Nykaa’s share price tanked more than 7% on Thursday morning, a day after the company reported its October-December quarter results. FSN E-Commerce Ventures the parent company of Nykaa saw a strong 36% on-year revenue growth but the net profit of the company fell sharply by 58% from the previous year. However, analysts are largely still bullish on the stock although target prices have been trimmed. Nykaa stock is down nearly 15% so far this year, falling significantly during the last few days of January amid the global tech rout. The scrip currently trades at Rs 1,716 per share.
Strong revenue growth
“Nykaa’s 3QFY22 revenues grew by a solid 36% on-year driven primarily by 49% on-year increase in GMV, aided by festive season and flagship sale event,” said analysts at Kotak Securities. “Revenue growth trailed GMV growth as fashion GMV increased at a faster pace than beauty, and fashion has a much lower take rate than the beauty segment,” they added. The average order value of Nykaa increased 24% from the previous year. Average order value stood at Rs 3,590, the same is expected to cool down in the January-March quarter.
In the quarter under review, Nykaa crossed Rs 20 billion in GMV benchmark. “We postulate that this growth was a result of Nykaa’s sustained higher investments in advertising in FY22 as customers onboarded earlier in the year would have been active shoppers during the festive season,” JM Financial said in a note. Nykaa reported a 153% on-year increase in advertising costs which brought the net profit lower in the October-December quarter and impacted margins. This gross margin improvement also resulted in EBITDA margin improving to 6.3% despite advertising expense accounting for 14% of revenue.
Increasing unique shoppers
During the quarter Nykaa 4%/1% on-quarter growth in BPC/Fashion unique visitors but unique shoppers grew faster at 9%/23% from the previous quarter. JM Financial said that this demonstrated the impact of Nykaa’s Pink Friday Sale and other initiatives in live commerce. “ With 22.0/16.4mn unique visitors on the company’s BPC/Fashion platforms, Nykaa has already generated a strong top of the funnel with loyal customers,” they added.
Rating and target price
Analysts at Kotak Securities have trimmed the fair value of Nykaa stock to Rs 2,100 per share from Rs 2,150 apiece and have retained their “ADD” rating on the firm. IIFL Securities have upgraded the stock from a ‘Sell’ rating to ‘Reduce’ now. “We increase our BPC WACC, from 10% to 10.5%, taking into consideration an increasing interest rate scenario (the 50-bps increase reduces our TP by 13%) and arrive at a target price of Rs 1,650 per share,” they said.
JM Financial has a ‘Buy’ rating on Nykaa with a target price of Rs 2,120 per share down from Rs 2,480 apiece. “We believe Nykaa will continue to remain the default online BPC platform in the country with increasing market share in online fashion,” JM Financial said.
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