebb with improving AOVs, take rates, and higher other income.

If one were to value the core BPC at 39x FY27 EV/Ebitda, then we are effectively paying only for the core online BPC business, while fashion and eB2B business remain optional value. We reiterate our Add rating with a DCF-based target price of Rs 180/share (implying 47x EV/Ebitda) on a consolidated basis

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