Nykaa Q3 Review: Growth In Beauty And Personal Care Spark Optimism Despite Competition Factor
Morgan Stanley said Nykaa's topline and operating income beat its estimates, while margins improved slightly in the BPC segment.
Nykaa parent FSN E-Commerce Ventures Ltd.'s third quarter earnings invited positive reaction from analysts, given the significant growth in revenue and profit, as well as consistent top-line delivery in the beauty and personal care segment.
Nuvama said it continues to forecast strong growth in the BPC segment, even as it remains guarded on revenue growth suitability in fashion segment, due to increasing competitive intensity.
"Management’s efforts to reduce losses and improve overall profitability are showing results...We continue to expect improvement in profitability on the back of lower losses in fashion and eB2B segment," the note said.
The brokerage reduced the current and next fiscal's earnings projection due to lower other income and raising tax assumptions.
Morgan Stanley said topline and operating income beat its estimates while margins improved slightly in the BPC segment. The company has delivered consistent top-line delivery in beauty over the last few quarters, in an overall weak demand environment, it noted.
On the other hand, Citi maintained a bearish call on the stock. It said Nykaa's margin expansion trajectory has been modest, and with growing competition in BPC e-commerce and the owned-brands portfolio, the improvement trajectory is likely to remain modest in the near term.
"Losses in non-BPC segments (fashion, eB2B, GT/MT distribution) are also declining at a moderate pace. In that context, we find the current valuations expensive," the brokerage said.
BofA sees downside risk to consensus operating margin estimates. "In our view, a slower growth in fashion industry/faster ramp-up of Shein may lead to subdued fashion vertical numbers for Nykaa," the brokerage said.
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Nykaa Stock Rating Actions
Nuvama: Maintained 'buy' with target price of Rs 205.
BofA: Maintained 'underperform' with target price of Rs 150.
Morgan Stanley: Maintained 'overweight' with target price of Rs 200.
Citi: Retained 'sell' but hiked target price to Rs 160 from Rs 155.
Nykaa Q3 Results Snapshot
Nykaa reported strong December quarter results, with a 27% year-on-year increase in revenue, reaching Rs 2,267.21 crore, which beat Bloomberg estimate of Rs 2,271 crore.
Net profit jumped 51.7% to Rs 26.4 crore, missing estimate of Rs 36 crore.
On the operating side, Ebitda surged 41% to Rs 140.73 crore, while margins improved by 63 basis points to 6.2%.
Key highlights include a 25% growth in consolidated gross merchandise value, a 32% rise in the beauty segment, 30% volume growth in the beauty vertical, and a 21% revenue increase for Nykaa Fashion.
