Nykaa extends fall post Dec quarter results; stock down 8% in two days

Shares of FSN E-Commerce Ventures, the parent company of fashion and lifestyle direct-to-consumer brand Nykaa, slipped 5 per cent to Rs 142 on the BSE in Tuesday’s intra-day trade after the company posted a 70.75 per cent drop in consolidated profit to Rs 8.48 crore for the third quarter ended December (Q3FY23), mainly on account of investment in retail stores. The beauty and fashion firm had reported a net profit of Rs 29 crore in the same period a year ago.

In the past two trading sessions, the stock has dipped 8 per cent. In comparison, the S&P BSE Sensex was down 0.42 per cent at 60,687 at 10:00 AM.

The revenue from operations, however, increased by about 33 per cent year-on-year (YoY) to Rs 1,463 crore from Rs 1,098 crore in Q3FY21. The gross merchandise value (GMV) of the company grew 37 per cent YoY to Rs 2,797 crore. Beauty and personal care (BPC) GMV grew by 26 per cent to Rs 1,901.4 crore on YoY basis, with annual unique transaction customers increasing by 27 per cent to 9.6 million.

Ebitda (earnings before interest, taxes, depreciation, and amortization) margins down 94 bps YoY to 5.3 per cent. The company said gross margin declined due to change in BPC category mix, higher brand funded discount during festive season, consumer downgrades. READ MORE

According to analysts at Jefferies, Nykaa has been able to carve out a niche for itself through its focus on BPC, which differentiates it from horizontals (Flipkart and Amazon). The recent years have seen a surge in transacting customers for the company. Nykaa should benefit from the increasing order frequencies and basket values, as the newer customer cohorts mature, the brokerage firm said in result update. “We expect Nykaa to remain in a hypergrowth phase in the medium term as online BPC and fashion penetration ramps up,” analysts said.

In base case, the foreign brokerage firm builds in strong order CAGR of 25 per cent plus for Nykaa BPC over FY22-26E, led by new customer additions. Order frequency is expected to see gradual growth as customer cohorts mature. BPC GMV is expected to grow strongly, at ~25 per cent CAGR over FY22-26E. Fashion is expected to continue ramping up on the low base. “We build-in ~30 per cent GMV CAGR for Fashion. We value Nykaa's BPC at 7.5x FY25E sales and Fashion at 2.5x FY25E sales to arrive at a price target (PT) of Rs 200,” analysts at Jefferies said.

“On downside scenario we build in order CAGR of ~20 per cent for Nykaa BPC over FY22-26E. Order frequency and AOV is estimated to stay flat in the medium term on account of the potential dilution from new customers. BPC GMV is expected to grow strongly at around 20 per cent CAGR over FY22-26E. We build in ~20 per cent GMV CAGR for Fashion. We value Nykaa's BPC at 4.5x FY25E sales and Fashion at 1x FY25 sales to arrive at a PT of Rs 100,” the brokerage firm said.