SUMMARY
Nykaa posted a 50% YoY jump in consolidated net profit to INR 7.8 Cr in Q2, which was also a 44.4% rise on a QoQ basis
Kotak Institutional Equities revised its fair value on the stock to INR 170 from INR 165 earlier, while JM Financial retained its ‘buy’ rating
Bernstein retained its INR 140 price target on Nykaa but expects margins to remain under pressure due to intensifying competition
Shares of nykaa
jumped almost 5% to INR 154.65 on the BSE on Tuesday (November 7), a day after the beauty and fashion ecommerce major reported Q2 FY24 earnings, which showed its fashion vertical making a strong comeback.
Nykaa posted a 50% year-on-year (YoY) jump in consolidated net profit to INR 7.8 Cr in Q2, which was also a 44.4% rise on a quarter-on-quarter (QoQ) basis. While the company witnessed growth across verticals, particularly in the fashion vertical, it was also able to cut down some expenses.
Following the release of the results, Kotak Institutional Equities revised its fair value on the stock to INR 170 from INR 165 earlier, which implies an upside of 13.9% to the stock’s last close of INR 149.3 on the BSE today.
The brokerage maintained its ‘add’ rating on the stock but cut FY24 earnings estimates due to lower gross margin and higher depreciation charges. It also trimmed FY24-26 revenue estimates for Nykaa, primarily on account of lower BPC revenues, which is expected to result in lower gross margin value (GMV) to revenue conversion.
On the other hand, Bernstein retained INR 140 price target (PT) on Nykaa. However, with the competition intensifying, the brokerage expects Nykaa’s margins to remain under pressure.
Bernstein also said that the company missed its Q2 EBITDA margin and PAT estimates due to increasing competition in the beauty and personal care (BPC) vertical.
It must be noted that Nykaa’s consolidated GMV in the BPC category grew 23% YoY to INR 2,001.6 Cr in Q2, while GMV in the fashion vertical rose 27% YoY to INR 762.8 Cr.
With the BPC segment expected to be in focus in Q3 due to festive sales, Nykaa Fashion garnered a majority of the attention in Q2, JM Financial said in its report.
Speaking during the earnings call on Monday, Adwaita Nayar, CEO of Nykaa Fashion, said that the vertical has reached its peak loss and its books are set to improve from hereon.
“I do also feel that some of the challenges we faced in Q4 and Q1, the last two quarters, were pretty unique, I don’t see that coming back. I do find that Q2, Q3 and onwards, both the growth as well as the profitability will be moving in the right direction,” she added.
JM Financial, in its research report, retained its ‘buy’ rating on Nykaa with a PT of INR 210, implying an upside of 42% as it has strong conviction on the fashion vertical achieving profitability earlier than expected.
The higher growth of net sales value (NSV) also reflects that the company has been successful in plugging leakages by undertaking line-by-line efforts such as reducing RTOs, minimising returns, churning out abusive customers and pin codes while increasing cart charges, along with improving assortment and focus on women and the premium category, the brokerage added.
For the BPC business, the brokerage expects Nykaa to retain its competitive edge as the preferred platform for brand launches, with marketing initiatives to provide brand visibility, along with its premium and sticky customer base.
