Kotak Downgrades Nykaa To ‘Sell’ Amid Co’s Push For Faster Deliveries

SUMMARY

Kotak also cut Nykaa’s fair value to INR 190 from INR 195 earlier

The brokerage trimmed its FY25-27 EBITDA estimates by 3-7%, given lower margins expected in BPC and eB2B as Nykaa boosts quicker deliveries

Shares of Nykaa, which fell in two previous consecutive sessions this week, declined almost 2% to INR 207.7 on the BSE during the intraday session on Thursday

Kotak Institutional Equities downgraded beauty and fashion ecommerce major Nykaa to ‘sell’ from a previous ‘add’ rating while lowering the fair value to INR 190 from INR 195 earlier.

The brokerage said Nykaa might witness higher fulfillment costs due to quicker deliveries, adversely impacting its EBITDA margin.

“Already, it is making efforts to extend same-day/next-day delivery across 63 cities; this may need to become even faster in the current quick commerce-driven delivery environment. We trim our FY2025-27 EBITDA estimates by 3-7%, as we model lower margins in BPC and eB2B,” said Kotak analysts.

Shares of Nykaa, which fell in two previous consecutive sessions this week, fell almost 2% during the intraday trading sessions today (September 12). By 1.15 PM IST, Nykaa shares were trading 1.9% lower at INR 207.7 on the BSE.

Despite its slightly negative view, Kotak also noted that Nykaa’s wider assortment, content-based marketing and increasing personalisation will help the company counter the increasing assortment and city reach of quick commerce companies.

“ …we believe Nykaa’s discovery-driven BPC experience remains differentiated,” the analysts said.

Kotak expects Nykaa to continue adding to its already large SKU count, curating better offerings for customers and utilising its longer customer history to offer superior recommendations and content.

“A detailed analysis of BPC product offerings on quick commerce platforms reveals that the assortment in a few key categories is increasing on these platforms. Overall, we found these platforms carry 4-8% of the number of SKUs available on Nykaa’s platform across categories such as colour cosmetics, skincare, haircare, bath and body. The overall difference in assortment is still stark, with our analysis totalling to about 76K SKUs for Nykaa across these categories compared with 4-6K SKUs for quick-commerce,” said Kotak.

In the last reported quarter, Q1 FY25, the GMV of Nykaa’s BPC business rose 28% YoY to INR 2,542.9 Cr. Its total GMV stood at INR 3,320.9 Cr in the quarter.

The company’s EBITDA margin stood at 5.5%, which grew 34 basis points YoY.

Nykaa posted a net profit of INR 13.6 Cr on an operating revenue of INR 1,746.1 Cr in Q1.

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