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HDFC Securities Institutional Equities
We recently interacted with team FSN E-Commerce Ventures Ltd. Key takeaways from the interaction:
Nykaa's run rate of 4-5 million customer additions annually in beauty and personal care (on a cumulative base of 18 million) remains on track;
ad income dip (as % of revenue) is attributed to teething issues with the new ad tech stack; recovery could be a quarter away;
Fashion's soft Q1 performance (12% YoY) was an aberration and growth has been trending upwards;
Fashion business is over its peak investment phase.
However, we suspect BPC cash generation is just about enough to fund growth in fashion and business-to-business businesses in FY24.
This could imply that measured growth in loss making units. (note: Nykaa Fashion's debt has already tripled in FY23 to Rs 4.2 billion).
We remain 12/19% below consensus on FY25/26 Ebitda basis (variance even higher on profit before tax basis).
Our 'Reduce' rating stands with a discounted cash flow-based target price of Rs 130 (implying 162 times September-25 price/earning). Estimates remain unchanged.
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