Thursday, December 9, 2021
HomeMarket Live UpdatesNykaa more valuable than a Britannia or Marico? What that means for...

Nykaa more valuable than a Britannia or Marico? What that means for investors

“I continue to be bullish on the broader markets. The breadth will continue to improve as the bull market matures. But we are still in the very early stages of this bull market,” says Hiren Ved, Co-founder, CEO, Director & CIO, Alchemy Capital Management.

Nykaa has a market cap of Rs 1 lakh crore, which makes it more valuable than Britannia and Marico and Godrej Consumer. These three companies have cash flows, strong return on equity and have growths of 15% to 20%. So what will change now? Will Nykaa come down or will Britannia and Godrej and Marcio go higher?
It is quite interesting and it is creating a lot of dilemma amongst investors on how to look at companies. The difference is that we have seen some very high quality vertical companies so far in India. We are now seeing the birth of platform companies which have the ability to acquire customers at a very rapid pace and reduce friction. Traditionally, the Levers and the Maricos and the Godrej of the world took years and years to build their distribution. Today on the online platform, the ability to acquire customers goes up very dramatically.

However, once you acquire the customer, how you are able to monetise that customer is going to be extremely important. I think Nykaa has built a phenomenal business. The valuations can be questioned but at least it is a profitable business with real cash flows. I think there is space for both to coexist. Ultimately, the markets will decide the right valuation. After every few years, there is innovation, there are new entrepreneurs, new business models and one has to make space for them. In the total market cap of the economy and the stock market, many of these platform companies will find a place. The only debate or the question is going to be at what valuations? Amongst all the new age companies that are going for IPOs, so far the only company that has built a sustainable business and can generate sustainable cash flows is Nykaa. The rest is still up in the air in my opinion.

Do you think Nykaa could go the DMart way? In terms of trajectory, next one to three years, could the trajectory for Nykaa be headed higher?
I certainly think so. While we may not see the kind of returns that DMart has given because people took time to understand the DMart business model, in the case of Nykaa, we will still get a steady compounding from here onwards if investors have a three to five year view. But I must say that investors should be very careful. They need to have a very long term horizon but amongst all the other businesses, Nykaa probably has built the best business and over the next three to five years, I see the market cap much higher than what it is today.

Nykaa is the one recent IPO which can have sustainable growth: Hiren Ved of Alchemy Capital

Hiren Ved of Alchemy Capital believes Nykaa is the one recent IPO that can have sustainable growth. Here’s why

The last time we spoke with you exactly a month ago you were talking about how this time around you will start to see a profit contribution from the midcaps and the small cap space. Is it as per your expectation because the valuations have really run up and we started to see a selloff too?
We have exited the very narrow markets that we saw in 2018-2019 and pre-pandemic. I believe that the breadth of the market is likely to improve here on and in the next cycle, we will see a lot of sectors which will participate in this bull market compared to the very narrow markets of the prior years. This rotation will keep happening between small and midcaps and then they will correct and go sideways and then the largecaps will make a move and that is how essentially a bull market matures.

I see this as no different this time than any time in the past. But my feeling is you cannot have direction and rapid speed lasting for too long. While we are confident of the direction, the speed of the bull market is likely to slow down a bit and consolidate. It would be healthy to have intermittent corrections. While the Nifty remained at elevated levels, in the last two-three months, many midcaps have corrected 20-25% from the top and I think that is very healthy. So I continue to be bullish on the broader markets and I think the breadth will continue to improve as we go along and the bull market matures. But we are still in the very early stages of this bull market.

Source link



Please enter your comment!
Please enter your name here

Most Popular

Recent Comments