SUMMARY
While Nykaa’s beauty and personal care vertical continued its growth trajectory in Q1 FY24, its fashion vertical further slowed on a QoQ basis
Kotak Institutional Equities downgraded the shares of Nykaa to ‘add’ rating, while Bernstein cut its price target (PT) on Nykaa shares to INR 140 from INR 161 earlier
JM Financial retained its ‘buy’ rating on the stock and a PT of INR 210, while Elara Capital pared the PT to INR 200 from INR 210 earlier
Shares of nykaa
nosedived over 11% to INR 130 on the BSE in the early trading hours on Monday (August 14), a day after the beauty and fashion ecommerce major reported its Q1 FY24 results.
On Friday, Nykaa posted an 8.2% year-on-year (YoY) and 138% quarter-on-quarter (QoQ) jump in net profit to INR 5.4 Cr in the June quarter. While the startup’s beauty and personal care (BPC) segment continued to grow, its fashion vertical further slowed on a QoQ basis.
The gross merchandise value (GMV) of the BPC vertical grew 24% YoY and 13.6% sequentially to INR 1,850.8 Cr in Q1. However, the fashion vertical’s GMV rose only 12% YoY and declined 1.6% QoQ to INR 653.7 Cr in the quarter.
During the earnings call on Friday, Nykaa MD and CEO Falguni Nayar informed investors and analysts that the fashion segment faced challenges during the quarter owing to a slump in the overall fashion industry during the period.
“… we are also aware that it was also a tough quarter for other players in the fashion industry, be it ecommerce or physical retailers as well as the fashion brands, it was a tough quarter for most of the players. I think it was one of those odd quarters where somehow the consumers were just not interacting and picking up, and… nothing much we could do to get the consumer interested,” said Nayar.
The company also said that as a result of this, the growth of the fashion vertical was also slower than the long-term trajectory. However, from an overall industry perspective, Nykaa Fashion’s growth was better, Nayar claimed.
It is pertinent to note that Nykaa’s fashion business has been facing significant challenges for quite some time in the face of intense competition from the likes of AJIO, Tata CLiQ, and Myntra.
Now, Nykaa Fashion has also started charging an additional ‘convenience fee’ on all orders.
In the last quarter, the startup had said that its fashion vertical was not chasing the highest possible growth but the “right growth” that doesn’t dilute its value proposition around “uniqueness”.
Following its Q1 earnings, Nykaa saw mixed sentiments from brokerages.
Kotak Institutional Equities downgraded the shares of Nykaa to ‘add’ rating and lowered the fair value (PT) to INR 165 from INR 210 earlier, highlighting the lower-than-expected numbers on both revenue and margin fronts.
The brokerage cut FY24-FY26 EPS estimates by 17-29% citing weak Q1 performance, prolonged breakeven of e-B2B business, and fine-tuning of growth and margins of fashion and BPC business segments.
International brokerage Bernstein also cut its price target (PT) on Nykaa shares to INR 140 from INR 161 earlier, implying a downside of over 4% to the stock’s last close, pointing at the miss on its Q1 margin and the slow down in the fashion vertical growth.
Bernstein maintained its ‘market-perform’ rating on the stock. Meanwhile, BofA downgraded Nykaa to ‘neutral’ rating with a PT of INR 160.
On the other hand, domestic brokerage JM Financial retained its ‘buy’ rating on the stock and a PT of INR 210, which implies over 43% upside to Nykaa’s last close.
“Fashion industry has seen strong headwinds since last Diwali and this growth should be seen in the same context. However, Nykaa has utilised this time to bring about business changes that will lead to the growth of Nykaa Fashion while shaping up to be truly profitable,” said the brokerage.
In fact, JM Financial analysts now anticipate the fashion vertical to break even in H2 FY26 instead of H2 FY27 as it had projected earlier.
On the BPC business front, the brokerage believes that global FMCG and luxury brands’ approach towards India as an emerging growth and investment opportunity will enable Nykaa to become a meaningful partner for it given its dominant market share in this industry.
However, on the back of a lower-than-expected rise in annual transacting users in BPC, the brokerage cut GMV estimates by 2-3% over the FY24-FY27 period.
Elara Capital also pared the PT on Nykaa shares to INR 200 from INR 210 earlier.
“Per our assessment, the quarterly loss for the fashion/other segments rose YoY to INR 0.7 Bn, versus our estimates of INR 0.5 Bn loss in Q1. We believe this could have been due to restructuring/transition in the fashion business,” said the brokerage.
This year, Nykaa has seen multiple top-level exits, including those of its chief marketing officer Shalini Raghavan, senior VP in the fashion unit Sumant Kasliwal, Nykaa SuperStore CEO Vikas Gupta, and chief business officer Gopal Asthana.
Shares of Nykaa were trading 7.2% lower at INR 135.70 at 03.05 PM IST on the BSE today.
