InCred Equities Initiates Coverage on Nykaa With ‘Reduce’ Rating

SUMMARY

InCred Equities has set the target price of INR 103, 39.4% lower than the share’s closing price today

While Nykaa’s revenue growth trajectory plateaus, its EBITDA margin is projected to shrink to 5.1% by FY27, driven by rising COGS (cost of goods sold) and competitive pressure, according to the firm’s coverage

Nykaa's EBITDA margin may reduce with a rise in market expenditure and pressure due to competition, the firm noted

Brokerage firm InCred Equities has initiated coverage on beauty and fashion ecommerce major Nykaa’s parent company FSN E-Commerce Ventures Ltd with ‘reduce’ rating.

The firm has set the target price at INR 103, 39.4% lower than the share’s closing price today.

The company’s revenue growth projections as per the firm’s outlook are 26% in FY25 and 25% for FY26-FY27. However, its EBITDA margin may reduce with a rise in market expenditure and pressure due to competition.

Nykaa relies strongly on operating revenue expansion while struggling with complexities of achieving sustainable profits, the firm noted.

Services being critical for EBITDA margin and profitability in Nykaa’s high margin business contributed only 13.4% to its topline.

The company’s owned brands are showing progress but still have challenges in both beauty and personal care (BPC) and fashion segments.

The gross merchandise value (GMV) in BPC increased to 13.1% in FY24 from 11.1% in FY22 with 47.7% YoY growth in Q2 FY25. Fashion contributed 12.7% to GMV in FY24 against 12.9% in FY23 with YoY growth stagnating at 1.7% in Q2 FY25.

This comes a few days after the company reported its substantial Q3 update for the financial year 2024-25. Nykaa projected a strong performance in Q3 FY25 with consolidated net revenue growth likely to be higher than mid-twenties.

“This is higher than the consolidated GMV (gross merchandise value) growth for the same period, indicating positive trend in GMV to net revenue translation,” Nykaa said in its filing.

In the second quarter of the financial year 2024-25 (Q2 FY25), Nykaa’s consolidated net profit surged 66.3% to INR 12.97 Cr from INR 7.8 Cr in the year-ago period, as the beauty and personal care (BPC) vertical delivered strong growth.