Nykaa shares tank 7% post Q2 earnings. What should investors do?

Shares of Nykaa tanked 7 per cent to hit an intraday low of Rs 2,185.05 on BSE after the newly listed company posted its earnings for the quarter ended September 2021.

FSN E-Commerce Ventures Ltd, which operates online beauty e-commerce platform Nykaa, on Sunday reported over 95 per cent year-on-year (YoY) decline in consolidated net profit at Rs 1.2 crore for the July-September quarter as its expenses shot up. It had posted a profit of Rs 27 crore in the year-ago period.

The company's revenue from operations rose 47 per cent year-on-year (YoY) to Rs 885.3 crore from Rs 603.8 crore in the corresponding quarter of last year.

The stock opened 4.6 per cent lower at Rs 2250.05 against the previous close of Rs 2358.90. Market cap of the firm fell to Rs 1,05,450.95 crore on BSE.

"The dip in Nykaa shares should be seen as profit-booking after a stellar listing. Based on financial parameters, the valuations are highly stretched, but we like the business fundamentals and the quality of management. Investors can wait and enter after 15-20 per cent correction," Kranthi Bathini, equity strategist at WealthMills Securities told BusinessToday.in.

According to brokerage firm Prabhudas Lilladher, Nykaa's entry into the fashion segment holds promise with a focus on premium customers, curated and managed marketplace offering over 1.8 million stock keeping units (SKUs), private labels like NYKD, Pippa Bella, 20 dresses and industry-leading average order value (AOV) of Rs 3977 and 25 per cent contribution to gross merchandise value (GMV) in 5MFY22.

"Although we expect lower margins in FY22 (lower ad spend in FY21), we expect steady margin expansion led by scale economies as it has already expanded margins from 1.8 to 6.6 per cent over FY19-21 making it one of the few e-commerce players to turn profitable," it added.

The company continues to invest in the expansion of retail stores and fulfillment capacity ahead of the festive season, said Falguni Nayar, Nykaa's Executive Chairperson, MD and CEO.

"We have maintained growth momentum in our beauty business, accelerated our fashion business and focused on building the brand Nykaa with strong marketing campaigns both digitally and mass media. Increased marketing spending has led to an acceleration of customer acquisition, also evident in the unique visitor and transacting customer metrics," she said.

Nayar added the recently-listed company also launched the Nykaa eB2B app -- Nykaa Superstore -- during the quarter, which will be an area of focus for the quarters to come.

Shares of Nykaa listed at a premium of 79 per cent to the issue price, marking a strong listing for the online beauty retailer. The subsidiary of FSN E-Commerce Ventures Ltd made its market debut at Rs 2,001 per share on the BSE against the IPO issue price of Rs 1,125.

The initial public offering (IPO) of Nykaa's parent FSN E-Commerce Ventures Ltd was subscribed more than 82 times at the end of the final day of bidding on November 1. The firm raised Rs 2,396 crore from anchor investors on October 27.