Why Nykaa shares missed a potential re-rating; stock price target & more

Nuvama Institutional Equities in its earnings review note on FSN E-Commerce Ventures Ltd (Nykaa) said that rising competition, increasing debt and visibility on margin improvement are potential reasons for missing the recent re-rating versus other platform peers. The brokerage noted that the consensus estimate is that Nykaa may see a 200 basis points margin improvement in FY25, which it said is key to watch.

Nykaa reported a 106 per cent year-on-year (YoY) surge in net profit at Rs 17.50 crore on 22 per cent YoY rise in sales at Rs 1,788.80 crore for the December quarter. Nykaa's Ebitda for the quarter jumped 26 per cent YoY to Rs 98.80 crore while its Ebitda margin, excluding ESOP and new business expenses, came in at 6.1 per cent against 5.3 per cent YoY.

Following Nykaa's Q3 results, Nuvama has rolled forward its target price to December 2024 and suggested a revised target price of Rs 189 from Rs 187 earlier.

Also read: Nykaa Q3 results: Profit jumps 106% YoY to Rs 17.50 crore; GMV up 29%

"FSN E-Commerce (Nykaa) reported a stable showing with growth sustaining after Q2FY24 with BPC/Fashion reporting NSV growth of 20 per cent/31 per cent. Overall Ebitda margins were in line at 5.5 per cent and saw a 20 bps YoY improvement. There was an impact of 60 bps from ESOP and GCC expansion, which shall continue. Nykaa highlighted that focus remains on accelerating growth," Nuvama said.

In the case of BPC segment, Nykaa’s GMV was up 25 per cent while its NSV grew 20 per cent, driven by 17 per cent growth in orders.

"On other parameters, the business exhibits decent traction with Annual Unique Transacting Customers (AUTC) rising 16 per cent YoY to 11.1mn. Average order value improved 3 per cent at Rs 2,024. Owned brands GMV grew 40 per cent YoY with share of GMV rising 150 bps YoY to 13.3 per cent. Contribution margin for the segment contracted 180 bps YoY to 22 per cent," Nuvama said.

Nykaa believes that contribution margins of BPC segment have reached a decent enough level. Divergence in GMV and NSV is on account of higher discounting of new age brands, Nuvama said.

The Fashion segment delivered 40 per cent GMV growth with NSV growth at 30 per cent.

"Contribution from own brands improved 30 per cent YoY taking its share in GMV to 12 per cent. Gross margins for fashion segment improved to 77 per cent. However, fulfilment and marketing spends remained elevated. Overall, fashion business saw decent improvement in contribution margin to 11 per cent versus 1 per cent in Q3FY23," Nuvama said.