Nykaa Needs To Keep Up Ad Spending To Avoid Losing Market Share To Purplle, Others: Kotak

SUMMARY

Kotak Institutional Equities flagged the growing user base of Purplle and the potential competition from Reliance’s Tira and Tata Cliq to make a case for ad spending by Nykaa

The brokerage said that metrics show Purplle has already captured about one-third of monthly visits of Nykaa on the website

Last week, Nykaa said it expects its consolidated NSV to grow in the early 20s in Q2 FY24 as against Kotak’s estimate of 24%

Amid rising competition in the offline and online beauty and personal care (BPC) space, Nykaa will need to keep spending on advertising to retain its market share, according to analysts at Kotak Institutional Equities.

In a report, the brokerage flagged the growing user base of Purplle and the potential competition from Reliance’s Tira and Tata Cliq.

“Beauty products aggregator Purplle has been witnessing a stronger increase in app MAU (monthly average user) compared to Nykaa. While the overall positioning of the two players is different, there is a divergence in user trends,” said the brokerage.

Kotak noted that Nykaa’s MAU witnessed over a 20% year-on-year (YoY) decline in August and stood at 6.7 Mn, while Purplle’s MAU stood at 4.8 Mn, up 60% YoY. Further, website visits for Nykaa fell to 10.9 Mn in September, down 16% month-on-month (MoM), while Purplle saw a 26% YoY decline to 3.2 Mn, the brokerage noted.

Kotak said that metrics show Purplle has already captured about one-third of monthly visits of Nykaa on the website.

“Purplle has caught up with Nykaa’s high organic search traffic share. Upstarts such as Tata Cliq Palette and Tira Beauty are using paid search channel to garner traffic on the platform,” the analysts said.

However, the analysts believe that the new entrants – Tata Cliq Palette and Tira Beauty – might not have taken away a significant market share from Nykaa.

Despite this, the growing offline presence of all BPC brands has further increased the competition.

“Offline BPC retail is also witnessing heightened competition, with Tira and Palette entering the fray and Trent (Misbu) as well as Shoppers Stop planning to increase their footprint. Nykaa may have to keep up ad-spends to retain market share,” the analysts added.

Kotak’s report comes following Nykaa’s Q2 FY24 performance update published last week, in which the company projected its BPC net sales value (NSV) to grow about 20% YoY during the quarter. On the other hand, the company expects its fashion vertical’s NSV to grow about 30% on a YoY basis.

Kotak said while Nykaa’s fashion business NSV outlook is better than the brokerage’s estimates, BPC NSV growth of 20% is lower than expected.

Besides, the brokerage also had a consolidated revenue growth estimate of 24% YoY in Q2 while Nykaa guided for a growth in the early 20s.

The NSV of Nykaa’s BPC and fashion verticals stood at INR 981.5 Cr and INR 175.3 Cr, respectively, in Q2 FY23.

Shares of Nykaa fell 1.5% in today’s trading session, ending the day at INR 147.15 on the BSE.

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