Should you Buy Nykaa Shares? Shares of India’s FSN E-Commerce Ventures Ltd, the parent of cosmetics-to-fashion retailer Nykaa, fell as much as 5.4 per cent today after the company reported a 70.7 per cent fall in third-quarter consolidated net profit due to higher costs. The company’s revenue from operations, however, surged 33 percent on-year to Rs 1,463 crore, up from Rs 1,098 crore in Q3FY22. Expenses for the quarter also increased 36 per cent on-year to Rs 1,455 crore.
Nykaa’s Executive Chairperson, MD, and CEO Falguni Nayar said the company is focussing on improving EBITDA (operational profit) margin.
“Beyond EBITDA we call it investment that we are making for the future. One of the big costs is lease and rental. We are investing and rolling out physical stores. That is being taken by us as an operational cost. We are also looking to acquire 7 million (70 lakh) new customers. All that is being funded by operational cost,” Nayar said.
Nykaa reported a 70.67 per cent year-on-year (YoY) drop in profit at Rs 8.19 crore for the December quarter compared with Rs 27.93 crore in the same quarter last year. Revenue from operations rose 33 per cent to Rs 1,462.82 crore compared with Rs 1,098.36 crore in the year-ago quarter. Nykaa said GMV grew 37 per cent YoY to Rs 2,796.50 crore. Gross Profit, it said, rose 25 per cent YoY to Rs 634.70 crore while Ebitda was up 13 per cent YoY at Rs 78.20 crore. Ebitda margins for the quarter came in at 5.3 per cent, Nykaa said.
Analysts said Nykaa met growth expectations, but margins undershot as gross margin for both BPC and Fashion segments felt the macro and down-trading impact. While a couple of brokerages have cut their price targets on the stock, their targets of up to Rs 250 still suggest up to 76 per cent potential upside ahead.
Kotak Institutional Equities said Nykaa posted 4 per cent lower-than-expected revenue growth of 33 per cent YoY, aided by 26 per cent yoy growth in BPC GMV and 50 per cent YoY growth in fashion GMV. The miss, it said, was on account of weak seasonality (shift of sales away from Q3) and some slowdown in discretionary consumption.
The lower-than-expected gross margin of 43.4 per cent was on account of the lower mix of BPC in overall GMV, it said.
“Investments in e-B2B, offline store expansion and warehousing will continue; most of this will be from BPC business cashflows. We increase estimate of loss from the fashion business, which results in a 3-4 per cent Ebitda cut for FY2024-25E. We retain BUY with a revised FV of Rs 215 from Rs 230 earlier,” it said.
Kotak Institutional Equities said Nykaa posted 4 per cent lower-than-expected revenue growth of 33 per cent YoY, aided by 26 per cent yoy growth in BPC GMV and 50 per cent YoY growth in fashion GMV. The miss, it said, was on account of weak seasonality (shift of sales away from Q3) and some slowdown in discretionary consumption.
The lower-than-expected gross margin of 43.4 per cent was on account of the lower mix of BPC in overall GMV, it said.
“Investments in e-B2B, offline store expansion and warehousing will continue; most of this will be from BPC business cashflows. We increase estimate of loss from the fashion business, which results in a 3-4 per cent Ebitda cut for FY2024-25E. We retain BUY with a revised FV of Rs 215 from Rs 230 earlier,” it said.
Jefferies continued to maintain a ‘buy’ rating on the stock with a target of Rs 200 per share. The firm noted that Q3 gross merchandise value growth was led by fashion and other categories, while BPC was impacted by a high base and weak macro conditions.
The firm observed that Nykaa’s revenue was largely in-line, but gross margins were below expectations due to inferior product mix, discounting, and down trading. Operating leverage helped Nykaa to report an EBITDA margin in-line with expectations. It is continuing to invest in its eB2B business, offline expansion, and own label offerings.
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